Altcoins are simply cryptocurrencies other than Bitcoin. Called them alternative coins to the first cryptocurrency, Bitcoin, you are not wrong.
Ethereum remains the number one altcoin today and has aimed to be better than the Satoshi Nakamoto-created Bitcoin. Altcoins are good options when investing in crypto. However, there are things you need to know before putting your hard-earned money into them.
In this post, we’ll see what you need to know before investing in altcoins. Before then, let’s learn more about Altcoins.
What are Altcoins?
Altcoins” refers to any digital currencies that are not Bitcoins. The term “altcoin” refers to cryptocurrencies that share some features with Bitcoin (BTC). For instance, the fundamental structure of Bitcoin and alternative cryptocurrencies is very similar. Like Bitcoin, altcoins are peer-to-peer (P2P) platforms that share code.
There are, of course, significant differences between Bitcoin and other cryptocurrencies. These altcoins have a different consensus process for verifying transactions or creating blocks. Proof-of-stake (PoS) is the consensus mechanism of choice for most altcoins, whereas PoW is used for Bitcoin.
Different cryptocurrency types can be classified according to the consensus techniques they use and the distinct features they offer.
Types Of Altcoins
Stablecoins strive to eliminate the volatility that has distinguished crypto trading and use since the beginning. The value of stablecoins is, thus, fixed to the value of traditional assets, like fiat currencies, other cryptocurrencies, or precious metals. The basket serves as a reserve in case the coin meets difficulty. Dai (DAI), USD Coin (USDC), and Tether (USDT) are all instances of stablecoins.
The name “memecoin” comes from the fact that they are a funny take on well-known cryptocurrencies. Most of the time, celebrities and well-known crypto influencers spread the word about them. Elon Musk, CEO of Tesla and well-known crypto fan, often drives up the prices of popular meme coins like Dogecoin (DOGE) and Shiba Inu (SHIB).
Mining-based altcoins are the Proof-of-work (PoW) technology that allows systems to generate new coins through mining. Complex challenges must be solved to build blocks in mining. Miner-based alternative coins include Monero (XMR), Litecoin (LTC), and ZCash (ZEC).
- Utility Tokens
A utility token is a type of token that can be used to deliver a variety of services, such as reward points, network fees, and purchases. Utility tokens do not grant equity. Storage on a decentralized storage network can be purchased using Filecoin (FIL), which is a utility token.
- Security Tokens
A security token is, as its name suggests, a lot like the traditional securities that are traded on stock markets. They are like traditional stocks in that they represent ownership or dividends, which are two ways to get equity. Security tokens are attractive to investors because their prices are likely to go up quickly.
How to Evaluate Altcoins
However, it is important to know whether an asset is overvalued or undervalued while examining altcoins, or any other cryptocurrency. As a rule of thumb, avoid overvalued assets, whereas undervalued assets are preferable. This is because overvalued assets are more likely to perform poorly and revert to their true worth over time There is a lot of room for development and profitability in undervalued assets.
Investment decisions may only be made after careful consideration.
Things to consider before making an altcoin investment
1. Analyze The White Paper And Find The Value Proposition
Scrutinizing the token’s whitepaper will give you a lot of useful information about its use cases, aims, and team vision. The altcoin’s white paper should paint a clear picture of how it will benefit its users.
Decentralized digital currency, without a single administrator or bank, that can be sent from one user to another via the peer-to-peer network without the need for middlemen, is the value proposition for Bitcoin.
The value proposition of an altcoin might serve as a guide as you gather more information about it.
2. Look For Increasing Demand And Decreasing (Stable) Supply
One of the greatest ways to evaluate your next crypto investment is to look at supply and demand. You now know how the altcoin provides value to its users, so now it’s time to look at how it manages the supply and demand of the currency.
To put it another way, the altcoin should contain incentives that encourage demand to rise while supply remains flat or decreases. Prices rise as a result of a lack of supply in response to an increase in demand.
3. Examine The Team And Stakeholders Behind The Project
Once you have a clear grasp of the project’s capabilities, it’s also critical to thoroughly examine the project’s staff. The white paper for the project contains information about the team, but you should also conduct your investigation into them. You may view the team’s page on the official project website, as well as their LinkedIn accounts, which they should have made public and open to the public.
Investigate each member’s past by asking the following questions:
Have they previously worked on reputable and successful projects?
What are their credentials?
Are they notable members of the crypto community and blockchain ecosystem?
What we’re trying to find is if the people working on the project are knowledgeable and experienced enough to handle it. When researching this topic, you can use on-chain analytics platforms and blockchain explorers. Sniff their social media profiles and see if they’re having any conversations on Twitter.
With Ethereum’s strong investment community, for example, each person working on Ethereum adds value for those who own the cryptocurrency in the first place. Despite difficulties such as high fees and sluggish transactions, Ethereum-related initiatives continue to attract developers, community builders, and other top talents.
Ethereum is used to power various decentralized applications, such as AAVE and OpenSea. To ensure the project’s success, a strong core team must be in place. Like Ethereum, a project with a strong and competent team draws even more credible forward-thinkers, allowing for even more projects and advancements to be created upon the platform itself.
These individuals are always working to improve the project’s platforms and efforts, resulting in increased value for currency holders.
Ethereum remains the number altcoin today while there are several other small-cap altcoins you can invest in. All you need to do is make your research before investing in them.