4 Things You Need to Know About Altcoins Before You Start Trading

Many people are interested in getting into crypto, but the market is not a welcoming place for rookies. Considering the high price of Bitcoin, many traders and investors are looking into altcoins as another potentially profitable market. Indeed, the prices of altcoins are significantly lower compared to more well-established coins, but you may be wondering: are they worth investing in?

Before making a decision, it is vital to first understand what altcoins are, their purpose, and how they are different from other top coins. In this manner, you can make an informed decision and find the best course that will serve your financial goals. To get you started, here is a quick breakdown of the main concepts you need to know about altcoins.

Altcoin, an Alternative to Bitcoin

Simply put, altcoin refers to any cryptocurrency that is not Bitcoin. Even big names such as Ethereum and Tether are considered altcoins. It is evident in the name: “alt” stands for “alternative” and the “coin” stems from “Bitcoin.”

That is, in essence, what altcoins are all about. While many (but not all) coins are forks of Bitcoin, they strive to distinguish themselves from the latter and establish themselves as leading coins in their own right. They accomplish this by providing extra functionalities (e.g. smart contracts) or addressing any perceived flaws from the top cryptocurrency (e.g. privacy risks).

For example, Monero provides a higher level of anonymity for users. Even people with a free Monero wallet can feel assured that their transactions are not available to the public on the blockchain, which has been considered a cause of concern for Bitcoin users.

What Sets Altcoins Apart

In terms of process, altcoins work similarly to Bitcoin. They rely on blockchain technology, which allows secure peer-to-peer transactions. Users have private keys, which allows them to view the blockchain and send and receive coins from other users. However, depending on the altcoin, this is where the similarities end. Remember: the goal of altcoins is to improve from Bitcoin’s potential shortcomings and set themselves apart.

In short, Bitcoin, as the first cryptocurrency, has set the foundation, and altcoins are trying to evolve and even surpass that initial benchmark. Here are some features that select altcoins have added or adjusted.

  • Changed from a PoW (proof-of-work) system to a PoS (proof-of-stake) system, allowing faster and more efficient transactions
  • Proposed a new set of rules about mining, like making CPU mining possible
  • Offers completely anonymous and untraceable transactions
  • Provided improved abilities, like smart contracts
  • Lowered price volatility for a more stable market

Bear in mind that these are the features that altcoins promise, but the level of success of keeping those promises varies from one coin to another. Hence, even if an altcoin shows a lot of potential, it is not a guarantee that it will be triumphant in that endeavor.

Different Types of Altcoins

According to CoinMarketCap, there are over 15,000 altcoins in the market as of December 2021. Each of these is slightly unique in its own way. Here are some of the general categories they fall under:

  • Mining-based – As the name implies, users mine coins into existence, primarily through PoW. In this method, users solve cryptographic problems to create blocks on the blockchain, which generate coins in turn.
  • Stablecoins – The goal of these coins is to limit the volatility of the crypto market. Their value is tied to an underlying asset, like fiat currencies, precious metals, and even other coins.
  • Utility Tokens – Rather than representing money, these coins offer the right to use certain services or products within the crypto space. For example, you can buy utility tokens to procure data storage.
  • Security Tokens – Among all the coins, security tokens resemble traditional stocks the most. They get their value from external, tradable assets but with digital provenance. They also promise a dividend payout to their holders, which attracts a lot of investors.
  • Meme Coins – As the name suggests, these coins started off as a joke or parody of another coin but ended up amassing popularity and followers. Dogecoin and Shiba Inu are some of the most popular meme coins on the market.

Pros and Cons of Altcoins

For comparison, here are the advantages and disadvantages of investing in altcoins:

Pros

  • Improves and provides new functionality from Bitcoin
  • Comparably lower transaction fees
  • Variety of features for different functions in the crypto economy
  • Provides options for users and competition in the market

Cons

  • Exceedingly volatile values and prices
  • Possibly a dead project but still on the market
  • High potential for scams and fraudulent schemes
  • Too many similar altcoins, which makes it difficult to distinguish them

Keep these pros and cons in mind when weighing your investment options.

Are Altcoins a Good Investment?

With all things said, the question remains: are altcoins a good investment? The answer varies for each person. Investing in altcoins is incredibly risky, but with high risk comes the lucrative promise of a high reward. Depending on your risk tolerance and how you play your cards, you can significantly profit off of altcoins.

If you do decide to invest in altcoins, keep two critical pointers in mind: do your due research and never invest more than you are willing to lose. In this manner, you can safely navigate the crypto space and take advantage of the high potentials of altcoins.

Disclaimer: This is a press release. Readers should do their own due diligence before taking any actions related to the promoted company or any of its affiliates or services. AZCoin News is not responsible, directly or indirectly, for any damage or loss caused or alleged to be caused by or in connection with the use of or reliance on any content, goods or services mentioned in the press release.

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