Bitcoin is a game-changer, but it isn't without flaws. Although Bitcoin is the oldest and most well-known digital asset, several other cryptocurrencies, especially altcoins, are attempting to challenge Bitcoin's dominance. So, hang on, what exactly are altcoins?
Alternative cryptocurrencies, or altcoins, were created to compete with Bitcoin's monopoly. And, more specifically, to address the scalability, decentralization, and security problems that Bitcoin faces.
Namecoin, founded by Andrew Chow in 2011, was the first altcoin to be launched among the thousands. However, altcoins took off and expanded at a rapid rate, culminating in the rise of Dash, Ethereum, EOS, Litecoin, Monero, Ripple, and other cryptocurrencies. ETH alone accounts for about 30% of the crypto market cap, and there are over 7 ,000 of them in circulation. Though altcoin may be given attention, one cannot help but wonder how it operates and what opportunities it provides.
How Does Trading Altcoins Works?
The buzz surrounding altcoins may have faded due to the emphasis on Bitcoin's bullish trend, but the altcoin trend may have resurfaced and will continue to rise.
Altcoins are usually purchased and sold on cryptocurrency exchanges. There are two types of exchanges: centralized and decentralized. However, the types of altcoins available vary depending on the crypto exchange you use. Many exchanges, on the other hand, discourage fiat purchases of altcoins. Traders will have to swap BTC, ETH, or USDT for other altcoins in order to do so.
Although centralized exchanges (CEXs) have a more comprehensive listing process, decentralized exchanges (DEXs) like Uniswap allow traders to buy altcoins that have been listed by the general public. CEXs are also a better option for large-scale traders, considering their disadvantages.
However, the most challenging element of trading altcoins is deciding how to store them in a wallet. Though keeping Bitcoin and altcoins on certain CEXs is possible, it all depends on the existence of the altcoins. Some altcoins can be stored on a public CEX wallet, while others require a wallet developed by the developers. While most cryptocurrency exchanges provide refunds, it's still safer to be safe than sorry. To keep their crypto safe from prying eyes, altcoin traders usually store it offline in a "cold wallet."
Why Have Alternative Cryptocurrencies Evolved Exponentially?
Altcoins come in all shapes and sizes, and although they all have certain features in common, the majority of them serve a function that is unique to that cryptocurrency. Although Bitcoin is well-known, it was Ethereum that sparked the growth of the altcoin sector.
Ethereum not only began the project by encouraging users to install applications and tokens on the network, but it also means that everyone can build a cryptocurrency. Furthermore, the recent boom in Decentralized Finance (DeFi) and Decentralized Applications (DApps), a concept that began on the Ethereum blockchain, has aided the rise of more altcoins.
Just a few of the thousands of cryptocurrencies have any real value. Namecoin, the world's first altcoin, isn't even in the top 300. Altcoins, on the other hand, aren't seen as an unavoidable by-product as people come up with better and more creative solutions to the world's financial problems. But it's an inevitable part of the method.
Should You Invest in Altcoins?
Cryptocurrencies are still a long way from widespread acceptance, and this is unlikely to change before we can develop useful user-facing applications for mainstream audiences. Investing in altcoins is, of course, a safer way to mitigate risks in the volatile crypto room.
Altcoins are steadily catching up with the recent market movement. Even, Altcoins give you the chance to be a part of this revolution – one that seeks to change the sport as a whole, not just bet on the right horse.
Institutional investors' recent investments have given altcoins a major boost. Google revealed in June 2020 that its BigQuery platform will be integrated with the Chainlink blockchain, a decentralized oracle network for decentralized data sourcing.
The fact is that any investment is risky, and it's important to perform comprehensive research before investing any funds. It's a good rule of thumb to remember that if anything sounds too good to be true, it probably is.
Trading Altcoins
Cryptocurrency trading is similar to stock trading in that a well-diversified portfolio still wins. As a result, even though one cryptocurrency suffers a loss, the costs and rewards can be balanced by others.
With 7,800 altcoins to choose from, the only question you should be asking is which are the best altcoins to trade and what to look out for while trading altcoins.
When trading altcoins, there are a few things to keep in mind.
If you know what altcoins are and how to exchange cryptocurrency, you're good to go. Otherwise, there are a few things you must do.
Check the Market Cap and Liquidity of the Altcoin.
Most altcoins fade from view because the project is squandered due to bad management or a lack of liquidity. When the crypto market reaches a low point, an altcoin with liquidity has a better chance of surviving. Furthermore, when there is liquidity, traders should expect a better return.
Considers the Lifespan of the Altcoin
Trading an altcoin early on can be lucrative because it depends on speculation and the interests of whales. However, large profits are often accompanied by risks. To avoid these risks, trade on dependable altcoins like Ripple (XRP) or Litecoin, which have a predictable trajectory.
Watch out for scams
Altcoins are usually produced with a large amount of circulating supply owned by the maker. The number of cryptocurrencies or tokens that are publicly accessible and circulating in the cryptocurrency market is regarded as the circulating supply... Pump and dumps are more likely when one person wields too much control. Try to analyze an altcoin's strategies and forecasts to get a better understanding of it. Stick to altcoins with a solid portfolio, a stable blockchain, and smart contract features.
Altcoins versus Bitcoin
Litecoin became the silver to Bitcoin's gold in October 2011. It is one of the oldest cryptocurrencies still in use today, despite not being the first. Litecoin has a lot in common with Bitcoin, but there are a few key differences.
While both networks use a Proof of Work consensus system, Litecoin employs a sequential memory-hard feature that necessitates the use of more memory. Furthermore, each block in Litecoin takes just 2.5 minutes to mine, making transactions much quicker than in Bitcoin, where adding a block to the main blockchain takes 10 minutes.
Monero is another altcoin whose mission is to make transactions anonymous. To protect its users' privacy, it employs ringed signatures and special cryptographic functions. While most cryptocurrencies, including Bitcoin, are thought to provide anonymity, the majority of transactions are fully traceable.
In that all transactions are public, Bitcoin is more pseudonymous than anonymous in that it is unclear which addresses belong to whom. Governance, smart contracts, and interoperability are also available in other altcoins.
Types of Altcoins
The group divided their nomenclature based on usefulness as the number of altcoins grew. Each type of altcoin, from mining-based cryptocurrency to stablecoins and security tokens, serves a specific function.
Mining-based cryptocurrency
Altcoins that are supplied via a mining method are known as mining-based crypto. The network solves mathematical problems to record data to the blockchain using decentralized nodes. Miners will earn tokens as a reward for participating in the trade. Any altcoin that uses a Proof of Work consensus algorithm, such as Bitcoin, is an example of such a token.
Security token
This form of altcoin is linked to a company and resembles conventional stocks like the initial coin offering (ICO). In certain cases, they have a dividend in the form of a payout or a share of a company's ownership. A dividend is the most common form of payment.
Utility Token
Utility tokens function a little differently in that they are used to make a claim on utilities. Furthermore, it is intended to be exchangeable for prominent decentralized services such as storage space.
Stablecoins
Stablecoins are cryptocurrencies whose value is tied to that of a fiat currency, such as the US dollar. As a result, eradicating uncertainty, such as Bitcoin. Tether (USDT) is the most well-known stablecoin, with a market capitalization of $38 billion.
A cryptocurrency's market capitalization (or market cap) is a measurement of its market value. In other words, since its inception in 2016, it has evolved at an exponential pace. Its value fluctuates about $1, unlike other altcoins like ETH or Connection. The public, on the other hand, has been eagerly awaiting the launch of Facebook's Libra since its announcement. However, Libra will only be eligible after it has obtained regulatory approval.
The Advantages and Disadvantages of Altcoins
A meteoric increase in value is just as likely as a colossal fall in the blockchain world. Small ventures will appreciate hundreds of times their original value before being abandoned after the buzz has worn off. Altcoins are no different.
The advantages
Accessible: It's easy to get started trading altcoins. The entry barrier to cryptocurrency trading is tiny, and anyone with a computer can get started trading in minutes.
Wide options: Altcoins offer a virtually unlimited range of options. Altcoins, on the other hand, have more than just speculative investment opportunities. They are, in truth, the catalysts for blockchain innovation.
Unique functions: Altcoins have unique functions that make them more than just a token. Unlike Bitcoin, it is designed with features.
Room for evolution: There's room for improvement. Since the system and processes are distinct, there is a greater potential for future evolution.
The disadvantages
Pump and dump schemes: Pump and dump schemes are a common occurrence in the altcoin ecosystem. Many traders invest in altcoins solely to see their value grow. If the monopoly ends, the price plummets, and the project vanishes into thin air.
The fraudulent listings: Even the most astute investor can be easily deterred by wild promises of groundbreaking features on any altcoin.
Vulnerable: Altcoins have a low degree of market recognition and acceptance. As opposed to Bitcoin, there aren't nearly enough outlets to completely exploit altcoins.
Oversupply: In the crypto industry, there are just too many altcoins. It's difficult to diversify your portfolio by depending on altcoins other than XRP, ETH, LINK, and others, since there isn't enough information to assess a new project's potential.
Final Thoughts
Most Bitcoin maximalists on the internet assume that altcoins are nothing more than background noise. Some assume that altcoins can dethrone Bitcoin in the coming years, and that they are a good investment.
The reality, like most things, is probably somewhere in the middle. Altcoins have so many uses that it's impossible to neglect them. Stablecoins have sped up trade, increased liquidity in cryptocurrency markets, and boosted economic development. Utility coins have spawned a slew of smart contract uses, including all of DeFi's.
While each altcoin isn't absolutely original, it does bring new ideas to the table. Decentralized product design is important in a decentralized economy. Similarly to how the open-source programming community as a whole collaborates to make better applications.
The crypto space is tight, and figuring things out will take years of trial and error as the community struggles with itself. Altcoins offer us a way to prioritize some technologies over others, and to contribute to the growth of a decentralized financial system in our own small way.
All coins that aren't Bitcoin is considered altcoin?