Beginner’s guide: Understand altcoins and altcoin investments
You must be no stranger to Bitcoin, what about Altcoins? If you’ve never heard of this concept, this article is for you! What is Altcoin? How is Altcoin trading? What to consider in Altcoin investment? In this article, Tokenize Blog will introduce you to the definition and the classification of Altcoins, coming along with some investment guides for beginners!
What is Altcoint?
“Altcoin” is the combination of “alt” and “coin” which basically means the alternative cryptocurrencies to Bitcoin. In a nutshell, Altcoins are all cryptocurrencies except for Bitcoin. They were developed on the success of Bitcoin by slight changes in the rules to appeal to different users. Appeared in mid-2010, Altcoins were built based on blockchain technology with improvements compared to Bitcoin. So far there are more than 5,000 different types of altcoins existing in the market.
How Do Altcoins Work?
Since the basic framework of Bitcoins and Altcoins are similar, altcoins work much like the original Bitcoin. Altcoins traders can exchange their cryptocurrency from their digital wallets to others’ wallets by using a private key. The transactions are permanently and publicly recorded on the blockchain so they cannot be altered or denied.
Types of altcoin
Altcoins are classified depending on their consensus mechanism and functionalities. Below are some common ones:
Mining-based
As their name indicates, mining-based altcoins are digital coins mined into existence. Most mining-based altcoins are created based on Proof-of-work mechanism consensus. In short, the altcoin miners have to solve difficult problems and update the blockchain to get cryptocurrencies as rewards. Some mining-based altcoins are Ethereum and Litecoin.
Stable coins
Different from mining-based coins, stable coins are created to simulate the value of fiat currencies such as USD and Euro. Since cryptocurrency trading has been volatile and risky, stable coins aim for reducing the overall volatility of digital assets and improve the global money transfer system instead of traditional banking. USD and Libra are two major stable coins traded on Tokenize Xchange.
Security tokens
Security tokens are digital assets that resemble securities traded in the stock market such as bonds, shares, or derivatives. Security tokens can be used in the form of ownership or dividend payout to coin holders and are normally offered to investors through ICO (initial coin offerings). It is obligatory for security tokens to comply with regulatory requirements from Federal laws since a failure would lead to negative consequences such as penalties.
Utility coins
Utility coins or utility tokens are appcoins or user tokens used to provide services within a network. Utility coins are normally created and given out as ICO. However, unlike security tokens, utility coins cannot be used as ownership stake or payout dividend. Instead, they might be created in a form of digital coupons to purchase services or redeem rewards in the future. Basic Attention Token (BAT), Timicoin (TMC), and Brickblock (BBK) are some examples of utility coins.
Future for Altcoins
For investors and traders looking for alternatives for Bitcoin to diversify their investment portfolio, altcoins are inexpensive choices. The rallies in the recent cryptocurrency market have profited traders much better than Bitcoin.
Alongside profit are the risks involved in altcoin investing. According to Coinopsy, more than 2,000 altcoins have failed and no longer exist in the market by May 24, 2021. That is such a large number compared to 10,025 digital currencies that have existed so far. It is believed that the number of crypto failures might be bigger but yet to be recorded.
What to consider when buying Altcoins?
With more than 5,000 different Altcoins existing in the market, how to evaluate and make a decision for your portfolio? Here are the factors you need to consider when buying Altcoins.
Be careful with ICO scams: Blockchain and cryptocurrency are growing speedily and even veteran investors might sometimes find it hard to keep up with the crypto technology and fall into ICO scams. Thus, reading the altcoins’ White Paper as well as learning about the cryptocurrency issuer before deciding to make any investment is needed to avoid being scammed.
Choose a legitimate cryptocurrency exchange: Among more than 500 crypto trading platforms active in the market, 313 of these exchanges are listed on CoinMarketCap. To avoid potential frauds, cryptocurrency traders should opt for legitimate and reputable crypto exchanges. Some good examples are Binance, Kraken, and Tokenize.Exchange.
Liquidity: The higher the liquidity, the easier it is to trade. Below are the top 5 most liquid altcoins according to CoinMarketCap:
Now you are armed with a thorough understanding of altcoins, different types of altcoins, and some guides to help you make good Altcoins investments. See you in the next article with Tokenize Blog to explore more investment guides!
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Disclaimer
All content produced by Tokenize Exchange is intended solely for educational purposes. This should not be taken as financial or investment advice. Individuals are advised to perform due diligence before purchasing any crypto as they are subject to high volatility.
