What are altcoins?
The word “altcoin” comes from “alternative” and “coin”. Altcoins refers to all options for Bitcoin. Altcoins is a cryptocurrency that shares characteristics with Bitcoin (BTC). For example, Bitcoin and altcoins have a similar basic framework. Altcoins also function as peer-to-peer (P2P) systems and share the same code as Bitcoin.
Of course, there are also significant differences between Bitcoin and altcoins. One such difference is the unitary mechanism used by these altcoins to validate operations or block production. While Bitcoin uses proof-of-work (PoW) consensus mechanisms, altcoins typically use proof-of-stake (PoS). There are different types of altcoins and they can be best determined by their specific unification mechanism and function.
Here are the most common types of altcoins:
Based on mining
Mining-based altcoins use a work-proof method commonly known as PoW, which allows the system to generate new coins by means of mining. Mining involves solving complex problems to create blocks. Monero (XMR), Litecoin (LTC) and ZCash (ZEC) are all examples of mining-based altcoins.
Stablecoins aims to reduce the volatility marked by cryptocurrency trading and early use. Thus, the value of a stable coin is included in the value of the package, such as precious metals, fiat currency, or other cryptocurrencies. Baskets serve as a reserve in case the cryptocurrency is in trouble. Dai (DAI), USD Coin (USDC) and Tether (USDT) are all examples of stable coins.
True to its name, securities are similar to traditional securities traded on the stock market. They are similar to traditional stocks and represent equity in either the form of ownership or dividends. The security symbol attracts investors because of the high probability that their price will rise rapidly.
Memecoins are called that because they represent the adoption of the famous cryptocurrency. They are usually deluded by popular celebrities and influencers in the crypto space. Popular dogecoin (DOGE) and Shiba Inu (SHIB) meme coins, for example, are often valued by Tesla CEO Elon Musk and popular crypto enthusiasts.
Utility symbols are used to provide services such as rewards, network fees, and purchases within a given network. Utility symbols do not provide equity, unlike security symbols. Filecoin (FIL), for example, is a utility symbol used to purchase storage space on a decentralized storage network.
How do you rate altcoins?
Altcoin Basic Analysis involves viewing and evaluating all available information on altcoin. It involves looking at cryptocurrency usage cases and its network, as well as the team behind the project, to fully understand and evaluate the best altcoins to buy.
When analyzing altcoins or cryptocurrencies for that purpose, the goal is to find out whether the assets in question are overvalued or undervalued. High-value assets should be avoided, while low-value assets are preferable. This is because assets that are overvalued are likely to perform lower and fall back to their true value. On the other hand, low-value assets have more potential for sustainable growth and profitability.
Thorough analysis will help you make the best decision regarding your investment decision.
Here are some helpful tips on how to analyze cryptocurrencies before investing:
Step 1: Analyze the white paper and find the price proposal
Checking the token white paper will provide a lot of relevant information such as its use case, goals and team vision for the project. White paper must give you a good picture of how altcoin will provide value for its users.
For example, a price proposal for Bitcoin is as follows: “A decentralized digital currency without a central bank or single administrator that can send from user to user on a peer-to-peer network without intermediaries.”
Altcoin price proposal can guide you as you continue to analyze other information about it.
Step 2: Look for increased demand and stable (or declining) supply
Looking at supply and demand is one of the best ways to evaluate your next crypto investment. Now that you have a clear picture of how altcoin adds value to its users, it’s time to look at how it explores supply and demand.
Simply put, altcoin should have an incentive that will facilitate the increase in demand in a way that supply continues to decline or stabilize. When demand exceeds supply, prices also rise, leading to greater demand.
To do so, you have access to resources such as Cointelegraph price indices and market information, as well as Coin 360 and CoinMarketCap Heatmap maps.
Step 3: Evaluate the team and stakeholders behind the project
Now that you have a good understanding of what the project can offer, it is also important to thoroughly evaluate the team behind the project. You can find information about groups on the project white paper, but try to do independent research on them as well. You can check the official page of the official project website as well as their LinkedIn profile, which they should make public and accessible to all.
Ask the following questions when reviewing each member’s background:
- Have they worked on other famous and successful projects in the past?
- What are their ID cards?
- Are they well-known members of the crypto community and blockchain ecosystem?
The goal is to find out if the team behind the project has the experience and composition of experts who know what they are doing. You can take a look at the chain analysis platform and blockchain navigator to complement your research on this issue. You can also soak around their social media profiles or check Twitter for the conversations they engage in.
Ethereum, for example, has such a strong investment community because everyone who works on Ethereum creates value for Ethereum holders. Despite issues such as high fees and slow operations, developers, community builders and other top talent still want to continue working with Ethereum-related projects.
For example, platforms like AAVE and OpenSea are built on Ethereum. The logic behind ensuring a strong core team that supports the project is because it creates a vibrational effect. Projects with a very talented team attract more forward-thinking thinkers, allowing more projects and improvements to be made on platforms like Ethereum. These people strive to continually improve on existing platforms and project-related initiatives, thus creating more value for currency holders.
Which altcoin platform has the most potential?
When it comes to investing in altcoin, there are many options you can choose from. However, it is always prudent to know which one has the most potential to ensure that you will make a smart investment.
- Ethereum: There is a reason Ethereum has been dubbed the “King of Altcoins”. Founded in 2013 by Vitalik Buterin and co-founder Ethereum, it is a smart contract platform used to create decentralized applications (DApps). The founders created Solidity, Ethereum’s own programming language for smart contracts. Much of the current decentralized financial dimension relies on Ethereum blockchain, while the original Ether (ETH) symbol continued to evolve in its benefits that day.
- Chain: Chainlink takes smart contracts to the next level by incorporating real-world data. Thanks to Chainlink, Ethereum Smart Contracts can now make calls to other application interfaces as well as act on global emergencies and other asset values. Chainlink’s value continues to rise as it brings in valuable stakeholders, including former Google CEO Eric Schmidt as a consultant.
- StarlightStellar aims to unify the World Bank system through a decentralized forum. Therefore, it uses fixed payment methods such as Alchemy Pay and Single Euro Payments Area. Stellar networks then connect such systems through decentralized spreadsheets. In competition with Stellar, Ripple, which works with the SEC, has made it vulnerable. This puts Stellar in a key position to become the top global payment network.
- Aave: Aave is already one of the top lending protocols today and continues to provide security and anonymity to borrowers. Due to its popularity, borrowers are required to provide more collateral than the amount they are borrowing. The collateral is secured in the escrow throughout the term of the loan. In case of error, the lender is automatically paid through the smart contract.