What are altcoins?
The word “altcoin” derives from “alternative” and “coin”. Altcoins refer to all alternative currencies to bitcoin. Altcoins are cryptocurrencies that share characteristics with bitcoin. (BTC). For example, bitcoin and altcoins have a similar basic framework. Altcoins also work as peer-to-peer (P2P) systems and share code, much like bitcoin.
Of course, there are also stark differences between bitcoin and altcoins. One of them is the consensus mechanism that these altcoins use to validate transactions or produce blocks. While bitcoin uses the proof-of-work (PoW) consensus mechanism, altcoins often use proof-of-stake (PoS). There are different categories of altcoins, which can best be defined by their consensus mechanisms and unique functionalities..
These are the most common types of altcoins:
based on mining
Mining-based altcoins use the proof-of-work method, better known as PoW, which allows systems to generate new coins through mining. Mining involves solving complex problems to create blocks. Monero (XMR), Litecoin (LTC), and ZCash (ZEC) are examples of mining-based altcoins.
stablecoins
Stablecoins aim to reduce the volatility that has marked the trading and use of cryptocurrencies since the beginning. The value of stablecoins is therefore linked to the value of a basket of goods, such as precious metals, fiat currencies, or other cryptocurrencies.. The basket serves as a reserve in case the cryptocurrency has problems. Dai (DAI), USD Coin (USDC), and Tether (USDT) are examples of stablecoins.
Security tokens or value tokens
Honoring its name in English, a security token or a security token is similar to traditional securities that are traded on stock markets. They resemble traditional stocks and represent equity, either in the form of property or dividends. Security tokens attract investors due to the high probability that their price will appreciate quickly.
memecoins
Memecoins are called that because they represent a dumb version of the well-known cryptos. They are often promoted by celebrities and influencers in the crypto space. The popular memecoins Dogecoin (DOGE) and Shiba Inu (SHIB), for example, often have their prices pushed by Elon Musk, the CEO of Tesla and a well-known crypto enthusiast.
Utility tokens or utility tokens
Utility tokens are used to provide services such as rewards, network fees, and purchases within a given network. Utility tokens do not offer capital, unlike security tokens. Filecoin (FIL), for example, is a utility token used to purchase storage on a decentralized storage network.
How are altcoins evaluated?
Fundamental analysis of altcoins involves examine and evaluate all available information about an altcoin. it implies observe the use cases of the cryptocurrency 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 any cryptocurrency, the goal is to understand if the asset in question is overvalued or undervalued. Overvalued assets should be avoided, while the undervalued ones are more ideal. This is because overvalued assets they will likely underperform and return to their true value. Undervalued assets, on the other hand, have more growth potential and are always profitable.
An exhaustive analysis will help you make the best decision regarding your investment decisions.
Here we offer you some helpful guidelines on how to analyze cryptocurrencies before investing:
Step 1: Analyze the whitepaper and find the value proposition
Analyzing a token’s whitepaper will provide you with a lot of relevant information, such as its use cases, goals, and the team’s vision for the project. The white paper should give you a good picture of how the altcoin will provide value to its users..
The value proposition of bitcoin, for example, is as follows: “a decentralized digital currency, with no central bank or single administrator, that can be sent from user to user on a peer-to-peer network without the need for intermediaries“.
The value proposition of an altcoin can guide you while you continue to analyze more information about her.
Step 2: Look for growing demand and stable (or declining) supply
Observing supply and demand is one of the best ways to assess your next cryptocurrency investment.. Now that you’ve gotten a clear picture of how the altcoin adds value to its users, it’s time to look at how supply and demand navigates.
In a nutshell, the altcoin must have incentives that facilitate the increase in demand in such a way that the supply continuously decreases or remains stable. When demand exceeds supply, prices rise, further fueling demand..
For it, you can access resources such as Cointelegraph’s Price Indices and Market News, as well as Coin 360’s Heatmap and CoinMarketCap.
Step 3: Assess the project team and stakeholders
Now that you have a good understanding of what the project can offer, it is also important to thoroughly evaluate the team behind it. You can find information about the team in the project whitepaper, but also try to do some independent research on them. You can consult the official website of the project team, as well as their LinkedIn profiles, which should be public and accessible to everyone.
Ask the following questions when researching each member’s background:
- Have they worked on other reputable and successful projects in the past?
- What are your credentials?
- Are they members in good standing of the cryptocurrency community and blockchain ecosystem?
The objective is to know if the team behind the project is experienced and made up of experts who know what they are doing.. You can consult on-chain analysis platforms and blockchain explorers to complement your research on the matter. You can also review their profiles on social networks or check the conversations in which they participate on Twitter.
Ethereum, for example, has a very strong investor community because every person who works on Ethereum creates value for Ethereum holders.. Despite issues like high fees and slow transactions, developers, community builders, and other top talent still want to embark on Ethereum-related projects.
Platforms like AAVE and OpenSea, for example, are built on top of Ethereum. The logic behind securing a strong core team behind the project is that it creates a domino effect. A project with a strong and talented team attracts more credible thinkers, allowing more projects and improvements to be built on top of the platform, as in the case of Ethereum. These people strive to continually improve the available platforms and initiatives related to the project, thus creating even more value for the holders of the coin.
Which altcoin platforms have the most potential?
When it comes to investing in altcoins, there are a wide variety of options to choose from. But nevertheless, it is always wise to know which ones have the most potential to ensure you are making a wise investment.
- ethereum: There is a reason why Ethereum is dubbed by many as the “King of Altcoins”. Created in 2013 by Vitalik Buterin and his co-founders, Ethereum is a smart contract platform used to create decentralized applications (DApps). The founders designed Solidity, Ethereum’s own programming language for smart contracts. Most of the current decentralized finance space is based on the Ethereum blockchain, while the native token Ether (ETH) continues to evolve in its utility day by day..
- chain link: Chainlink takes smart contracts to another level by incorporating real-world data. Thanks to Chainlink, Ethereum smart contracts can now make calls to other application programming interfaces, as well as act on global events and other asset prices. Chainlink’s value continues to soar as it onboards valuable stakeholders including former Google CEO Eric Schmidt as one of its advisers.
- Stellar Lumens: Stellar aims to unite global banking systems through its decentralized platform. For it, use offline payment methods like Alchemy Pay and Single Euro Payments Area. The Stellar network then connects those systems through a decentralized distributed registry. In competition with Stellar is Ripple, whose run-in with the SEC has made him vulnerable. This puts Stellar in a prime position to take the reins and become the world’s leading payment network.
- Ave: Aave is already one of the leading lending protocols today and continues to offer security and anonymity to borrowers. Due to its popularity, borrowers are required to post collateral greater than the amount they borrow. Collateral is held securely in escrow throughout the life of the loan. In the event of a default, the lender receives payment automatically through the smart contract.
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