4 things you need to know about altcoins before you start trading

Lots of people are interested in getting into crypto, but the market is not a welcoming place for beginners. Given the high price of Bitcoin, many traders and investors view altcoins as another potentially profitable market. In fact, the prices of altcoins are significantly lower than those of more established coins, but you might be wondering: are they worth the investment?

Before making a decision, it is important to first understand what altcoins are, their purpose, and how they differ from other top coins. That way, you can make an informed decision and find the course that best suits your financial goals. To help you get started, here is a brief breakdown of the key concepts you need to know about altcoins.

Altcoins, an alternative to Bitcoin

Put simply, altcoin refers to any cryptocurrency that is not bitcoin. Even big names like Ethereum and Tether are considered altcoins. The name alone makes it clear: “old” stands for “alternative” and “coin” is derived from “Bitcoin”.

Essentially what is an altcoin. While many (but not all) coins are forks of Bitcoin, they are trying to differentiate themselves from the latter and establish themselves as top coins in their own right. They do this by providing additional functionalities (e.g. smart contracts) or fixing any perceived errors in the leading cryptocurrency (e.g. data protection risks).

For example, Monero offers its users a higher level of anonymity. Even those with a free Monero wallet can rest assured that their transactions will not be available to the public on the blockchain, which has been seen as a cause for concern among Bitcoin users.

What do you do besides Altcoins?

In terms of process, altcoins work similarly to bitcoin. They are based on blockchain technology and enable secure peer-to-peer transactions. Users have a private key that they can use to view the blockchain and send and receive funds from other users. However, depending on the altcoins, this is where the similarities end. Remember: the goal of altcoins is to improve on Bitcoin’s potential flaws and make a difference.

In short, Bitcoin was the first cryptocurrency to lay the foundation and Altcoins are trying to grow and even exceed this original standard. Here are some of the altcoin picker features that have been added or tweaked.

• Changed from Proof of Work (PoW) to Proof of Stake (PoS) system for faster and more efficient transactions
• Propose new rules for mining such as: B. Enabling CPU mining
• Offers completely anonymous and incomprehensible transactions
• Offers improved features like smart contracts
• Reduce price volatility to make the market more stable

Remember, these are the features that Altcoins promise, but success in delivering on those promises will vary from coin to coin. Even if an altcoin shows a lot of potential, that is no guarantee that it will win the venture.

Different altcoins

According to CoinMarketCap, there are over 15,000 Altcoins on the market as of December 2021. Each of them is a bit unique in its own way. Here are some of the general categories they fall into:

• Based on mining – As the name suggests, coin mining users exist, mostly through PoW. With this approach, users solve cryptographic problems to generate blocks on the blockchain, which in turn generate coins.
• Stable coins – The goal of these coins is to limit the volatility of the crypto market. Their value is tied to an underlying asset like fiat currency, precious metals, and even other coins.
• Utility token – Instead of representing money, these coins offer the right to use certain services or products in the crypto space. For example, you can buy utility tokens to buy data storage.
• Security token – Of all the coins, security tokens are the most similar to traditional stocks. They derive their value from external, tradable assets, but of digital origin. They also promise to pay dividends to owners, which attracts many investors.
• Meme coins – As the name suggests, these coins started out as a joke or imitation of someone else, but eventually gained popularity and followers. Dogecoin and Shiba Inu are some of the most popular meme coins on the market.

Advantages and disadvantages of altcoins

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

benefits

• Enhance and add new features of Bitcoin
• Relatively lower transaction fees
• Lots of features for different functions in the crypto economy
• Give users options and compete in the marketplace

malfunction

• Excessive volatility in value and price
• Maybe a dead project but still on the market
• High potential for fraud and fraudulent schemes
• Too many similar altcoins making them difficult to tell apart

Take these advantages and disadvantages into account when weighing your investment options.

Are Altcoins a Good Investment?

With all of this, the question remains: are altcoins a good investment? The answer is different for each person. Investing in altcoins is extremely risky, but high risk comes with the attractive promise of high returns. Depending on your risk tolerance and the way you gamble, you can make substantial profits with altcoins.

If you decide to invest in altcoins, there are two important points to keep in mind: do your research and never invest more than you are willing to lose. In this way, you can safely navigate the crypto space and take advantage of the high potential of altcoins.

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