What is altcoin? What should altcoin investors pay attention to?

Altcoins; It is a general name given to digital currencies. It refers to cryptocurrencies that come out as an alternative to Bitcoin.

Bitcoin Alternative Cryptocurrencies

Altcoin is an alternative cryptocurrency or virtual currencies to Bitcoin. Each altcoin works according to its own rules. With the increasing interest in Bitcoin, the difficulties of the passwords produced have increased in parallel, and this has led to the emergence of different bitcoin derivatives. Altcoin, which is called the abbreviation of the phrase “Alternative Coin”, refers to all other digital currencies produced after Bitcoin. Namecoin, which is in the crypto world as the first altcoin, was introduced as a digital money in 2011 and laid the groundwork for the following altcoins.

More than 2000 altcoins are traded on cryptocurrency exchanges, and new altcoins are constantly being released. Cryptocurrency exchanges do not have all the coins. When we look at the reason for this in the general framework; It is seen that the market volume of altcoins with different algorithm structures is not sufficient and does not exceed the required demand limit. The main reason for producing altcoins is the low level of difficulty. This issue is very important in mining. An altcoin with a difficulty of close to 1 can be produced much faster.

How Altcoins Work

How Altcoins Work Generally speaking, altcoins work very similarly to the original Bitcoin. Using a private key, you can send a payment from your digital wallet to another user’s wallet. A cryptocurrency like this has a blockchain or ledger where transactions are recorded permanently and publicly, so exchanges cannot be changed or rejected after the fact. Blockchain is secured by mathematical proofs that confirm transactions in blocks.

Altcoins and Bitcoin

Altcoins do not follow the same rules as Bitcoin. For example, Bitcoin only issues or generates Bitcoin every 10 minutes, while an altcoin called Litecoin will generate a coin every 2.5 minutes. This allows Litecoin to process payments faster. Litecoin will also generate 84 million litecoins, while Bitcoin will only produce 21 million Bitcoins.

Litecoin also uses a different set of rules for mining than Bitcoin. Bitcoins require costly hardware to mine, while litecoins can be mined with common computer hardware.

Litecoin is just one of thousands of altcoins on the market. Some altcoins stand out as popular alternatives to Bitcoin, even though they do not reach Bitcoin’s $100 billion market cap.

What is the Difference Between Bitcoin and Altcoin?

Bitcoin is the first example of a cryptocurrency, and its philosophy and design sets the benchmark for the development of other digital currencies. However, its application has some shortcomings. For example, Proof-of-Work (PoW), the consensus mechanism used to create blocks, is energy-intensive and time-consuming. Bitcoin’s smart contract capabilities are also limited.

Altcoins improve the limitations experienced by Bitcoin to provide a competitive advantage. Several altcoins use the Proof-of-Stake (PoS) consensus method to minimize the time and energy consumption required to create blocks and verify new transactions.

Another example is Ether, the world’s second largest cryptocurrency by market capitalization, used as gas (or payment for transaction costs) in smart contracts on Ethereum. Altcoins also address traditional criticisms against Bitcoin. For example, stablecoins do not show Bitcoin’s price volatility, making them ideal tools for day-to-day transactions.

Altcoins have created a market for themselves by separating themselves from Bitcoin in this way. As a result, this has attracted investors who see its potential as an alternative to Bitcoin. Hence, investors expect to profit as altcoins gain more attention and users and gain value in price.

Advantages of Altcoins

- high liquidity

- There is a greater level of user and transaction privacy

- Affordable mining services are provided

- Coins with higher transaction speed are found

- Technical improvements are made to speed up mining

- Provides more investment opportunities

- Strong fluctuations can result in a significant increase in earnings

- Taking more concrete steps with crypto money suitable for the purpose

- Enables almost all transactions made in central financial systems in the DeFi field

Disadvantages of Altcoins

- They can experience strong fluctuations, causing the loss to increase significantly.

- It is difficult to trust an altcoin that has not yet made a name for itself. A small mistake can cause investors to panic and even the most promising altcoin to lose value.

Most Traded Altcoins

Among the most traded altcoins are digital coins such as Litecoin, Ethereum, Cardano, Tether, Dash, Ripple. In addition, altcoins may become popular periodically and may receive more demand. Ethereum, Tether, Bitcoin Cash, Ethereum Classic, Litecoin, Ripple and Dogecoin are the largest altcoins by market capitalization as of March 2021.

What Are The Most Popular Altcoins In 2022?

In terms of cryptocurrencies with the largest market caps globally, Ethereum (ETH), Polkadot (DOT), Litecoin, Tether, Ripple and Cardano (ADA) have been trending recently. When it comes to cryptocurrencies with smaller market caps, Aave has also been seeing moves recently in coins like Chiliz (CHZ), Uniswap (UNI), and 0x (ZRX).

Should You Invest in Altcoins?

There is no doubt that cryptocurrencies have a certain appeal as an investment. Altcoins present a serious opportunity as they have a much higher advantage in terms of percentage earnings, on the other hand, their risks are much higher.

For example Dogecoin. The cryptocurrency gained serious value for no other reason in late January 2021 as people started buying it with intense interest, causing the altcoin to go viral. Such investments can quickly fall out of favor, just as quickly.

More care is needed when investing in something that is experiencing sudden popularity than when investing in something you believe in long-term project, because you risk losing a lot when there inevitably comes a pullback.

Which altcoins should you invest in?

If we could predict price movements, we would be more than happy to tell you what to expect. Unfortunately this is not possible.

On the other hand, we may not be able to predict the future, but if you don’t want to miss the next big Altcoin gains, you should keep researching.

Altcoin Types

Some of the main types of altcoins include mining-based cryptocurrencies, stablecoins, security coins, and utility coins.

Depending on their functionality and consensus mechanisms, altcoins fall into various categories. However, it is possible for an altcoin to fall into more than one category.

Mining Tokens

As their name suggests, they are mining-based altcoins. Most mining-based altcoins use Proof-of-Work (PoW), a method where systems generate new coins by solving difficult problems to create blocks. Examples of mining-based altcoins are Litecoin, Monero, and Zcash. In early 2020, most of the top altcoins fell into the mining-based category. Pre-mined coins, alternative to mining altcoins. Such coins are not generated through an algorithm, but are distributed before being listed on cryptocurrency markets. Ripple’s XRP is an example of a Pre-mined coin.

Stable Coin

Cryptocurrencies have been fluctuating since the day they first came out. Stablecoins aim to reduce this overall volatility by pegging their value to a basket of products such as fiat currencies, precious metals or other cryptocurrencies. The basket is intended to act as a backup to save its holders if the cryptocurrency fails or encounters problems. It is supported by mechanisms to keep price fluctuations within a narrow range for stablecoins.

Social media giant Facebook’s Diem is the most famous example of the stablecoin. It is a dollar-backed coin. Other examples of stablecoins are USDC and MakerDAO.

Security Token

Security tokens are similar to securities traded on exchanges, except that they have a digital origin. Securities tokens are similar to traditional stocks and usually offer ownership in the form of stocks or dividends to holders. The possibility of price appreciation for such tokens makes them attractive so that investors put money into them. Securities coins are often offered to investors through initial coin offerings or ICOs.

Utility Token

Service Tokens are used to provide services within a network. For example, they can be used to purchase services or redeem rewards. Unlike Security coins, Utility Coins do not pay dividends or an ownership stake. Filecoin, which is used to purchase storage space on a network, is an example of a Utility Token.