What are alternative currencies?
The word "altcoin" is derived from "alternative" and "currency". Altcoins refers to all alternatives 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, just like Bitcoin.
Of course, there are also stark differences between Bitcoin and altcoins. One of those differences is consensus mechanism used by these altcoins 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, and they can be best defined by their consensus mechanisms and unique functionalities.
These are the most common types of altcoins:
based on mining
Mining-based altcoins use the work test method, more commonly known as PoW, that allows systems to generate new coins through mining. Mining involves solving complex problems to create blocks. money (XMR), Litecoin (LTC) and ZCash (ZEC) are all examples of mining-based altcoins.
stable coins
Stablecoins aim to reduce volatility which has marked the trade and use of crypto since the beginning. Therefore, the value of stablecoins is tied 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 encounters problems. Dai (ICD), USD currency (USDC) and mooring (USDT) are all examples of stablecoins.
security tokens
True to its name, a security token is similar to traditional securities traded on stock markets. They resemble traditional stocks and represent shares, either in the form of ownership or dividends. Security tokens attract investors due to the high probability that their price will appreciate quickly.
memecoins
Memecoins are so named because they represent a dumb version of well-known cryptocurrencies. They are usually promoted by celebrities and popular influencers in the crypto space. Popular meme coins Dogecoin (DOGE) and Shiba Inus (SHIB), for example, often have their prices driven by Elon Musk, CEO of Tesla and well-known cryptocurrency enthusiast.
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 equity, unlike security tokens. Filecoin (FIL), for example, is a utility tab it is used to purchase storage on a decentralized storage network.
How do you evaluate altcoins?
Fundamental altcoin analysis involves looking at and evaluating all available information about an altcoin. It involves looking at 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 undervalued assets are more ideal. This is because overvalued assets will likely underperform and return to their true value. Undervalued assets, on the other hand, have more growth potential and are consistently profitable.
A thorough analysis will help you make the best decision regarding your investment decisions.
Here are some helpful guidelines on how to analyze cryptocurrency before investing:
Step 1: Analyze the white paper and find the value proposition
Examining a token White paper It will provide a lot of relevant information, such as your use cases, goals, and the team's vision for the project. The white paper should give you a good idea of โโhow the altcoin will provide value to its users.
The value proposition for bitcoin, for example, is the following: โa decentralized digital currency, without a central bank or a single administrator, that can be sent from user to user in a peer-to-peer network without the need for intermediaries.โ
The value proposition of an altcoin can guide you as you continue to analyze other information about it.
Step 2 โ Look for growing demand and stable (or declining) supply
Observing supply and demand is one of the best ways to assess your next crypto investment. Now that you have 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 increasing demand in such a way that supply continually decreases or stabilizes. When demand outstrips supply, prices rise, further fueling demand.
To do this, you can access resources such as Cointelegraph. price indices Y market newsas well as Coin 360 heat map Y CoinMarketCap.
Step 3: Assess 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 assess the team behind the project. You can find information about the team in the project white paper, but try to do some independent research on them as well. You can check out the team's page on the project's official site, as well as their LinkedIn profiles, which should have been made public and accessible to everyone.
Ask the following questions when researching each member's background:
- Have they worked on other successful and reputable projects in the past?
- What are your credentials?
- Are they members in good standing of the crypto community and blockchain ecosystem?
The goal is to find out if the team behind the project is experienced and made up of experts who know what they are doing. You can check out on-chain analytics platforms and blockchain explorers to supplement your research on the matter. You can also snoop around their social media profiles or check Twitter for conversations they're engaged in.
Ethereum, for example, has such a strong investment community because every individual 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 get involved in Ethereum-related projects.
Platforms like AAVE Y open sea, for example, are based on Ethereum. The logic behind ensuring that a strong core team supports the project is because it creates a ripple effect. A project with a strong and talented team attracts even more credible forward thinkers, allowing even more projects and improvements to be built on the platform, just like Ethereum. These people strive to continually improve the available platforms and initiatives related to the project, thereby creating even more value for currency holders.
Which altcoin platforms have the most potential?
When it comes to investing in altcoins, there are a variety of options you can choose from. However, it's always wise to know which ones have the most potential to ensure you're making a wise investment.
- Ethereal: There is a reason why Ethereum is dubbed by many as the โKing of Altcoinsโ. Created in 2013 by Vitalik Buterin and 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 usefulness day by day.
- Link of the chain: 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 rise as it brings valuable stakeholders on board, including former Google CEO Eric Schmidt as one of his advisers.
- Stellar Lumens: Stellar aims to unite global banking systems through its decentralized platform. As such, it uses offline payment methods like Alchemy Pay and Single Euro Payments Area. The Stellar network then connects those systems through a decentralized ledger. 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 leading global 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 are borrowing. Collateral is held securely in escrow for the duration of the loan. In case of default, the lender is automatically paid through the smart contract.
