The world of cryptocurrencies is always in the process of developing and adapting to new situations, and as a result, there are always fresh chances appearing. Even if Bitcoin is still the most widely used cryptocurrency, there are currently hundreds of other cryptocurrencies to choose from. These altcoins not only have a rising customer base, but they also have a great potential for development.
As mentioned earlier, all the digital currencies that came to the market after Bitcoin are called altcoins. Of course, people in the digital currency space believe that all existing digital currencies except Bitcoin and Ethereum can be called altcoins. These people argue that most of the digital currency forks of these two currencies are outstanding and were created from their inspiration.
What exactly is an altcoin?
In broad use, the term “altcoin” refers to any coins that are not Bitcoin. However, because the majority of currencies are split from either Bitcoin or Ethereum (ETH), some individuals regard all cryptocurrencies that are not Bitcoin or Ethereum (ETH) to be altcoins.
Some alternative cryptocurrencies verify payments and create new blocks via the use of distinct consensus processes, while others make an effort to differentiate themselves from Bitcoin and Ethereum by introducing novel or supplemental features or functions.
Why are Altcoins created?
If you visit the coinmarketcap website, you will see that there are many altcoins in the digital currency space. In response, we must say that all these altcoin projects are trying to use blockchain technology in a better way and transformations in various fields such as finance, health, energy, security, artificial intelligence, social networks, logistics, content ownership, etc. Different digital currencies currently in the market have different functions. Blockchain technology itself is one of the reasons for the emergence of various digital currencies because the infrastructure of this technology is such that it provides opportunities for various functions. Therefore, various digital currencies have been created to take advantage of these current situations. Blockchain is a decentralized technology that no one controls; Therefore, anyone with the necessary knowledge and a new idea can generate the desired digital currency.
Altcoins have their benefits
- Bitcoin’s forks, known as altcoins, are essentially “better copies” of the original cryptocurrency they were based on, to address any perceived flaws.
- Alternative cryptocurrencies that have greater usefulness, like Ethereum’s ether, have a higher chance of surviving since they can be put to use.
- Investors have access to a broad range of alternative cryptocurrencies, each of which serves a distinct purpose in the cryptocurrency ecosystem.
Cons of alternative coins explained
- Alternative cryptocurrencies have a far more limited investment market than Bitcoin does. Since May of 2021, Bitcoin’s share of the global cryptocurrency market has typically been consistent at about 40%.
- There are fewer investors and less activity in the altcoin market, which has resulted in the market having low liquidity.
- Because it is not always simple to differentiate between many cryptocurrencies and the use cases that are associated with each of them, making judgments on investments is even more difficult and complex.
Altcoin value and its relation to Bitcoin
This is an unwritten rule in the cryptocurrency market. Since Bitcoin has long been known as the leader of the digital currency market, under normal conditions all altcoins in the market always follow the behavior of Bitcoin. For this reason, when the price of Bitcoin goes down, the price of many altcoins also goes down after Bitcoin. This relationship is of course not established; But in most cases and under certain conditions, all markets work in the same way. To understand more, you can compare the charts of Bitcoin and various altcoins in real-time.
If you are familiar with Bitcoin, then you may also be familiar with Ethereum. Ethereum is a distributed ledger technology (Blockchain), much as Bitcoin is, but with several important upgrades. Late in 2013, a young computer programmer by the name of Vitalik Buterin, who is of Russian and Canadian descent, put forth the idea. Not only is Ethereum a distinct coin, but it’s also an original ecosystem.
One of the early alternative cryptocurrencies is called Litecoin, which originated as a fork of Bitcoin. It was a clone of Bitcoin’s source code, and it offers quicker transaction confirmation times and cheaper fees than Bitcoin does.
Ripple is a privately owned firm that is now in the process of constructing a payment and exchange network known as RippleNet on top of a distributed ledger database.
EOS was developed to solve some of the issues that are now plaguing Ethereum by making transactions cheaper and more efficient and by creating an environment that is friendlier to software developers.
Since its inception in March 2020, Solana might be considered a cryptocurrency of a more recent vintage. Solana is currently the sixth most precious coin in the market and has a total valuation of $31 billion. Despite this, Solana has built a considerable following in a very short amount of time.
Speculators seeking alternative cryptocurrencies have hundreds of options to choose from. However, the larger firms and those with some of the greatest technological characteristics, such as quick transaction times, get the lion’s share of the business activity in the market.
Coins dependent on mining activity
Coins dependent on miners are “mined” into commerce by computing systems by resolving complicated theoretical challenges. This process often requires a significant number of resources. Bitcoin, the most widely used currency, is a mining-based token, as are the majority of other cryptocurrencies.
A stablecoin is a kind of cryptocurrency that has its value linked to that of another asset, most often the value of the United States dollar. Stablecoins are digital currencies that attempt to maintain a price that is equal to that of a fiat currency by tracking the price of an underlying asset.
Sometimes, despite their name, stablecoins behave in a way that is everything but stable. The collapse of TerraUSD, a stablecoin that was tied to the dollar, made news in May 2022 when it occurred.
A security coin is a virtual fluid contract that represents portions of an actual property with worth, like real estate or a corporation, very similarly to the way that traditional financial security does. Security tokens are a mechanism to maintain financial stakes in anything since the data stored on blockchains are irreversible. This means that they cannot be deleted or changed in any manner.
Memecoins are a kind of cryptocurrency that has recently caught the attention of the general public, maybe as a result of social media or the tweets of celebrities like Elon Musk, CEO of Tesla.
What exactly does altcoin season mean?
The phrase “altcoin season” refers to a time in the market for cryptocurrencies during which numerous alternative cryptocurrencies see price spikes that are greater than those of Bitcoin. When Ethereum’s smart contract feature encouraged the creation of a spate of new currencies in 2017, it marked the beginning of the first occurrence of an altcoin season.
The rise in the price of Bitcoin has resulted in massive profits for a significant number of cryptocurrency investors. On the other side, other investors think they can become rich quickly by investing in alternative cryptocurrencies, which has led to the current altcoin season.
One of the capabilities of altcoins is diversification. The main idea behind diversity is not to put all your eggs in one basket. Ideally, if an investor holds 5 assets in his investment portfolio, a 20% decrease in the price of one of them will be accompanied by a 20% increase in the other. However, such ideal conditions are rare. Investors can take advantage of research that examines the relationship between the prices of different currencies. There are such lessons; For example, research shows that Bitcoin and Litecoin follow each other in terms of money. However, the relationship between Bitcoin and other currencies is more complicated. Sometimes multiple currencies, including Bitcoin, move in the same direction. Sometimes, of course, a currency’s price goes up and down without any connection to other currencies. Investors looking to invest in altcoins should be aware that it is a risky investment. For this reason, careful studies should be done before buying.
The power of altcoins
One of the reasons for the strength of altcoins is their good profit margins. There are many stories about how people became millionaires with the help of Bitcoin and its rising price. However, Bitcoin is not the only digital currency that has seen an increase in value. Many companies have started selling digital tokens and in some cases, the altcoins they sell have seen huge price increases. For example, the Ether token was sold for $0.311 in 2014 and reached $414.76 in June 2017; That’s a 130,000 percent increase. Ether is the second largest market currency used on the Ethereum platform. On this platform, you can build decentralized applications that work through smart contracts. NEO is another very profitable coin. This currency recorded a growth of 160,000 percent. Its initial price was $0.032, later reaching $52.63.
Detection of fake altcoin
Unfortunately, there are many fake altcoins and scams in the crypto market that gobble up the capital of newbies. There are many ways to identify fraudulent altcoins, which we will discuss below.
- By visiting any project’s website and reading its whitepaper, we can get a lot of information about the project’s legitimacy. The white paper covers the basics and technical principles of the project, and usually, good projects provide information such as the name of the token, the source of the smart contract code, and the address of the token creator.
- Tracking project creators’ and team member feedback can reveal a lot about the future of the project. The history and previous positions of the project founders represent future information for that project. Always be wary of projects with unfamiliar teams and try to avoid investing in such projects.
- Beware of false advertising. These people own a part of the project in question or buy a large amount of a certain altcoin and try to increase its price. These people are scamming people by creating text and video content. This is where the need for in-depth research emerges.
- Do not take projects that promise big profits in a short time seriously. Any policy investment commitment takes time to fulfill and cannot be fulfilled overnight.
- Note the project site URL. If you don’t see a lock icon in the address bar, be suspicious of the website’s security. Also, check if the website uses https and not http as this is a sign that the website is not secure.
What is ahead for altcoins
The investment portfolio may be diversified beyond Bitcoin (BTC) at a low cost by investing in other cryptocurrencies. In addition, investors have the opportunity to take part in the governance choices of different initiatives. The cryptocurrency industry now has a diverse selection of alternative cryptocurrencies.
However, only those with compelling use cases will be able to endure the competition and ultimately come to dominate the industry. Investing in alternative cryptocurrencies also comes with additional dangers due to the absence of regulation. Despite this, regulatory concerns will be resolved as the Bitcoin business continues to mature.
Thank you for reading this article on digital currency signals. We hope you have learned everything you need about altcoins.
The last word
Altcoins can be used for various purposes including fast and anonymous transactions. Some of these coins have been very profitable for investors. Altcoins can be very profitable as long as they are carefully researched before buying and selling. Since the crypto industry is a new technology, it should be approached with caution. If you plan to invest in altcoins and want to diversify your portfolio in this way, be very careful. There are many altcoin projects in the crypto space, each claiming to bring new features to the space. In reality, most of these projects will not survive into the future. Many altcoins will likely merge in the future and only a few projects with strong foundations will remain in the crypto space.