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How to Select or Analyze Altcoins
Selecting altcoin is vastly different from shopping for material things like clothes or groceries. It requires comprehensive research and plenty of thought. But with the right knowledge, you can pick and invest in the right altcoins.
Before exploring how to pick an altcoin, let’s talk about the term itself.
What Is An Altcoin?
The word altcoin is a mix of the terms alternative and coin. It’s an alternative to bitcoin and shares the same framework and characteristics. Both run on similar codes and are peer-to-peer systems. The one noticeable difference between them is the underlying consensus mechanism – bitcoin uses the energy-intensive PoW mechanism, while altcoins use the eco-friendly PoS mechanism. In the former, miners use computing power to process transactions to earn rewards. In the latter, miners pledge a certain crypto amount to the blockchain’s development to become authenticators.
Popular Altcoin Blockchains
Here are some popular altcoins:
Ether – the first released altcoin. The Ethereum blockchain introduced dApps and smart contracts
Stellar Lumens – created to unify global banking systems by connecting disconnected payment platforms through a decentralized ledger.
Chainlink – enables smart contracts to connect with other application programming platforms to make decisions by factoring in real-time worldwide developments
How to Pick Altcoins
To pick altcoins, you need to understand their underlying utility value. Altcoins have distinctive functionalities that base them in the following categories:
Stablecoins mitigate the impact of volatility linked with cryptocurrencies. Their value is linked to less volatile items, such as sovereign currencies, metals, and other cryptocurrencies. USD coin, Dai, and Tether are examples of stablecoin.
These altcoins are earned via mining through the traditional PoW system, i.e., miners use computing power to solve complex mathematical equations to decrypt transaction data. Litecoin, Monero, and ZCash are examples of mining-based altcoins.
These tokens are akin to traditional securities traded on stock exchanges. They represent the ownership of a particular security or its dividend. Security tokens typically attract more investors since their assets are tangible, allowing these tokens to promise quick value appreciation.
Utility tokens are related to mining fees, rewards, and on-network purchases. But these tokens don’t offer securities. For instance, Filecoin is a token you can use to buy a decentralized network storage space.
The name refers to the silly take of these coins on established and high-performing cryptocurrencies. Meme coins don’t feature underlying fundamental elements. Their value is solely promoted by influencers and celebrity figures. Dogecoin and Shiba Inu are examples of meme coins.
How to Analyze Altcoins
If you want to pick and analyze an altcoin, you must gather all relevant information. Here’s how you can understand and evaluate altcoins:
Understand Demand-Supply Dynamics
An altcoin’s value appreciates over time if its demand is high and the supply is stable or diminishing. Once investors understand the value and growth drivers, you can assess whether the value proposition will increase demand or not. In simpler terms, the altcoin should offer enough incentive to allure investors, which will decrease the supply. High demand and limited supply will result in more demand, which will increase its value.
Study the Whitepaper
When a new blockchain is formed, the developers release a whitepaper elaborating its purpose. It highlights use cases to present its goals and development forecasts. Study the whitepaper to ensure it’s written in a flawless language and states the purpose clearly.
Assess the Stakeholders and Developers
If you want to pick the right altcoin, learn about the faces behind the blockchain and its native cryptocurrency. Research relevant sources to learn all you can about the developers. As an investor, you need to dig deep, study the developers’ credentials, and determine if they’ve worked on successful projects.
While it’s not easy to pick and analyze altcoins for investment, you can use the information mentioned above as your starting point and learn more about altcoins to make the right investment!
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