Altcoins

How To Analyze Altcoins Before Investing In Them

An altcoin is a combination of “alternative” and “coin.” The term “altcoins” refers to any digital currencies that are not Bitcoins. The term “altcoin” refers to cryptocurrencies that share some features with Bitcoin (BTC). For instance, the fundamental structure of Bitcoin and alternative cryptocurrencies is very similar. Like Bitcoin, altcoins are peer-to-peer (P2P) platforms that share code.

There are, of course, significant differences between Bitcoin and other cryptocurrencies. These altcoins have a different consensus process for verifying transactions or creating blocks. Proof-of-stake (PoS) is the consensus mechanism of choice for most altcoins, whereas PoW is used for Bitcoin.

Different cryptocurrency types can be classified according to the consensus techniques they use and the distinct features they offer.

Types Of Altcoins

1. Stablecoins

Stablecoins strive to eliminate the volatility that has distinguished crypto trading and use since the beginning. The value of stablecoins is, thus, fixed to the value of traditional assets, like fiat currencies, other cryptocurrencies, or precious metals. The basket serves as a reserve in case the coin meets difficulty. Dai (DAI), USD Coin (USDC), and Tether (USDT) are all instances of stablecoins.

2. Memecoins

The name “memecoin” comes from the fact that they are a funny take on well-known cryptocurrencies. Most of the time, celebrities and well-known crypto influencers spread the word about them. Elon Musk, CEO of Tesla and well-known crypto fan, often drives up the prices of popular meme coins like Dogecoin (DOGE) and Shiba Inu (SHIB).

3. Mining-Based

Mining-based altcoins are the Proof-of-work (PoW) technology that allows systems to generate new coins through mining. Complex challenges must be solved to build blocks in mining. Miner-based alternative coins include Monero (XMR), Litecoin (LTC), and ZCash (ZEC).

4. Utility Tokens

A utility token is a type of token that can be used to deliver a variety of services, such as reward points, network fees, and purchases. Utility tokens do not grant equity. Storage on a decentralized storage network can be purchased using Filecoin (FIL), which is a utility token.

5. Security Tokens

A security token is, as its name suggests, a lot like the traditional securities that are traded on stock markets. They are like traditional stocks in that they represent ownership or dividends, which are two ways to get equity. Security tokens are attractive to investors because their prices are likely to go up quickly.

How To Evaluate Altcoins

Analyzing a cryptocurrency from the ground up necessitates gathering and analyzing all accessible data. To thoroughly comprehend and analyze the best cryptocurrencies to buy, it is necessary to look at the cryptocurrency’s use cases and network as well as the team behind the project.

However, it is important to know whether an asset is overvalued or undervalued while examining altcoins, or any other cryptocurrency. As a rule of thumb, avoid overvalued assets, whereas undervalued assets are preferable. This is because overvalued assets are more likely to perform poorly and revert to their true worth over time There is a lot of room for development and profitability in undervalued assets.

Investment decisions may only be made after careful consideration.

Here are a few pointers to consider before making an altcoin investment:

Step 1: Analyze The White Paper And Find The Value Proposition

Scrutinizing the token’s whitepaper will give you a lot of useful information about its use cases, aims, and team vision. The altcoin’s white paper should paint a clear picture of how it will benefit its users.

Decentralized digital currency, without a single administrator or bank, that can be sent from one user to another via the peer-to-peer network without the need for middlemen, is the value proposition for Bitcoin.

The value proposition of an altcoin might serve as a guide as you gather more information about it.

Step 2: Look For Increasing Demand And Decreasing (Stable) Supply

One of the greatest ways to evaluate your next crypto investment is to look at supply and demand. You now know how the altcoin provides value to its users, so now it’s time to look at how it manages the supply and demand of the currency.

To put it another way, the altcoin should contain incentives that encourage demand to rise while supply remains flat or decreases. Prices rise as a result of a lack of supply in response to an increase in demand.

3. Examine The Team And Stakeholders Behind The Project

Once you have a clear grasp of the project’s capabilities, it’s also critical to thoroughly examine the project’s staff. The white paper for the project contains information about the team, but you should also conduct your investigation into them. You may view the team’s page on the official project website, as well as their LinkedIn accounts, which they should have made public and open to the public.

Investigate each member’s past by asking the following questions:

  • Have they previously worked on reputable and successful projects?
  • What are their credentials?
  • Are they notable members of the crypto community and blockchain ecosystem?

What we’re trying to find is if the people working on the project are knowledgeable and experienced enough to handle it. When researching this topic, you can use on-chain analytics platforms and blockchain explorers. Sniff their social media profiles and see if they’re having any conversations on Twitter.

With Ethereum’s strong investment community, for example, each person working on Ethereum adds value for those who own the cryptocurrency in the first place. Despite difficulties such as high fees and sluggish transactions, Ethereum-related initiatives continue to attract developers, community builders, and other top talents.

Ethereum is used to power various decentralized applications, such as AAVE and OpenSea. To ensure the project’s success, a strong core team must be in place. Like Ethereum, a project with a strong and competent team draws even more credible forward-thinkers, allowing for even more projects and advancements to be created upon the platform itself.

These individuals are always working to improve the project’s platforms and efforts, resulting in increased value for currency holders.

Altcoin Platforms With The Most Potential

1. Ethereum

Ethereum is known as the “King of Altcoins” for a reason. Vitalik Buterin and his co-founders launched Ethereum in 2013 as a platform for creating decentralized apps (dApps) using smart contracts.

Ethereum’s own smart contract programming language, Solidity, was created by the project’s founders. Ethereum’s blockchain powers the vast majority of today’s decentralized financial systems, while its native token, Ether (ETH), is constantly improving its utility.

2. Chainlink

Using real-world data, Chainlink takes smart contracts to a new level of sophistication. Smart contracts on Ethereum can now interact with other application programming interfaces, as well as with global happenings and other asset values, thanks to Chainlink. One of the Chainlink’s mentors is former Google CEO Eric Schmidt, and the company’s value continues to rise.

3. Aave

Aave is already a leading lending protocol, and it will continue to provide borrowers with privacy and security in the future. As a result of its widespread use, borrowers are now forced to put up larger amounts of collateral to secure their loans. Throughout the loan term, the collateral is held in escrow. The smart contract automatically pays the lender in the event of a default.

4. Stellar Lumens

Through the use of a decentralized network, Stellar aspires to bring together the world’s banking institutions. Such solutions are Alchemy Pay and the Single Euro Payments Area (SEPA). A decentralized ledger unites these systems in the Stellar network. Ripple, which recently had a run-in with the SEC, is a rival to Stellar. Because of this, Stellar has a great chance of taking control of the global payment network leadership position.

Conclusion

Choosing altcoins is a little bit different from picking clothes or a smartphone. It needs a little more thought and a lot more research. But if you have the right information and guidance, it shouldn’t be too hard to choose and invest in the right altcoins.