What Are Shitcoins?
The introduction of Bitcoin in 2009 has led to the creation of terms such as ”Shitcoins” in the cryptocurrency world.
As Bitcoin exploded in popularity, more businesses have been taking the advantage of blockchain technology to create their own coins. These coins other than Bitcoin are referred to as Altcoins among which there are also Shitcoins.
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What are Shitcoins?
Shitcoins are cryptocurrencies with little to no value or digital currency that serve a discernible purpose.
The word is a pejorative term often used to describe altcoins. They are always a copy of another well-known coin or can be a brand new token.
Although subjective, some of the well-known shitcoins within the crypto markets include Dogecoin, BitTorrent, Dent, TRON, and Shiba Inu coin.
How Shitcoins Work
The success made by Bitcoin since it was introduced by Satoshi Nakamoto in 2009 has made the interest in cryptocurrencies skyrocket.
Many businesses took the advantage of blockchain technology to create their own cryptos (altcoins). These are digital assets that piggyback off the basic design of the earlier created Bitcoin.
Typically, the development team behind a token will announce how many tokens they’ll make available. For example, the supply of Bitcoin is capped at 21 million per year while ether supplies are capped at 18 million per year.
These supply limits create scarcity in the crypto market. Investors know that a coin’s supply will become limited after a certain point in time.
Issuing more tokens than initially promised would dilute the value of investor holdings. When the supply of a cryptocurrency is fixed, its value should be dependent on demand.
This is however different for shitcoins as they serve no meaningful purpose. There is often no genuine demand for the token. Its value is only dependent on pure speculation.
Shitcoins are therefore digital assets that people believe to be valuable just because they exist.
How To Identify Shitcoins
Identifying a shitcoin is often easy because many follow a specific pattern. Here are some key signs of a shitcoin;
- They are associated with pump & dump prices- They attract some interest when they’re launched but their price remains low. As interest peaks and investors jump in, prices spike high and fast. This is almost always followed by a nosedive in price. The sharp fall in price is caused by investors selling their coins to profit from short-term gains.
- They have low market capitalization- The low market cap makes it easy for a small number of investors to manipulate prices, raising them with very little effort.
- They do not have clearly-defined purposes- The most obvious sign is that they lack a well-defined function. For example, BTC was built for a decentralized payment network where financial transactions are secure, trustless and censorship-resistant. Ether is used to validate transactions and secure the network. Meanwhile, Shitcoins do not have such clearly-defined purposes.
- Questions about its background development & associated project- Is the project a copy of an already-known cryptocurrency platform? Does the project have an associated whitepaper? Is the whitepaper copied from a different project? If there are contentious answers to any of these questions, the cryptocurrency could well be a shitcoin.
Also Read: What You Need To Know About Shiba Inu Coin
Although investing in cryptos are considered a risky investment, shitcoins are generally terrible investments. They require huge risk and very rarely offer rewards.
With no real value, after a pump and dump scheme, other investors are left with worthless cryptocurrencies. There is no denying that small-cap altcoins can produce high returns, but only if an investor gets extremely lucky and sells at the right time.
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