The Ultimate Guide to Altcoins
Back in 2009, it was hard to predict exactly where cryptocurrency was headed. Founded by Satoshi Nakamoto (which is actually a pseudonym for whoever penned the original whitepaper), Bitcoin was the pioneer of digital currency, introducing the world to a new way of trading which had never been seen before.
As with any revolutionary development, however, it was not immediately accepted. In fact, there were plenty of experts who claimed Bitcoin would not last a few years, let alone become a feasible alternative to traditional fiat currency.
Those critics were eventually proven wrong. Today, Bitcoin is not only worth thousands more than when it was first conceptualised, but it is also now one of a number of coins which have all contributed to a worldwide metaverse takeover.
While these experts underestimated the coin as a concept, then, a great deal more underestimated the technology that was used to formulate it. Blockchain, in many ways, is more game-changing than Bitcoin itself. It has become the springboard for these alternative tokens to not only challenge Bitcoin as a leader in the crypto market, but also develop into digital entities that will undoubtedly play a prominent role in the new world of Web3.
What Exactly Are Altcoins?
At one stage, it was only possible to trade Bitcoin on the crypto market. During this domination of the digital currency field, any other rival that came along was always defined in relation to the original, which is why they were categorised as “alternative”.
Today, however, there are an estimated 19,000 individual cryptocurrencies in existence (far more than the few hundred that were being developed during those first few years), and their unique utilisation of blockchain technology makes them more than just an alternative to Bitcoin.
Although Bitcoin is still ahead of the market in terms of price, many of these coins are scaling in ways that set them apart. In fact, according to experts, the second largest player, Ethereum, could even overtake Bitcoin as the world’s largest coin by the 2030s.
How Do You Invest In Altcoins?
With a number of these coins setting up a stall in the run-up to Web3, for prospective investors looking for a place to put their cash, it is important to understand altcoins in the context of 2022.
In other words, just as experts could not predict the trajectory of cryptocurrency back in 2009, nor can they predict exactly how each altcoin will perform ten years from now. Therefore, although it is easy to look at these altcoins as stepping stones toward the looming metaverse, it is crucial for investors to block out the path ahead and look at the stability of the stones right now.
There are plenty of cryptocurrencies currently in existence. To start narrowing them down, it is useful to look at how exactly each altcoin works. With this in mind, here’s a quick rundown of each alternative trading type:
Perhaps the most popular type of coin, mining-based tokens are essentially run by a number of technologically proficient computer networks. The information of every transaction is stored inside blocks, each of which are validated through computers solving a complex mathematical problem. Once the problem is calculated, the block is confirmed and a new block is subsequently created.
There are many reasons to admire this method. After all, Bitcoin itself is a mining-based coin. But having said that, there has been scrutiny about energy usage, especially in relation to the amount of computer power needed to validate a block. With the world becoming more in tune with environmental issues, the mining process has been put under the spotlight and could affect how certain coins perform in the future.
When people think about cryptocurrency, they often try to rationalise it by comparing the sector to the traditional stock market. Security tokens are digital contracts that define partial ownership of an asset (much like owning stocks), and they are often seen as a gateway investment. They are undoubtedly stable avenues for investors looking to go from the stock market and into digital trading.
A number of altcoins have a value that is pegged to another asset (typically the US dollar). These are known as stablecoins, and they track the underlying asset to keep the price of the coin equivalent to the currency it is tethered to. For investors looking for assurity and transparency, stablecoins could be a good choice, but there was a de-pegging debacle which should be noted.
Despite their moniker, both Terra and Tether de-pegged from the US dollar back in May 2022, causing it to collapse to just a few pennies. This is due to the automatic stabilisers failing to keep up with orders from certain traders selling their positions. It points to an ironically unstable future when it comes to their concept but having said that, the de-pegging debacle was just one issue amongst an otherwise solid conceptual journey.
Looking at the more quirky side of the cryptocurrency market, memecoins are a form of cryptocurrency that have grown their notoriety through social media and meme communities such as Twitter and 9GAG. These have a typically lottery-esque nature, increasing in price rapidly (along with certain social media and meme community trends) before falling away at the rate of knots. Dogecoin, for instance, is a good example of a memecoin that soared in popularity after an endorsement from billionaire Elon Musk. Since then, it has seen a dip arguably caused by an increase in attention for rival coin Shiba Inu.
Utility coins are designed for a specific purpose. While a user could trade a stablecoin or mining-based coin for essentially anything, a utility coin is ordinarily used for dApps or blockchain gaming platforms. In recent years, they have often been associated with ICOs (initial coin offerings), which are a way for dApp developers to raise money for their blockchain projects, offering utility tokens for sale before the project launch. In this way, when the project is underway, users already have the coins which they need in order to utilise them.
What Are The Most Popular Altcoins?
There are a number of altcoins that are making waves in the market today. Here is a list which narrows them down to the most popular, as of late 2022:
Anyone looking to trade Ethereum would be trading the second most valuable coin in the market. Ethereum is a revolutionary altcoin which is poised to overtake Bitcoin in around ten years’ time. It was developed as a form of digital payment, but, as mentioned previously, the world it has created goes far beyond currency. The Ethereum network is a place to build, create, publish, monetise and innovate. With a number of dApps constantly in development, as well as smart contracts that give creators free reign over the blockchain, it is steadily turning into a solid foundation of Web3 before it is even launched.
This was the first stablecoin, and, before the de-pegging scenario, it was recognised as one of the most stable, transparent and cost-efficient cryptocurrencies. When it lost its peg, every other cryptocurrency plummeted, proving its importance and prominence within the wider system.
Looking once again at another stablecoin, the USD is backed by $1 in reserve and regularly audited by a major accounting corporation. It is run on the Ethereum blockchain, and, in March 2021, it was announced that Visa would facilitate its use in its own payment network, which was a big step in the conjoining worlds of digital and traditional finances.
Created as a utility coin, Binance was originally built upon Ethereum’s blockchain but has since moved out to Binance’s own blockchain network. After the move, Binance developed a number of real-world uses and application opportunities, including traditional payments, travel bookings and online services. Every quarter, Binance buys back its coins and burns them in order to drive demand. The idea here is to increase the value of the remaining coins. The more Binance coins become scarce, the higher the circulating price.
XRP is a coin which was created on the Ripple Ledger Network. Unlike many other cryptocurrencies, this is a coin which cannot be mined. Instead, there are a limited number of coins (approximately 100 billion XRP) that already exist, and each transaction is verified through polls that are conducted amongst participating nodes. Each of them can be utilised to buy more XRP, exchange for other cryptocurrencies or to finance transactions on the Ripple network itself.
As previously stated, there are a large number of altcoins available. Some other popular coins right now include:
- Binance USD
- Shiba Inu
- FTX Token
What To Consider Before Investing
Once an investor decides where they want to put their money, the rest of the process is relatively simple. But there are still a number of factors that need to be considered. Back in 2009, the reason people were so unsure about Bitcoin was because of the market volatility that was implicit in its nature. This, in many ways, has not changed.
Cryptocurrency is a market that is driven entirely by sentiment, which means the users and investors themselves determine what the price of certain coins will be at any given time. If there are a number of investors who suddenly get cold feet about a popular altcoin, for instance, then their movements could swing the pendulum in a direction that would have been unforeseeable. If you were to trade Bitcoin, Ethereum, or any other coin, then each price could rise and fall in a way that is essentially unpredictable, and that makes it an incredibly difficult market to pin down. It is, however, perfectly achievable. It is simply important to be aware and vigilant before you step into it.
As well as this, prospective investors must focus on an altcoin’s technical capacity. Coins such as Solana have done increasingly well because they provide high functionality at a relatively low cost, making them highly attractive for investors who are looking to make the most out of their portfolio without incurring a loss.
As well as this, a number of crypto whales are keen to invest in coins which have value both in the monetary and innovative sense. In this way, the higher the technical capacity of a coin, the more attractive it becomes as a trading vehicle, meaning its price could steadily rise as more users begin to take advantage of its capabilities.
What Is The Best Altcoin To Invest In?
A number of altcoins are performing positively in the market right now, which makes an investment decision rather difficult, especially for first-time investors. With that being said, it is hard to argue against Ethereum’s prominence in the market, especially when it comes to the incoming world of Web3.
As mentioned previously, when people were underestimating Bitcoin in 2009, so too were they underestimating blockchain and how it might be utilised. Out of all cryptocurrencies, Ethereum is making the most out of this technology. It is a mine-based coin, but there is an incoming merge which will allow it to run on POS (proof of stake).
While Bitcoin and other altcoins run their mine-based system through POW (which determines a new block through competition and a vast amount of computer energy), POS will pick a validator at random, effectively cancelling out the power-eating competition and allowing all validators to get a fair chance of earning more ETH. This is due to make it a far more environmentally stable and efficient network, further widening its scope when it comes to thriving within the metaverse. With ETH also set to overtake Bitcoin in the next decade, deciding to buy and trade Ethereum is certainly a legitimate alternative.
But hold on, we hear you say, what about the stepping stone analogy? Didn’t you advise that an investor should look at the coins right now and not the path they might be heading down in the future? Well, yes, but Ethereum is not just a stone. It is a temple, constantly rebuilding itself and forming a spire which points toward a clear trajectory. In this way, it is hard not to take the future into account when making an investment in ETH today, especially when Ethereum is already reaching so high into the ether.