Cryptocurrencies are one of the most rapidly growing industries in the world as they offer basically unlimited opportunities for ROI. An investor, however, should be exceptionally careful when dabbling in this matter as we have witnessed many disastrous cryptocurrency projects over the last years.
Without a doubt, Bitcoin is the largest cryptocurrency out there and definitely the most stable one. In spite of that, Bitcoin is not ideal and its success has pushed people to come up with alternative cryptocurrencies. This is why we label them by the name of altcoins. You may not know this but over the past decade thousands of new altcoins have been introduced but only a handful have managed to gain significant following similar to Bitcoin. Anyway, it is valuable to know how to get a hold of Altcoins.
Since they are planned as an alternative to Bitcoin, each altcoin tends to have its niche in which it specializes. For example, Litecoin features faster transactions and that’s where it beats Bitcoin. Another popular altcoin – Dash, relies on anonymity. Users’ identities are protected there and transactions can hardly be traced to a certain name.
The way altcoins are mined also differs from Bitcoin. The algorithms are not the same. Bitcoin’s algorithm is called SHA-256 while Litecoin is mined through Scrypt. Additionally, the required hardware is also not the same.
This is all good, but deciding which altcoin is worth investing in can turn out to be quite the tough challenge. You shouldn’t just buy into the hype of a certain new cryptocurrency. See what exactly makes it unique and do not trust the buzz. There is a scam called „pump and dump” and you should be aware of it. The name pretty much says it all but a simple explanation is in order anyway. Sometimes the creators of a certain altcoin would generate a lot of hype around it in order to inflate the price. This would attract more buyers initially but when the price gets sky-high all of the big holders would sell and therefore devalue the altcoin. This leads to a crash in its price and leaves the buyers behind with a bunch of worthless tokens.
This leads us to a somewhat similar subject – understanding ICOs. This stands for Initial Coin Offering which is basically the same as a public offering i.e the launch of a new company on the stock exchange. ICOs sell tokens trying to raise the price of the altcoin in question.
When a cryptocurrency company wants to launch a new project through an ICO it creates the so-called Whitepaper. That’s where all the goals and parameters of the ICO are. You should pay close attention to the White paper before putting any money into an altcoin’s ICO.
A good example for an ICO is Ethereum. 1 Ether token in 2014 during the ICO could be bought for $0.4. Had you spent $100 worth of Ether tokens back then, you would now have the equivalent of $75, 000. This currency had other problems, though, related to the overload of the system that supports it. Several exchanges had to suspend Ethereum trading because many transactions were delayed.
Another altcoin called DAO is an example of a bad ICO. After its huge spike when $115,000,000 dollars were raised a hacker managed to steal about 1/3 of that money due to a bug in the code.
All of this goes to show you that cryptocurrencies are volatile and can be quite rewarding if you manage to strike gold. However, be aware that the better part of all altcoins fails to make a profit for their investors.