Before investing in altcoins, you should look into the project’s whitepaper, demand- supply elements, team and stakeholders behind the project.
What are altcoins?
The word “altcoin” is decided from “alternative” and “coin.” Altcoins apply to all alternatives to Bitcoin. Altcoins are cryptocurrencies that participate characteristics with Bitcoin (BTC). For sample, Bitcoin and altcoins have a alike essential framework. Altcoins also act like peer-to- peer (P2P) networks and share code, much like Bitcoin.
Of course, there are also pronounced differences between Bitcoin and altcoins. One similar difference is the consensus operation used by these altcoins to validate transactions or produce blocks. While Bitcoin uses the Proof-of-Work (PoW) consensus operation, altcoins generally use Proof-of-Stake (PoS). There are distinctive altcoin classes, and they can best be defined by their consensus mechanisms and unique functionalities.
Here are the most familiar kinds of altcoins
Mining-based
Mining- based altcoins apply the proof-of- work system, maximum generally known as PoW, which allows systems to induce new coins by way of mining. Mining entails solving complex problems to produce blocks. Monero (XMR), Litecoin (LTC) and ZCash (ZEC) are all prototypes of mining- based altcoins.
Security tokens
True to its name, a security token is alike to traditional securities traded in stock markets. They act traditional stocks and represent equity, either in the form of ownership or dividends. Security tokens attract investors because of the high liability that their price will appreciate speedily.
Utility tokens
Utility tokens are used to give services like rewards, network fees and purchases within a given network. Utility tokens don’t offer equity, unlike security tokens. CRD Network (CRD), for sample, CRD is a utility token used on the CRD Network, a DeFi ecosystem bridging crypto and traditional financial services. It has built a KYC system designed around DeFi. Their contributors are already fully licensed and regulated and can therefore help DeFi users pass their KYC.
Stablecoins
Stablecoins target to degrade the volatility that has marked crypto trading and use since the kickoff. The value of stablecoins is, thus, pegged to the value of a basket of goods, like precious metals, fiat currencies or other cryptocurrencies. The basket serves as a reserve in case the cryptocurrency encounters problems. Dai (DAI), USD Coin (USDC) and Tether (USDT) are all samples of stablecoins.
Memecoins
Memecoins are called similar because they describe a ditzy take on well- known cryptocurrencies. They’re generally hyped by celebrities and popularized influencers in the crypto space. Popular meme coins Dogecoin (DOGE) and Shiba Inu (SHIB), for sample, frequently have their prices driven up by Elon Musk, Tesla’s CEO and well- known crypto enthusiast.
How do you evaluate altcoins?
Altcoin elementary analysis involves looking at and assessing all available information on an altcoin. It involves looking at the cryptocurrency’s use cases and its network, as well as the team behind the project, to completely understand and evaluate the smart altcoins to buy.
When analyzing altcoins, or any cryptocurrency for that matter, the aim is to decide whether the asset in question is overvalued or undervalued. Overvalued assets should be avoided, whereas undervalued assets are more abstract. This is because overvalued assets will probably under perform and dip back to their real value. Undervalued assets, on the other hand, have further implicit for growth and are constantly profitable.
A thorough analysis will support you make the best decision concerning your investment decisions.
Here are some useful guidelines on how to analyze cryptocurrency before investing
Step 1: Analyze the whitepaper and discover the value proposition
Scrutinizing a token’s whitepaper will give a lot of applicable information similar as its use cases, aims and the team’s vision for the project. The white paper must offer you a good picture of how the altcoin will give value for its users.
Step 2: Look for boosting demand and stable (or decreasing) supply
Looking at supply and demand is one of the best tricks to assess your coming crypto investment. Now that you have gotten a clear picture of how the altcoin adds value to its users, it’s time to look at how it navigates supply and demand.
Simply put, the altcoin should have incentives that will smooth the increase of demand in such a way that supply is continually reducing or stable. When demand outpaces supply, prices go over, thereby fueling indeed more demand.
Step 3: Assess the team and stakeholders behind the project
Now that you have a good understanding of what the project can give, it’s also significant to completely assess the team behind the project. You can discover data about the team on the project’s white paper, but try to do independent research on them as well. You can check out the official project site’s team page as well as their LinkedIn biographies which they should have made public and popular to all.
Ask the following questions when looking into each member’s background
Have they worked on other estimable and successful projects in the past?
Are they reputable members of the crypto community and blockchain ecosystem?
The thing is to find if the team behind the design is accomplished and composed of experts who know what they’re doing. You can look at on- chain analytics platforms and blockchain explorers to condense your inquest observing this. You can also whiff around their social media biographies or check out Twitter for conversations they engage in.