What Are Altcoins and Are the Potential Benefits Worth the Threats?
There are currently more than 9,300 cryptocurrencies other than Bitcoin, according to CoinMarketCap. And these altcoins– as they are called– have an overall market capitalization of more than $1 trillion. Unless you’re a cryptocurrency trader, the only altcoins you’ve most likely heard of are Ethereum– the second-most popular cryptocurrency after Bitcoin– and Dogecoin, which was promoted on Twitter by Tesla CEO Elon Musk and has actually soared in popularity just recently.
The hype surrounding Dogecoin might have stimulated your interest in altcoins. But before you get too ecstatic, it’s crucial to understand what altcoins are and what their threats are before investing in them.
What Are Altcoins?
The term altcoin is brief for alternative coin – as in, an alternative to bitcoin. Altcoins also are alternatives to currencies issued by governments. Like Bitcoin, altcoins are digital currencies.
Lots of altcoins share the core characteristics of Bitcoin. They all are different from Bitcoin in one method or another, stated Dr. Richard Smith, an investing specialist and CEO of the Foundation for the Study of Cycles. And they have various uses.
Ethereum, the second-biggest cryptocurrency by market capitalization after Bitcoin, wasn’t developed to be digital money but rather to be a decentralized computing platform. The popular Dogecoin began as a joke based on a Shibu Inu “doge” meme today is utilized as a tipping system on social media.
How Do Altcoins Work?
Altcoins don’t rely on banks, financial organizations or any sort of middleman to be moved from person to individual. Rather, they rely on blockchain technology, which is a digital ledger of cryptocurrency transactions, Smith said.
Because the blockchain is stored in computer systems and servers all over the world, it would be beside difficult to hack into such a big network, according to CoinMarketCap. That’s why blockchain innovation is thought about safe and secure. But that doesn’t always indicate that investing in altcoins is safe.
How Do You Get Altcoins?
Like Bitcoin, altcoins can act like a currency and a possession. The most convenient method to get them is to acquire them through an online exchange. There are currently more than 350 different exchanges on which altcoins are traded, Smith said. Some of the best-known cryptocurrency exchanges are Coinbase, Binance, Kraken, and Bittrex. You also can buy and sell select cryptocurrencies through digital payment systems PayPal and Venmo.
Altcoin rates are determined by sellers and purchasers transacting on exchanges, Smith said. Understand that cryptocurrency prices can be very unstable.
You’ll require to download a digital, or crypto, wallet on your computer or mobile phone to keep your altcoins. When selecting a wallet, pay attention to which cryptocurrencies it supports since some assist more than others.
Should You Invest in Altcoins?
There is cash to be made purchasing and offering altcoins, however, there’s likewise money to be lost. This holds true with the majority of any investment. But altcoins included their unique set of risks.
For starters, altcoin prices are exceptionally unpredictable. Many private investors are not geared up to manage this volatility, Smith stated.
Plus, there is a little guideline in place around altcoins. Fraud also is rampant in the cryptocurrency market, with fraudsters who lure investors with phony cryptocurrencies.
That does not indicate you ought to keep away from altcoins completely. “Altcoins can likewise be a source of diversification for more standard portfolios, however, this diversity must be handled with terrific care,” Smith stated.
Before purchasing any altcoins, do your research. Smith recommends Coindesk.com as a reliable source of cryptocurrency news. And if an altcoin is trading on the Coinbase exchange, “that is usually an excellent indication that it has distinguished itself enough to be worthy of an investor’s consideration,” Smith said. “It also implies that the altcoin is less most likely to run afoul of regulators because Coinbase is highly attentive to regulative issues.”
Smith also suggests asking the following concerns prior to purchasing an altcoin:
Who lags the altcoin and do they have a track record of success?
Does the altcoin solve a genuine problem in a unique way?
Is there a genuine community developing around the altcoin?
Is the development of that neighborhood natural or is it being driven by questionable public relations techniques?
Lastly, understand that cryptocurrencies are dealt with as property by the IRS. The sale of cryptocurrencies is treated as a capital gain or loss (depending upon whether you made or lost money on the sale), and you may have a tax liability.