Altcoins emerged shortly after Bitcoin (BTC) and offered the most established cryptocurrency alternative. Altcoins currently account for almost 80% of the cryptocurrency market. Additionally, there are currently over 5,000 altcoins in circulation. On the other hand, investing in altcoins carries greater risk compared to traditional cryptocurrencies such as Bitcoin and Ethereum (ETH).
Altcoins offer high return opportunities to users, especially those who know how to earn more from the altcoins they already own. Users can consider this a quick guide for first-time altcoin investors.
This article highlights the terminology in easy-to-understand terms and covers various areas such as what altcoins are, how to buy altcoins on multiple platforms, and how to sell them.
What is Altcoin?
“Altcoin” is short for “alternative coin”. Altcoins cover all cryptocurrency coins other than Bitcoin (BTC), including Litecoin (LTC), Uniswap (UNI), Dogecoin (DOGE), Zcash (ZEC), and Cardano (ADA).
Since the birth of Bitcoin in 2009, many cryptocurrencies have been launched into space, and others are appearing almost daily. These Bitcoin alternatives have begun to move further away from Bitcoin’s consensus mechanisms and now include various combinations of privacy features, capabilities, and delivery schedules.
Altcoin strategies that offer additional features make them more attractive and valuable compared to their original counterparts (Bitcoin), adding value in the eyes of investors. Some of the most popular altcoins on the market right now are:
Ethereum is his second largest cryptocurrency by market capitalization after Bitcoin and the largest altcoin. However, many investors no longer consider it an altcoin as its price may stabilize. This is a more risk-adjusted investment than most altcoins and is closer to Bitcoin.
Additionally, Ethereum was the first blockchain to be launched using Smarthis contracts, which led to decentralized finance (DeFi) and new financial instruments in use today. Ethereum is therefore considered a real money protocol compared to Bitcoin which is primarily transactional.
Litecoin, also known as the silver alternative to Bitcoin’s gold, is a fork of the original Bitcoin mechanism. It comes with a different hashing algorithm (Scrypt) and has a fast block processing speed, which makes it four times the production capacity that Bitcoin can offer. However, this was dismissed as a redundant (and ultimately unnecessary) Bitcoin fork.
Unlike most cryptocurrencies, Stellar focuses on international bank transfers. Stellar uses Distributed Ledger Technology (DLT) to exchange value across different borders and exchange cryptocurrencies for fiat currencies. Ripple (XRP)
Ripple (XRP) is a popular digital payment platform that hosts cryptocurrencies. It is also one of the most popular cryptocurrencies and uses a consensus mechanism that differs from Bitcoin’s traditional Proof of Work (PoW) mining process.
Uniswap is the first decentralized exchange (DEX), hosted on the Ethereum blockchain. Uniswap, therefore, uses the platform’s ERC-20 algorithm. Being open source, it has spawned several copycat competitors in this space, such as Sushiswap (on Ethereum) and PancakeSwap (on Binance smart chain).
Ethereum can also be used for lending, borrowing, shorting, lungeing, etc. This cannot be done with Bitcoin’s base layer. Compared to Bitcoin, Ethereum acts as a ledger where investors can use their native token (ETH) to build decentralized applications (DApps).
Polkadot (DOT) is the brainchild of Dr. Gavin Wood, one of the co-founders of Ethereum. Polkadot is a promising blockchain, much like Cardano, based on peer-to-peer research. However, instead of having a testnet on its blockchain like Cardano’s on-chain testnet, Polkadot will launch an experimental feature on the Kusama chain to test first.
Where can I buy altcoins?
With the advent of numerous altcoins, the development of Bitcoin altcoin exchange platforms has surged, increasing market activity. However, most investors still struggle with where to buy small-cap altcoins.
“Small-cap” refers to cryptocurrencies with a market capitalization of less than $1 billion. A sound general principle to follow when investing in cryptocurrencies is to classify them based on market capitalization. Higher market capitalization tends to indicate a safer investment, but this is not a hard and fast rule and user experience may vary.
Many platforms now allow traders to buy, hold and sell altcoins. However, each of these platforms has different privacy policies and features. Therefore, the best altcoin exchange depends on several factors, including buyer preferences.
However, many users suffer losses due to scams and bugs exploited by numerous exchange platforms. It is therefore up to each investor to trade on reputable exchanges or not.
Additionally, if an investor decides to trade privately with another investor through direct trading, they should spend time identifying traders they can trust. One of the best ways to protect your investment is to do extensive research on each platform and trader before investing.
New investors are safer avoiding lesser-known platforms and sticking to reputable exchanges such as Coinbase, Binance, KuCoin, eToro, and Crypto.com.
Before purchasing, users should verify the eligible exchanges in their respective jurisdiction and check the exchange market to ensure they have access to their chosen cryptocurrency.
It’s also wise to consider exchange fees to avoid spending more when there are cheaper options.
How to buy altcoins?
The process of buying cryptocurrencies on different platforms may differ slightly, but the steps are mostly the same and fairly straightforward.
While the exchange is safe for beginners and helps users avoid scams, advanced traders can even purchase altcoins from owners over the counter.
Step 1. Determine Portfolio Allocation Percentages for Investments
While most altcoins are still in the experimental stage, many other teams have disappeared after floating their coins and launching their allocated funds (also known as ragpull). As such, a significant percentage of blockchain projects fail quickly.
Buying altcoins is a very risky investment and the chances of the coin going down are relatively high. Therefore, it is safer to divide the portfolio into different risk tiers, especially for investors looking at lesser-known altcoins.
Step 2: Browse the most promising coins
Thousands of altcoins are available for investors. The investment suitability depends on several factors, including the needs and preferences of the investor.
Therefore, all users should learn more about altcoins related to their favorite projects. We also have to look at different characteristics and choose the most attractive coin.
Step 3: Exchange fiat currency for cryptocurrency
Most exchanges do not support US dollar purchases as they are not fiat on the Ramp platform. Investors should therefore purchase supported cryptocurrencies and exchange them for altcoins on exchanges.
Some exchanges allow you to buy cryptocurrencies directly with your credit card, making it easy to get altcoin exchange coins.
Step 4: Choose the right exchange
Investors should have a bag of cryptocurrencies ready to trade on an altcoin exchange and identify an exchange that offers the altcoin of their choice. New buyers are safer when trading on popular exchanges due to higher liquidity and less fraud. Therefore, it is important to find different cryptocurrency exchanges that offer cheap trading pairs. After identifying the desired trading pair, the user will start trading the coin. However, there are some important questions to consider before executing any trades.
Is the stock market serious?
Have there been any previous reports of hacks or bug exploits on the platform?
How do your fees compare to your competitors?
Step 5: Select currency pair
The next step is to connect your Web 3.0 wallet where your altcoins are stored to your exchange. Before executing a trade, it is recommended to take note of the trend of the currency pair and its performance over the past month or weeks so that the user can execute the trade at the optimum time.
Step 6: execute a trade
When the conditions look promising and users are ready to place a trade, it’s time to do it. If you’re new to trading, spend some time learning how orders work, then place your order on the exchange for the altcoin you want.
Step 7: Check if the altcoin is already in your wallet
After executing the transaction, the cryptocurrency is already in your wallet. Users need to transfer funds from exchanges to wallets only if the exchange is centralized. In a DEX, funds are not held by the exchange unless allocated to a liquidity pool, yield farming, or another he DeFi tool.
Crypto wallets come in two different forms.
Cold (also called “hard” because of its hardware) and hot wallets. Cold wallets such as Trezor and Ledger are USB-like devices that store users’ private keys, making it difficult for hackers to control users’ funds without physical access to the hard wallet.
Hot wallets, in contrast, are linked to and hosted online, either through a phone (such as Trust wallet), a desktop (such as Daedalus), or a web application (Metamask). Hot wallets have increased security risks, but lower security offers customers more convenience.