In this article, we will try to find answers to what is altcoin and what does it do. Although, the working principle is not completely understood, people know what Bitcoin is. Again, people could be surprised when they see hundreds of cryptocurrency types known as altcoin when they enter cryptocurrency market. Altcoin is an interesting part of cryptocurrency but they are not for everyone. People who are new to altcoins often ask different questions. This guideline will provide a short introduction about altcoins who want to make cryptocurrency a part of their investment portfolio.
What are Altcoins and why are they important?
Altcoin is the abbreviation of alternative Bitcoins and covers all cryptocurrency other than Bitcoin. Altcoins are named as alternative of Bitcoin because altcoins hope to change or improve at least one Bitcoin components.
Most of altcoins are more than a Bitcoin clone. Most of these altcoins alter certain properties like transaction speed, distribution methods, or hash algorithm of Bitcoin. Most of the coins don’t survive for long. One of the exceptions is one of the first altcoin Litecoin. Litecoin uses a different hash algorithm than Bitcoin and has higher currencies. Therefore, Litecoin is expressed as “silver against golden Bitcoin”.
What is first Altcoin?
First altcoin is Namecoin found in April, 2011. Although Namecoin also acts as currency, it decentralised domain registration and makes internet censorship a challenging job.
Should I invest to Altcoins?
Since the history of cryptocurrencies are not long and since the market changes rapidly, all cryptocurrency investments bear a risk. Even Bitcoin – most stable cryptocurrency – shows constant price fluctuations.
However, altcoins are more volatile. Since they have low market share, altcoin markets have the tendency for price manipulations. Rich traders called sharks could inject a huge amount of money to low-valued currencies and increase prices. As the prices increase, sharks could sell their coins with higher profit and many investors experience significant losses. This method is known as pump and dump. These sharks not only harm the importunate and naive traders who don’t spend time to research, but also causes altcoins to have a short life-cycle.
To prevent losing all your money in a pump and dump cycle, you need to focus on long-term money investments that seems to have a good potential and relatively stable trends. Often healthy altcoins have strong societies, high liquidity, and proactive developers who develop source code accordingly (although it is not necessary, most of the developers chose to hide their identities).
If you want to make investments on altcoins, you need to remember some fundamental investment principles. You should avoid hype of cryptocurrency societies. Investors always have an agenda; therefore, you shouldn’t use their ideas as real data. You should only invest to currencies you have researched. It is not rational to invest something you don’t understand. Senseless investment will be the first step to losing the money you worked hard. You should spend time to investigate make the investment and you should learn how to trade before trying to be high-volume and short-term traders. Most importantly, never investment more than you are willing to lose. Many people have lost their savings with single investment.