What are Altcoins and ICOs?
What are altcoins?Altcoins are cryptocurrencies other than Bitcoin. The term itself is an abbreviation of “alternative coins. Thus, Ethereum, Litecoin, Tezos, Monero, Zcash, and any other non-Bitcoin cryptocurrency are considered altcoins.
Why do we need altcoins?Here’s a fact: Bitcoin isn’t perfect. Altcoins are created in the first place to create a cryptocurrency better than Bitcoin. Although Bitcoin can replicate the unique features of many altcoins, altcoins themselves are better testing grounds for new cryptocurrency features.Another reason for creating altcoins is to further decentralize the already decentralized cryptocurrency community. Altcoin simply creates the competition that Bitcoin needs to make the market constantly innovative.
How do altcoins differ?Normally, each altcoin performs exceptionally in a certain aspect of cryptocurrency.Litecoin, for example, is an altcoin known to confirm transactions faster than Bitcoin. Monero and Dash were created to give better anonymity to users than Bitcoin, making transactions in these cryptocurrencies nigh-impossible to trace.Altcoins also differ in the way they are mined. For reference, let’s point out that Bitcoin’s mining algorithm is SHA-256. Litecoin, on the other hand, uses the Scrypt mining algorithm. Different mining algorithms require different types of mining hardware.
Altcoin’s popularity based on market capA relatively new or less known altcoin will probably be harder to buy and have fewer crypto wallets to store it.Despite thousands of altcoins entering the market, only a few have managed to gain traction similar to Bitcoin during its early rise.The popularity of an altcoin can be easily determined by its market capitalization. Market capitalization, or market cap, shows how big a crypto coin’s market is in dollar terms.To calculate a crypto coin market cap, follow this formula:Crypto coin market cap = (# of crypto coin in circulation) x (dollar exchange rate)Let’s say there are 20 million bitcoins in circulation and the price of a bitcoin is $6000. The market cap of Bitcoin will be $120 billion.Bitcoin’s market cap comprised 90% of the crypto market cap for a long time. The rise of other cryptocurrencies, however, decreased Bitcoin’s share of the market that is now around $100 billion.
How to decide which coin to invest in?The best way to learn which coins to invest in is to read about them and study the ones that pique your interest.Once you do that, you’ll likely learn that you should avoid investing in an altcoin based on the hype built around it.Many coins are known to use pump-and-dump schemes. A certain altcoin’s creator generates buzz around the altcoin to have people invest in it, inflating the altcoin’s price. Once the altcoin’s price appreciates, its creators will sell it all off, leaving most of the investors with useless coins and nobody to sell them to.As mentioned earlier, the market cap can give away how well an altcoin has been received in the crypto community.If a certain altcoin already has a community built around it, join the community. Major altcoins commonly have a Facebook group, an official forum, a subreddit, and other places of gathering. There, you can coin developers specific questions.A strong community is a crucial indicator of an altcoin’s success.
Where to get altcoins?Like Bitcoin, there are different ways to obtain altcoins. The simplest way is to accept them as payments for goods and services that you sell.Some communities also offer altcoins as giveaways to increase exposure and gather more community members.You can also do some trading on cryptocurrency exchanges like Bluebelt. Many exchanges use Bitcoin as an intermediary but exchanges like us can sell altcoins to you directly for your local currency.
What is an ICO?Have you heard of the initial public offering, or IPO, in stocks? The initial coin offering, or ICO, is derived from that.In stocks, IPOs are a new company’s launch on the stock exchange. The term “going public” is used to indicate it. The IPO’s purpose is to sell company stock to raise capital from the public.On the other hand, ICOs sell coins, or tokens, to fund the coin creator’ project. Simple explanationThe idea is that if you believe in the future success of the project, you will buy the tokens that power the project for less and sell them later at a profit once the project succeeds.Detailed explanationWhen a cryptocurrency company wants to launch a new project using an ICO, a white paper is released.The whitepaper contains the following:
- What the project is about
- The needs the project will fulfill
- The amount of money needed
- How long the ICO will run for this project