What are altcoins? Investing for beginners

Altcoins are essentially any crypto coin other than Bitcoin. Bitcoin was the initial cryptocurrency to hit the digital asset space and is still way and shoulders above the rest of the crowd for many would-be investors. That is why Altcoin is a term differentiating such products as alternatives to Bitcoin. The biggest altcoin by market volume is Ethereum, which currently sits second overall, just behind Bitcoin. Today we will be exploring in more detail what an altcoin is and how you can distinguish between different types of it.

What are altcoins? 

They are considered alternative cryptocurrencies to Bitcoin, which was the original cryptocurrency. Bitcoin serves no other underlying function – unlike Ethereum which does.  Ethereum is the biggest altcoin on the market today and you can invest in it on mobile trading apps such as amana. Ethereum is a network for other cryptocurrencies to be bought and sold. Altcoins generally have other purposes and useful functions. 

Types of altcoins

The cryptocurrency space is a volatile investment field at the best of times, and your capital is always at risk when investing in this space. You can find out with amana if trading crypto is the same as forex.
 There are three subdivisions of altcoins. They are:

• Governance
• Staking
• Stablecoins

Governance

Firstly, governance tokens are altcoins with a democratic incentive. They work as a community and vote on any potential changes as a collective. They harken to the decentralized nature of cryptocurrency, the crux of the appeal to die-hard enthusiasts and many retail investors.

Staking

Secondly, we have staking altcoins. The main idea behind staking is that you hold your altcoins and allow them to potentially earn interest. Ethereum were one type of cryptocurrency that has effectively utilized staking. For the holder, having an attractive rate of return is an incentive enough to keep hold of an altcoin. For the altcoin developer, it allows them to have guaranteed liquidity. In addition, it provides their cryptocurrency with more stability and liquidity in the long run. 
However, cryptocurrency is the most volatile asset class, and your capital is always at risk when investing in this space. As well as Ethereum, proof of stake altcoins include Cardano, Solana, and Polkadot. These are coins you can find in the top 20 by current market cap.

Stablecoins

Last but not least, we have stablecoins. They derive their worth from centralized currencies, most notably the USD. 
They maintain their value by maintaining a stock of its tokens that work in tandem with the dollar itself. Stablecoins experienced a serious backlash earlier this year, following the spectacular implosion of Luna. Luna was one of the most well-known and occasionally very profitable stablecoins for some investors, but became worthless in the space of a few days. This highlights just how dangerous cryptocurrency investments can be, so always make sure you are doing the necessary research before you invest.

Cryptocurrency investments can result in serious losses, and it is crucial to remember your capital is always at risk in such a volatile space.

Although there are other altcoins, such as “meme coins”, they make up a small percentage of the market and serve no value or purpose, and are very dangerous investments that often lose all their value quickly.
#advice_by_amana: stablecoins are most commonly used as means to conduct a trade rather than an investment, as they are unlikely to lose or gain value  during a transaction execution.

Should you invest in altcoins? Pros and cons

Cryptocurrency is an extremely volatile and risky venture. We will explore the specific pros and cons in this section, but it is key to remember that a huge risk is involved when investing in digital assets.

Altcoins have been one of the most innovative asset developments of the last decade. Although Bitcoin has occasionally produced some staggering returns for early investors (as well as caused great losses), altcoins have definitely made their mark on the trading industry and continue to do so.

Still, volatility is huge. Ethereum was worth over $4,000 at its peak in 2021 but it has since retracted by 75%. 

However, much like any investment, there are also key factors to look out for. Due to the number of altcoins available on the market and the number of new ones, many scams can result in you losing your money. This is why you need to be especially careful with your investment choice.

Many altcoins are found on lesser-known exchanges and unavailable on established mobile trading apps such as amana. 
This can put you at a disadvantage as some have less effective risk management methods than more established exchanges. 

This lack of stability and, occasionally, credibility can result in huge price swings, with many altcoins losing 90% from their all-time high.
 So, if you are investing as a beginner, it is critical you understand this.

learn here all about the difficulty of trading cryptocurrency.  

Bitcoin vs altcoin

One common theory is that Bitcoin is “digital gold” and altcoins, such as Ethereum, are “digital oil”. From an investment point of view, this theory holds some ground. 
 However, there are more intricate factors at play that show the benefits and disadvantages of both.

Bitcoin being King can act as a positive and negative. It works as a positive as it has the most market exposure. Therefore, it has larger amounts of investment from institutions and thus has proven to be slightly more resistant to huge market drops. However, the drops are still spectacular and Bitcoin has lost over 70% of its price since its all-time high last year.

There isn’t a cryptocurrency out there that is a safe investment; volatility is one of the most striking attributes of this market. Some altcoins have gone all the way to zero during a bear market, despite having good utility.

Due to the visibility, more astute and first-time investors will tend to go for the more well-known assets. Bitcoin falls into this category. 
Ethereum is an altcoin that also has similar levels of investment. However, it has not attracted the same attention as Bitcoin in the mainstream media or popular culture.

However, if we are looking at a world with the mass adoption of cryptocurrency, altcoins provide more utility. This is down to the fact they have been designed with sustainability and longevity in mind.

How to buy altcoins

Although altcoins are widely available from various trading platforms, you want to ensure you are investing by using providers that are reliable and enjoy solid reputations. 
Some companies will offer trading in a wider range of cryptocurrencies, but often they come up short on practicalities such as liquidity and efficiency.

With mobile trading apps like amana, you can purchase both Bitcoin and Ethereum. You can do this knowing your orders will be executed effectively and with a high-quality provider.

If you want to learn more about trading and investment with amana, review our guide on cryptocurrency.

Continue reading and expanding your knowledge regarding trading markets with the amana learning center, read a few articles in our blog, or watch some videos from our video library.

Move forward with steady steps towards increasing your knowledge, and when you feel that you have gained enough experience download the amana app. And start your investment journey with us.

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