What are altcoins? Investing for beginners

What are altcoins? Investing for beginners
Table Content
What are altcoins?
Types of altcoins
Governance
Staking
Stablecoins
Should you invest in alctoins? Pros and cons
Bitcoin vs altcoin
How to buy altcoins

Altcoins are essentially any coin that isn’t Bitcoin. As Bitcoin was the initial cryptocurrency to hit the digital asset space, it is considered the standalone and marquee asset that is available in to invest in.
Altcoin, to put it simply, is a combination of the words coin and alternative. The biggest altcoin by market cap is Ethereum, which currently sits second overall, just behind Bitcoin. However, today we will be exploring in more detail what an altcoin is and how you can distinguish between the different types.

What are altcoins? 

They are considered alternative cryptocurrencies to Bitcoin, which was the original cryptocurrency. It serves no other underlying function like Ethereum does, for instance. 

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, which separate them from Bitcoin.

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. 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. 
Governance altcoins have some great features. They appeal to the decentralized nature of cryptocurrency, the main 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. Altcoins such as Ethereum were one type of cryptocurrency that has effectively utilized staking.

For the holder, having an attractive rate of return is 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 having a stock of that currency that works in tandem with the dollar itself.

Stablecoins received serious backlash earlier this year following the spectacular implosion of Luna. This was one of the most well-known and occasionally very profitable stablecoins for some investors, which essentially became worthless in the space of a few days. This highlighted just how dangerous cryptocurrency investments can be, so always make sure you are doing the necessary research before you invest.

Some investments can be savvy and executed well. However, 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 which often lose all their value quickly.

Should you invest in altcoins? Pros and cons

As we touched on at the end of the last section, 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.

The innovation in altcoins has had commentators and analysts sitting up and taking notice. For cryptocurrency altcoins such as Ethereum, the cryptocurrency was worth over $4,000 at its peak in 2021. Despite such a large growth in price, it has since retracted by 75% and shows the dangers involved when investing in cryptocurrency.

However, much like any investment, there are also key things 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 pivotal you understand this.

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 weight. 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 hasn’t attracted the same attention as Bitcoin in the mainstream media or popular culture.

However, if we’re 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. Although some companies will offer markets for a wider range of cryptocurrencies, 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.

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