This is where crypto gets really exciting.
While Bitcoin is still the most widely used crypto in the world, there are now thousands of other cryptocurrencies on the market with a similar potential for growth. These are known as altcoins.
Understanding the basics of altcoins and how to invest in them is essential for any new investor looking to make the most of the crypto market.
Here’s what you need to know.
- What are altcoins?
- Altcoins vs Bitcoins
- Altcoins & Bitcoin forks
- Pros and Cons of investing in altcoins
- Popular altcoins
- Should I invest in altcoins?
- How to choose the right altcoin?
- 6 tips for investing in altcoins
- What does a good altcoin look like?
- What you need to get started
Check out our blog and education hub for more great content, including a smart guide to crypto investing and a collection of timeless crypto trading wisdom to guide your investments.
Altcoins are alternatives to Bitcoin (“altcoin” is a generic term used to refer to any cryptocurrency that came after Bitcoin). Generally, altcoins offer the market new features and possibilities that Bitcoin doesn’t. Their growing success and abundance have made the world of cryptocurrency more profitable and accessible than ever.
Like Bitcoin, altcoins use decentralised blockchain technology which allows for secure peer-to-peer transactions and many other exciting possibilities. (If you don’t know what the blockchain is, click here). However, while altcoins build on the success of Bitcoin, they slightly change the rules in order to appeal to different users and offer something that Bitcoin doesn’t.
For the most part, they sell themselves as better alternatives to Bitcoin and look to bring some new function into the crypto ecosystem. An altcoins value and success usually depends on its unique ability to improve on an existing technology or solve a problem in the market.
Fundamentally, altcoins work a lot like the original Bitcoin. As they use blockchain technology, they offer many of the same benefits as Bitcoin, including a transparent, public record of all transactions, the removal of banks and third parties, and a network that is collectively verified and secured through cryptography. Using a private key, you can send a payment from your digital wallet to another user's wallet, and you can buy, sell and swap altcoins just as you would with Bitcoin.
However, while there is a reason that Bitcoin remains the most popular cryptocurrency in the world, given its meteoric rise, it has become increasingly difficult for new investors to own a significant amount of Bitcoin. Additionally, the growing numbers of people using Bitcoin has put a strain on the network, revealing some of the cryptocurrency’s limitations and shortcomings. This has given rise to a thriving marketplace of altcoins which seek to address these shortcomings and bring their own special flavour to the crypto market.
A few of the most well-known altcoins include Ethereum (ETH), Ripple (XRP), Bitcoin Cash (BCH), Tether (USDT), Litecoin (LTC) and Monero (XMR).
Some altcoins are a result of a “fork”. For example, one of the early ‘forks’ or ‘splits’ from the original Bitcoin protocol was a cryptocurrency called Litecoin (LTC) which offered faster and cheaper transactions than Bitcoin.
Before we breakdown some of the most popular altcoins and what makes them so special, let’s cut to the chase and take a look at some of the pros and cons of investing in altcoins:
Okay, so now we have an idea of what altcoins are, let’s take a look at some of the most fascinating and popular altcoins on the market.
Seeing how a few of the major altcoins work will help you understand their role in the market and how to invest in them effectively. To skip to the investing part, click here.
Ethereum is the second-largest cryptocurrency in the world. It is both a cryptocurrency and an open-source platform that allows developers to innovate and build decentralised applications and smart contracts. Smart contracts allow people from anywhere in the world to execute a contract without needing a third party. Instead, pre-defined conditions are put into the smart contract and when these conditions are met, the contract is executed.
Ethereum’s cryptocurrency, “Ether” (ETH), is just a small component of what makes the Ethereum network so special. A new era of programming, digital ownership and other innovations are being introduced as a result of Ethereum’s smart contract capabilities. While Ethereum is more like Bitcoin than other altcoins (in its solid infrastructure), it serves an entirely different purpose and has opened a world of possibilities which has led to it becoming so established and valuable.
Etherum’s key takeaways:
Founded in 2012, Ripple (XRP) is one of the most traded digital currencies across the globe. It is faster, more cost-effective and more scalable and transparent than many other cryptocurrencies. Ripple is both a currency and a platform that allows for fast and affordable transactions from user to user, wherever they are in the world.
Ripple’s affordable price, low barrier to entry and potential to revolutionise international banking makes it one of the most attractive crypto coins on the market, and many large banks have already adopted Ripple technology for cross-border payments.
Bitcoin cash (BCH) was created in 2017 as an early fork of Bitcoin. Bitcoin cash made the following improvements to the original Bitcoin:
While its value and market cap are still nowhere near that of the original Bitcoin, Bitcoin Cash is a well-established altcoin that operates on its own blockchain. Despite not offering any radically new possibilities or changes (like some other altcoins), it has proven useful to the market and thus continues to be a valuable altcoin and investment.
Founded in 2017 by a co-founder of Ethereum, Cardano (ADA) looks to combine the benefits of Ethereum (allowing for smart contracts and decentralised applications) while fulfilling several other functions. Cardano is the world's first peer-reviewed blockchain. It enables owners of its cryptocurrency to help operate its network and vote on changes to its software rules. This could be very useful in the future when cryptocurrency is more regulated.
Cardano also looks to solve issues of scale, transaction speed and operability. It differs from other crypto coins by focusing on a rigorous research-driven approach, and many people like Cardano because it is supported by a team of academic leaders, researchers, and scientists who each help to develop the blockchain.
Monero (XMR) is an altcoin focused on security and privacy. It is meant to be an anonymous currency. Founded in 2014, Monero is one of the older altcoins similar to Bitcoin (it can be used to buy and sell products and can be traded for other coins). Unlike other virtual currencies, Monero’s funding is dependent on grassroots community funding. By offering an untraceable and more private way to carry out transactions, Monero brings a level of anonymity to the crypto landscape that appeals to specific users.
When it comes to investments, there are never any guarantees. However, the past few years have confirmed our belief that crypto and altcoins are here to stay. In the past decade, many altcoins have emerged and seen a meteoric rise in value and widespread adoption, especially in the business and finance sectors.
That being said, there are countless altcoins that have emerged only to disappear and take all of its investor’s money with it. Altcoins are a volatile game and with a high potential for reward comes a high potential for risk. While you don’t have to be a financial wizard or crypto expert to make the most of the altcoin market, doing your research and taking the necessary precautions are key to effective investing.
What all crypto traders want to know. Here’s what to look out for when choosing the right altcoin to invest in. For our more in-depth guide on how to invest in crypto for beginners, click here.
- Invest based on the market cap and not the price
One measure of an altcoin’s success is its market cap (price of coin X number of coins in circulation) and how it compares to other cryptocurrencies. Invest in an altcoin based on market cap rather than the price of the coin.
- Research the company and the community
The value of an altcoin comes down to its use case (how it will be used and by whom). For example, Bitcoin and Ethereum (the two most popular crypto coins) have a clear purpose and have introduced new possibilities into the market. Having a use case usually means the coin will have a group of people it will serve and thus a community around the coin. The community (miners, developers, supporters and users) add value to a coin by adopting its use case.
Another important thing to consider is the company offering the coin and the team behind it. Look for a reputable and experienced development team and inform yourself on the company's leadership and past successes. (This is a good way to weed out potential scams).
- Check the track record and history
For the safest returns, invest in altcoins which have been around for some time and have a proven track record. Most relatively safe altcoins are in the top 100 list of cryptocurrencies by market cap. You also want to understand the stability and history of your altcoin. Knowing where it is in its growth phase will help you determine whether or not it is a good investment.
- Initial Coin Offering (ICO) and White Papers
ICOs essentially explain why a coin will succeed and are the most common way for companies to roll out a new altcoin and raise money for their project. Just like the stock market, you’re betting on which company can deliver what they promise. ICOs are often the best way to get in at ground level and see the biggest gains. However, ICOs are not bound by any legal requirements (making them susceptible to scams), so companies often prepare a “white paper” to outline the project.
A white paper is a comprehensive guide on a particular crypto coin, underlining its utility, purpose, future prospects and underlying technology. Given the lack of historical data you can analyse during an ICO, reading an altcoin’s white paper is a crucial part of the research. If a coin doesn’t have a solid white paper, it is probably not a good investment (or just a complete scam).
- Stay in the loop and monitor your portfolio
Once you’ve invested in an altcoin, stay vigilant regarding your assets and news about your investments. By staying at least somewhat engaged with the research you did prior to making your investment, you will know when to buy, sell or trade. Similarly, pay attention to crypto news, the political climate and changes in laws and regulations. Rises and dips in the price of crypto are often due to these external factors.
- Choose the right online crypto exchange
When it comes to investing online, it is important to choose a secure and trusted platform that offers personalised customer support and an easy-to-understand experience. Some of the larger crypto exchanges do not offer personalised customer support and limit which coins they offer. It is not uncommon to find much better investments on smaller exchanges with more obscure coins. At Digital Surge, we pride ourselves on offering Australians a safe and enjoyable way to trade Bitcoin and a wide variety of altcoins.
- Be responsible and wary of scams!
Needless to say, you should only invest what you can afford, and you should always be vigilant of potential scams and frauds. Some of these include unsafe exchanges, “pump & dump” schemes, fake altcoins, email scamming and password hacking. This is why research and choosing a secure exchange like Digital Surge is crucial. If you follow the tips above, your investments will be a lot safer and more effective. If something seems way too good to be true, then it probably is!
A good altcoin will generally have a solid white paper, a diverse community behind it and a reputable team of developers. Naturally, for an altcoin to be successful it should serve a unique function or significantly improve an existing technology. Market cap, trade volume and a coin’s track record are all good indicators of whether or not an altcoin will succeed.
To get started you just need an account at a trusted crypto exchange, a digital wallet, personal identification, a secure Internet connection and a method of payment. Other than that, do your research, be open to risks and enjoy the journey!
Thanks for sticking with us till’ the end. By now you should have an idea of what altcoins are and where to start with investing.
At one stage, Bitcoin was the only cryptocurrency around. Now, there are thousands to choose from, making the world of crypto more accessible than ever.
While the future of crypto remains an open and exciting question, the fact is that many big companies and corporations are already adopting and integrating crypto and blockchain technology into their businesses.
Crypto doesn’t look like it’s going anywhere and neither are we.
To start your crypto journey the safe and easy way, sign up with us and join the thousands of Australians trading with Digital Surge. Hope to see you around.