With Bitcoin becoming more mainstream, its value has soared. But what about all the other cryptocurrencies out there? We’ll discuss what it takes for a cryptocurrency to be valuable and how you can tell if an altcoin is worth your time.
Most altcoins are forks of Bitcoin with minor changes to its underlying code
Most altcoins, or alternative cryptocurrency coins, are forks of Bitcoin. An altcoin is extremely unlikely to surpass Bitcoin in market capitalization. In addition to being the first digital currency to gain popularity, Bitcoin has also maintained its dominance due to several key characteristics. These include:
- Highest market capitalization
- Greatest network effect (most developers, greatest user base)
- Most secure blockchain
- Highest liquidity among all cryptocurrencies
Altcoins usually don’t have any intrinsic value like Bitcoin
Bitcoin and other altcoins are digital currencies that are not backed by any central authority. Most of the time, “altcoin” refers to cryptocurrencies after Bitcoin. While there aren’t any hard-and-fast rules for what makes a cryptocurrency valuable, there are several important factors:
- Altcoins aren’t backed by anything. Their price is entirely determined by how many people want them. In contrast, Bitcoin has an underlying utility in terms of being useful as a payment protocol or store of value (like gold).
- The most widely used cryptocurrencies will always be considered more valuable than others.
Things to consider before investing in an altcoin
Before investing in an altcoin, you should consider the following:
- The backstory of the developers. You want to ensure that the development team behind your chosen altcoin has a strong and consistent history of improving their cryptocurrency. Is it being actively developed? Does it have a diverse group of contributors? Do they have previous experience working together on other projects?
- How many people are using it? If only a few thousand people use an altcoin, its price may be artificially inflated because of low supply and high demand. That is the case for virtually every altcoin that exists today and in the future.
An altcoin will have a different value than Bitcoin
One of the most critical factors in an altcoin’s value is how much Bitcoin it can be exchanged for. Most altcoins are not as valuable as Bitcoin, and less valuable means less demand for them.
As we’ve seen, if you have less demand for something, it has a lower price. So the more supply of an altcoin there is—the more people who own or sell it—the lower its price will be.
Altcoins are generally less secure than Bitcoin because they don’t have a fixed supply like BTC. Nor do they have nearly as much market adoption or recognition worldwide.
Altcoins can be valuable, but they have a different value than Bitcoin. The market capitalization of an altcoin is mostly derived from speculation.
If you want to invest in altcoins, some important things need to be considered before making any decisions.
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