Altcoins are the place where investors turn to try to beat the returns delivered by Bitcoin each market cycle. In 2017, an ICO boom occurred after the Ethereum smart contract standard known as ERC-20 made it easy for anyone to create a security token for their startup (or rug pull). For the most part of early 2022, a lot of the weaker tokens were shaken out, and many future world-changing blockchain projects can only be boarded via cryptocurrency exchanges – sorry NYSE. The depegging of Terra, however, brought down the whole industry, forcing it to almost start over from levels that were first achieved several years ago.
It goes without saying that thousands of rug-pulls are still lurking, on Ethereum and other competing blockchains like the Binance Smart Chain, so always make sure to do your own research before making an investment.
Understand Altcoins and the Market
While many investors no longer consider Ethereum to be an altcoin, it's still worth mentioning in this article as the best risk-adjusted investment behind Bitcoin (maybe even better). Ethereum isn't actually an altcoin though – that would be its native asset, ETH. A native asset is a cryptocurrency that is required to transact on a platform or application, and how you can bet on the future of the project. Should demand for the platform increase, so will demand for its native asset.
Aside from Ethereum, the third and fourth biggest cryptocurrencies by market capitalization are Ethereum competitors. The Binance Smart Chain's native coin – BNB, and Ripple's XRP, respectively. This should come as no surprise as the impact of Ethereum has been so disruptive in the global financial industry. A new financial industry has been enable by the global computer that is Ethereum's blockchain – decentralized finance (DeFi). Smart contracts aren't just useful for creating other decentralized currencies, they can also be used to make decentralized applications.
A developer would choose to make their application decentralized if they believe it stands to benefit from anonymity and peer-to-peer interactions. Take the foreign exchange market for example, which employs banks all across the world to facilitate trade. While FX may seem decentralized, each of these banks are a central point of attack for hackers or malicious insiders. Additionally, these banks require personal information to protect themselves from fraud. All of this can be solved with a simple smart contract on the blockchain. No central points of weakness, complete anonymity and borderlessness – all thanks to the wonderful powers of the blockchain. For those curious to learn more about how this works, check out What is Blockchain or How Liquidity Provider Tokens Work for an in depth look at this example. Decentralized exchanges (DEXs) like Uniswap and SushiSwap are applications created using smart contracts and have native assets that are some of the most promising altcoins on the market today.
How to Buy Altcoins
Ready to invest in altcoins? Here's how you can buy the right altcoins in a few easy steps:
- Create an exchange account.
Exchanges power swaps between fiat currencies and digital currencies alike. There are plenty of great altcoin exchanges that will deliver you access to a load of altcoins. Centralized US-based exchanges will require SSN, drivers license and other personal information for tax purposes. However, decentralized exchanges are entirely anonymous. You'll find a list below to compare crypto exchanges and pick the one that's right for you.
- Optionally, buy a crypto wallet to keep your assets under your control.
Cryptocurrency wallets store the private key needed to access your funds on the blockchain. Remember, your crypto assets are associated with your wallet ID on the blockchain, and if you don't control your private key (like on many exchange wallets) then you don't truly own your digital assets. If your exchange controls your private key, that also provides a central point of attack for hackers to steal your funds.
- Study the market, and make your purchases.
The altcoin market is ripe with winners and losers. The best way to know for sure is to spend time in the markets before investing your full amount. Start small and learn real lessons with $5 before taking a full-sized loss. Benzinga is dedicated to providing in depth crypto education, so make sure to subscribe to the weekly newsletter and watch our altcoin show Moon or Bust live on YouTube to stay up to date.
Best Crypto Exchanges
- securely through Coinbase's websiteBest For:Coinbase Learn
Sum of median estimated savings and rewards earned, per user in 2021 across multiple Coinbase programs (excluding sweepstakes). This amount includes fee waivers from Coinbase One (excluding the subscription cost), rewards from Coinbase Card, and staking rewards. ³Crypto rewards is an optional Coinbase offer. Upon purchase of USDC, you will be automatically opted in to rewards. If you’d like to opt out or learn more about rewards, you can click here. The rewards rate is subject to change and can vary by region. Customers will be able to see the latest applicable rates directly within their accounts.
Best Crypto Wallet
The Proof-of-Stake (PoS) protocol allows for faster verification and block production times and therefore faster overall transaction times. Nodes verify blocks on a consensus basis and rewards are distributed in proportion to the share of currency the staker holds and for how long that share has been held. This avoids the energy usage associated with Bitcoin and other proof of work consensus algorithms. Ethereum is hard at work on upgrading to a proof of stake system.
In fact, in late 2022 or early 2023, Ethereum is set transition from Proof-of-Work (PoW) to PoS. At its core, the Merge to PoS will reduce network energy usage by at least 99.95%. Currently, the network has a carbon equivalent equal to the entire nation of Finland, and the core developers understand that the Ethereum network needs to improve.
Ripple and Stellar have similar proprietary processes for block production, probably because the two companies share a founder. Both XRP and XLM use a validating servers network, a process of block verification that could be called Proof-of-Correctness. Consensus is achieved and block verification completed when a supermajority (80%) of servers agree.
One major cryptocurrency pegs its value to the dollar and claims full collateralization of its digital token with U.S. dollars. Tether calls its configuration of the block verification process Proof-of-Reserve — each USDT in circulation represents one U.S. dollar held in reserve. Tether claims it can prove it has a dollar to back every Tether.
USD vs Cryptocurrency
The U.S Dollar has value because of trust in the U.S Government. Cryptocurrencies have value because of trust in the decentralized community behind blockchain.
The dollar exists as a dominant currency because the people who use it have come to trust its value more than any other. Which cryptocurrency will gain the trust necessary to replicate the dollar? It may be the one that first gains the trust of the banks, and now may be the best time to buy it.
Investing in Altcoins: Is It Worth It?
Investing in altcoins can be both rewarding and risky. While some altcoins have experienced significant growth and have made early investors wealthy, others have failed and caused significant losses. It is important to conduct thorough research and analysis before investing in any altcoin due to the high volatility and unpredictability of the cryptocurrency market. Investing in altcoins can offer opportunities for diversification and potentially higher returns compared to traditional investments, but it also carries a higher level of risk. Ultimately, the decision to invest in altcoins should be based on an individual's risk tolerance, financial goals and understanding of the market dynamics.
Frequently Asked Questions
What is a "altcoin"?
An altcoin is typically referred to as any cryptocurrency other than Bitcoin.
What is a "stablecoin"?
A stablecoin is a cryptocurrency whose value is fixed to another currency. For example USD is pegged to the US dollar.
Which platform can you buy altcoins?
There are several platforms available for buying altcoins, and the choice depends on your specific preferences and needs. Some popular platforms for buying altcoins include Binance, Coinbase, Kraken, and Bitfinex. It is important to do thorough research and consider factors such as security, fees, user interface, available altcoins and customer service before choosing a platform to buy altcoins.
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