Before investing in altcoins, you should consider the project’s whitepaper, supply and demand factors, the team behind the project, and the stakeholders. This article will help you understand clearly what to do.

What are altcoins?

"Altcoin" is a portmanteau of "alternative" and "coin". Or in other words, altcoins refer to all Bitcoin alternatives that have similar characteristics to Bitcoin. For example, Bitcoin and altcoins have the same basic framework. Similar to Bitcoin, altcoins also run as peer-to-peer (P2P) systems and share code.

Of course, there are also distinct differences between Bitcoin and altcoins. One of these differences is the consensus mechanism that altcoins use to validate transactions or create blocks. Bitcoin uses the PoW consensus mechanism, while altcoins typically use PoS. There are many different categories of altcoins, and they are defined by their consensus mechanisms and unique features.

Here are the most popular altcoins:

Based on mining

Altcoins are based on mining using a PoW mechanism that allows the system to generate new coins through mining. Mining requires solving complex computational problems to create blocks. XMR, LTC, and ZEC are the main examples of this type.

XMR/USDT. Source: TradingView

Stablecoins

Stablecoins were created to reduce volatility, which is the nature of cryptocurrency trading and use since its inception. Therefore, the value of stablecoins is pegged to the value of many commodities, such as precious metals, fiat currencies, or other cryptocurrencies. These commodities can serve as a reserve in case the stablecoin collapses. DAI, USDC, and USDT are the largest stablecoins on the market today.

Security Tokens

As the name implies, security tokens are similar to traditional securities traded on the stock market. They represent equity in the form of ownership or dividends, just like traditional stocks. Security tokens are attractive to investors because their price is likely to increase quickly.

Memecoin

This type of altcoin is so called because it is inspired by a joke of a famous cryptocurrency. They are often hyped by celebrities and KOLs in the cryptocurrency field. For example, Tesla CEO and cryptocurrency enthusiast Elon Musk regularly promotes popular meme coins DOGE and SHIB on Twitter.

Dogecoin/USDT. Source: TradingView

Utility Tokens

Utility tokens are used to provide services such as rewards, network fees, and purchases within a specific network. Unlike security tokens, utility tokens do not provide equity. For example, FIL is a utility token used to purchase storage on the Filecoin decentralized storage network.

FIL/USDT. Source: TradingView

What is the basis for evaluating altcoins?

Basic altcoin analysis involves reviewing and evaluating all available information about it. In particular, to fully understand and evaluate the best altcoins to buy, one cannot ignore aspects such as the use case, network, and team behind the project.

When analyzing altcoins or any cryptocurrency for investment, it is important to understand whether the asset is overvalued or undervalued. Overpriced assets should be avoided. On the contrary, undervalued assets are more desirable. This is because overvalued assets may underperform and fall back to their true value. On the other hand, undervalued assets have a lot of growth potential and are always profitable.

Thoroughly analyzing this information will help you make the most informed investment decision. Here are some helpful guidelines on how to analyze cryptocurrencies before investing:

Studying a token’s whitepaper in detail will provide a wealth of relevant information, such as use cases, goals, and the team’s vision for the project. The whitepaper should give you a positive idea of ​​how the altcoin will provide value to users.

For example, Bitcoin has the following value propositions:

“A decentralized digital currency with no central bank or single administrator that can be sent from one user to another on a peer-to-peer network without the need for a middleman.”

Source: Bitcoin White Paper

The value proposition of an altcoin can give you a hint so that you can further analyze other information about it.

Step 2: Find altcoins with growing demand and stable (or decreasing) supply

Looking at supply and demand is one of the best ways to evaluate your next cryptocurrency investment. Once you understand how an altcoin adds value to its users, the next step is to analyze how it drives supply and demand.

In short, altcoins with multiple incentives will promote increased demand. Therefore, the supply continues to decrease or stabilize. When demand exceeds supply, the price will rise, driving more demand.

To keep track, you can access resources such as price indices and market news, as well as Coin 360 and CoinMarketCap heatmaps.

Step 3: Evaluate the team and stakeholders behind the project

Once you have a clear idea of ​​what the project can offer, the next step is to carefully evaluate the project management team. You can find information about them in white papers, but try to do more independent research. There are many useful resources, such as project websites as well as LinkedIn profiles. Often, developers make their information public and accessible to everyone.

After researching each member’s background ask the following questions:

– Have they been involved in other successful and reputable projects?

– What certifications do they have?

– Are they a reputable member of the cryptocurrency community and blockchain ecosystem?

The goal is to find out if the team behind the project is experienced and includes experts who know what they are doing. You can consider using on-chain analysis platforms and blockchain explorers to supplement your research on this matter. You can also delve into their social media profiles or check out Twitter to see the conversations they are having.

For example, Ethereum has a strong investment community because everyone working on Ethereum creates value for Ethereum holders. Despite issues such as high fees and slow transactions, developers, community builders, and other top talent still want to continue projects related to Ethereum.

Ethereum Team | Source: Duncan Rawlinson

For example, platforms like AAVE and OpenSea are built on Ethereum. Projects with strong core teams will gain many advantages because it creates a ripple effect. As with Ethereum, they will attract more credible future thinkers, allowing for more projects and innovations to be built on the platform. As a result, these individuals work to continuously improve the platform and available initiatives associated with the project, creating more value for token holders.

Which altcoin platform has the most potential?

When it comes to altcoin investing, there are a lot of options out there. However, it’s important to be careful when it comes to understanding which types have the most potential to ensure you make a smart investment.

Ethereum: There’s a reason why ETH is called the “king of altcoins” by many. Created in 2013 by Vitalik Buterin and his co-founders, Ethereum is a smart contract platform for building decentralized applications (DApps). The founders designed Solidity, Ethereum’s own smart contract programming language. Much of the decentralized finance space currently runs on this blockchain, and the utility of the native token ETH is growing.

Chainlink: Chainlink takes smart contracts to the next level by integrating real-world data. Thanks to Chainlink, Ethereum smart contracts can now execute commands to other application programming interfaces. LINK continues to soar in value while attracting stakeholders to benefit the platform, including former Google CEO Eric Schmidt, who serves as one of the network’s advisors.

Chainlink’s ecological development history | Source: Chainlink

Stellar Lumens: Stellar was born with the goal of unifying the global banking system through its decentralized platform. Therefore, it uses offline payment methods such as Alchemy Pay and the Single Euro Payments Area (SEPA). The Stellar network then connects these systems through a decentralized ledger. Stellar's competitor Ripple is currently involved in a lawsuit with the SEC, which has caused the price of the original token XRP to plummet, and it has been delisted from exchanges, among other damages... Taking this opportunity, Stellar has gained an important position as the world's leading payment network.

Aave: Aave is one of the leading lending protocols today and continues to provide security and anonymity to borrowers. Due to its popularity, borrowers are required to provide collateral greater than the amount borrowed. The collateral is stored securely throughout the loan term. In the event of a default, the lender is automatically paid out through a smart contract.