A Beginner’s Guide to Investing in Altcoins

With the rise of altcoins, it’s essential to have a solid understanding of what they are and how to invest in them. This article will provide a beginner’s guide to investing in altcoins. We’ll cover what altcoins are, how to choose the right ones, and the steps to take to make your first investment.

What are Altcoins? 

Before we dive into the specifics of investing in altcoins, it’s essential to understand what they are. Altcoins are any cryptocurrency that is not Bitcoin. This includes thousands of coins created since Bitcoin’s inception in 2009. 

Altcoins vary in purpose, with some designed for specific industries, such as healthcare or gaming, while others aim to solve issues with Bitcoin’s technology, such as scalability or energy consumption. 

Types of Altcoins

Altcoins come in various flavours and categories. An altcoin can fall into multiple categories, such as TerraUSD, a stablecoin and a utility token. Here’s a brief summary of some of the types of altcoins and what they are intended to be used for.

• Stablecoins
• Security tokens
• Utility tokens
• Meme coins
• Governance tokens

> Stablecoins

Cryptocurrency trading and use have been marked by volatility since its launch. Stablecoins are cryptocurrencies that have their value anchored to another coin, good, or financial instrument. Stablecoins aim to offer a substitute for the most widely used cryptocurrencies’ significant volatility, such as Bitcoin (BTC), which has made crypto investments less appropriate for everyday transactions.

Stablecoins aim to reduce this overall volatility by pegging their value to a basket of goods, such as fiat currencies, precious metals, or other cryptocurrencies. The basket is meant to be a reserve to redeem holders if the cryptocurrency fails or faces problems. Price fluctuations for stablecoins are not meant to exceed a narrow range.

Examples:

• Tether (USDT)
• Binance USD (BUSD) 
• True USD (TUSD) 
• Paxos Standard (PAX)

> Security Tokens

A security token is a digital asset used as an investment that reflects ownership or other rights and receives value from an asset or group of assets.

Security tokens are traditional investments like stocks, bonds, or other securitised assets in digital form.

The Securities and Exchange Commission regulates security tokens because they are designed to act as securities.

Examples:

• Polymath
• tZero
• Harbor
• Securitize

> Utility Tokens

A utility token is a coin on a smart contract blockchain with a specified purpose inside the ecosystem of a cryptocurrency project. 

Unlike cryptocurrencies like Bitcoin (BTC), utility tokens aren’t intended to be used as a medium of trade in the real world. Instead, a utility token is only useful within the framework of the specific smart contract protocol. 

Utility tokens are used to provide services within a network. For example, they might be used to purchase services, pay network fees, or redeem rewards. 

Example:

• Filecoin
• Ether
• Golem (GNT)
• Basic Attention Token (BAT)

> Meme Coins

A meme coin is a cryptocurrency term for popular currencies, sometimes depicted with comical or animated memes, that enthusiastic online traders and followers support. 

From their name, Meme coins are cryptocurrencies created as a joke or a meme. They are usually based on popular internet memes, and their primary purpose is to be an entertaining way to invest in cryptocurrencies. Most investors do not take meme coins seriously, and their value is often highly volatile.

Examples:

• Dogecoin
• Shiba Inu
• Dogelon Mars
• Tamadoge

> Governance Tokens

Governance tokens are tokens designed by Developers to let token holders influence the direction of a protocol. Owners of the governance tokens can vote on requests for new features, change the governance structure, and make other project-related choices.

Because they are generally native to a private blockchain and used for blockchain purposes, they are utility tokens but have come to be accepted as a separate type because of their purpose

Examples:

• Maker (MKR)
• Curve DAO
• Aave
• Compound

How to Choose the Right Altcoins to Invest In 

Investing in altcoins can be daunting, especially with the many options available. Here are some factors to consider when choosing the right altcoins for you: 

• Purpose and use case
• Market capitalisation
• Community support
• Liquidity
• Team
• Security

> Purpose and Use-Case

What is the purpose of the altcoin, and what problem does it solve? Look for projects that have a clear use case and a well-defined roadmap. 

> Market Capitalization

Look for altcoins with a market capitalisation that is large enough to be sustainable but not too large that there is little room for growth. 

> Community Support

Look for projects that have an active community that supports the project. This can be in social media presence, developer activity, and investor sentiment. 

> Liquidity

Ensure the altcoin has enough liquidity to buy and sell on exchanges easily. 

> Team

Look for a solid and experienced team behind the altcoin. Research the team members and their past experiences. 

> Security

Ensure the altcoin has a strong security protocol to prevent hacks and thefts. 

Steps to Take to Make Your First Investment 

Once you have chosen the altcoins you want to invest in, here are the steps to take to make your first investment: 

• Open an account
• Verify your identity
• Add funds
• Buy altcoins
• Secure your altcoins

> Open an Account

Choose a reputable cryptocurrency exchange and open an account. Some popular options include Binance, Coinbase, and Kraken. 

> Verify Your Identity

Most exchanges require you to verify your identity before you can start trading. This is to comply with anti-money laundering regulations. 

> Add Funds

Add funds to your exchange account through bank transfer, credit card, or cryptocurrency deposit. 

> Buy Altcoins

Once your account is funded, you can start buying altcoins. Look for the altcoin you want to invest in, choose the amount you want to buy, and complete the transaction. 

> Secure Your Altcoins

After you have purchased your altcoins, transfer them to a secure wallet to protect them from hacks and thefts. 

Conclusion 

Investing in altcoins can be a great way to diversify your portfolio and take advantage of the growth potential of the crypto market. However, it’s essential to research and choose the right altcoins to invest in.

When deciding, consider factors such as purpose, market capitalisation, community support, liquidity, team, and security. 

By following the steps outlined above, you can confidently make your first investment in altcoins. As with any investment, it’s essential to be cautious and only invest what you can afford to lose