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There's no doubt that the largest and most well-known cryptocurrency today is Bitcoin, however, there are several thousand "altcoins" or alternatives to Bitcoin and all of them claim to be worthy of your investment. You’re now probably wondering, "if Bitcoin is number one then why does it have alternatives in the first place?" That's because altcoins don't necessarily aim to replace Bitcoin as each altcoin has its unique purpose and attempts to improve Bitcoin's technology.
For example, the second-biggest cryptocurrency, Ethereum allows people to build certain types of apps that cannot use bitcoin to facilitate its network, simply because bitcoin is not compatible with Ethereum's infrastructure. As a result, Ethereum has its own or "native" cryptocurrency called "ether" which is today the world's largest altcoin. Before you jump to a crypto exchange to buy ether, here's how you can identify other valuable altcoins on your own.
How to identify valuable altcoins?
There are several coins that will create hype to sell their tokens, without making any attempt to resolve "real" issues. Such crypto projects may not be widely adopted as typically, real-life use cases of crypto projects and their coins attract entities like banks, governments, and companies, which then go on to legitimize the project. Coins of such projects tend to increase in price over time and are widely considered valuable assets in the long run.
Knowing the difference between coins vs tokens
There are plenty of choices to make before you start investing in crypto and knowing the difference between coins and tokens can help you make informed decisions. Some cryptocurrencies are called coins because they have their own network of transactions that are managed on their own blockchain. Tokens, on the other hand, represent a crypto asset that resides on an existing blockchain. Today, there are two types of tokens; the more common one is a utility token - meant to finance their projects or let people perform some action on a network. While a security token represents an ownership stake in a company and entitles its holder to a share of profits.
An easy way to understand a cryptocurrency's software
A quick check on the type of software that a crypto project runs on can help you understand the investment risks involved in the crypto of your choice. Most valuable coins run on "open-source" software or computer programs that many people publicly collaborate on. The codes in this software are open to inspection and anybody can check and verify them. Sometimes, these codes are hidden, which can create opportunities for unethical coders to easily manipulate the coin's price. In other words, projects with questionable software may create security issues especially when large funds are involved.
Understanding a coin's market cap
Market cap is a very simple number that represents to the total value of some cryptocurrency. Bitcoin's market cap is the total value of all the bitcoins in the world and it includes every bitcoin ever created. Large market caps typically indicate how well-established a cryptocurrency is and it provides an indicator of how much interest there is globally in one cryptocurrency or another. The biggest tokens so far, have big market capitalizations like Bitcoin, Ethereum, Cardano, Solana, USD coin, Terra, and others. In other words, it shows how much money - or value - the world is investing in one cryptocurrency.
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