What are altcoins? Elon Musk tweets about baby dogecoin, shiba inu

[ad_1]

As bitcoin, the largest cryptocurrency by market value, has become more common this year, the number of altcoins, or alternative digital coins, such as XRP and polkadot, in the market has also started to increase rapidly.

Some have attracted more attention than others. Dogecoin, for example, is a memes-inspired altcoin that started out as a joke in 2013, but has recently gained popularity. Much to the surprise of its co-founder, it is now among the top 10 cryptocurrencies by market value and hit an all-time high of nearly 74 cents in May.

It’s the result of a number of factors, including the social media buzz by big names like billionaire Elon Musk. The CEO of SpaceX and Tesla has often backed dogecoin on Twitter, but has also tweeted about other altcoins, like baby dogecoin and shiba inu.

While it’s not clear whether Musk’s support is serious, his tweets mentioning these altcoins appeared to impact their price and value.

Seeing this may make investors part of the stock, but experts warn to be especially careful when investing in altcoins. While cryptocurrency can be a very volatile and speculative investment in general, experts say altcoins can be even more so.

“Risk can be measured in different ways,” CoinShares chief strategy officer Meltem Demirors told CNBC. But “a lot of these assets are much riskier than bitcoin and ethereum.”

Here’s what you need to know, according to the experts.

What is an altcoin?

Altcoins, which are sometimes referred to as “s — coins,” generally refer to the multitude of cryptocurrencies outside of bitcoin. Although bitcoin and ether make up almost 70% of the cryptocurrency market, as Demirors points out, there are thousands of other cryptocurrencies.

There are many differences between altcoins and bitcoins. For one thing, most altcoins, like dogecoin, are created quickly with source code copied from other digital coins, including bitcoin. Often times altcoins are underdeveloped by design, while bitcoin has been carefully created with a well thought out ecosystem, white paper, and scarcity built in. Bitcoin was designed to be completely decentralized, whereas altcoins can often be controlled by a small group or entity.

Additionally, many developers behind altcoins invest money in marketing their coins, unlike bitcoin, according to Demirors.

Demirors also explains that for lesser-known cryptocurrencies, there is generally less information available to the public, as well as less funding to support these projects. This makes investing in altcoins riskier than bitcoin or ether while there is a high reward potential for taking a risk, there is also a significant chance of losing everything.

“As more and more cryptocurrencies proliferate in the market, coins with low market caps tend to be riskier. [vs.] specter of reward, ”says Demirors.

Why altcoins are considered riskier

Although experts warn that any cryptocurrency can be a risky and volatile investment, altcoins may require extra caution.

There are many risks to consider, Demirors says, including reputational risk, which is the threat that an altcoin project is not in good standing. Before investing, it is essential to determine whether the founders of the project are credible.

Potential investors should also assess market access risk, which refers to the accessibility of each digital coin, including where it is available for purchase. If altcoin is only available through an obscure return channel, rather than a regulated exchange, for example, it may be worth thinking about investing a bit more. If the method of buying a coin seems sketchy, it is possible that the altcoin project is not secure or is a scam.

However, one of the biggest risks with altcoins is technical risk, as the quality of the code behind each digital coin can vary. Many dog-themed altcoins, for example, were created by developers who copied and pasted source code from other coins to create their own. Dogecoin, in particular, is a fork, or copy of a code, of luckycoin, which is a fork of litecoin, which is a fork of bitcoin.

“In crypto, the code is open source. This means that anyone can copy the source code of a protocol or a smart contract, make minor changes and deploy that code,” Demirors explains. This can leave room for weaknesses in a code, making the altcoin potentially less secure and susceptible to bad actors.

Some altcoins, like shiba inu, run on the ethereum blockchain. Although its native currency is Ether, Ethereum has the ability to power different cryptocurrencies and applications due to the way it was built. This can allow underdeveloped currencies to be put into circulation at low cost to a developer.

It is a good idea to make sure that a reputable third party has audited and reviewed the code of any altcoin you wish to purchase. An audit will find out if there are any issues in the development of a digital coin, including whether it is possible for a central party to control the network or its funds, says Demirors. This could be potentially dangerous as a single entity could cause volatility in the value of an altcoin. In an extreme case, he could even lower the value of the coin by withdrawing his investment.

However, even if a coin is audited, there is always the possibility that a sketchy project will slip through the cracks, so the experts are clear: you should only invest what you can afford to lose.

Additionally, there is usually no insurance for cryptocurrency investments, so it is possible to lose your entire investment no matter how careful you are.

Investing in the social media buzz can be dangerous

In addition to Musk, many social media influencers, including Kim Kardashian West, have been promoting different altcoins, sometimes through paid ads.

“It’s no secret that crypto Twitter is the most active and passionate community on Twitter today, and smart marketers and fin-fluencers have recognized that engaging with Crypto Twitter will increase their numbers. own commitment figures, ”said Demirors.

But remember, just because an influencer or executive tweets about a cryptocurrency doesn’t mean that it’s valuable or a good investment. Fueling the hype on social media will often result in a waste of money, experts warn.

This is partly why investors should always do their own research before deciding where to put their money. As the SEC warned in 2017, “It’s never a good idea to make an investment decision just because a famous person says a product or service is a good investment.”

Sign up now: get more information about your money and career with our weekly newsletter

Don’t miss:

[ad_2]