How Altcoins Work
Like Bitcoin, altcoins function using blockchain technology. A blockchain is a digital, distributed database that is simultaneously maintained by multiple, sometimes hundreds or even thousands, of computers worldwide. New transactions are verified and recorded on the blockchain as blocks of transactions. Transactions cannot be reversed after they are broadcast to a blockchain. Many altcoin creators offer unique features to differentiate their tokens from Bitcoin and other cryptocurrencies. For example, the Stellar blockchain aims to operate in a way that is faster, cheaper, and more energy-efficient than its larger rivals. Dogecoin was founded in 2013 as a joke and rose to prominence after gaining support from the likes of Elon Musk.
Do I need Altcoins?
No, you don’t need altcoins. You can choose to use altcoins to make purchases, though only some merchants accept any type of cryptocurrency. If you hold altcoins that you wish to spend, then you would need to find a merchant that accepts that particular coin. You can also choose to invest in altcoins, but like all cryptocurrencies, altcoins are very risky investments. Their prices can be quite volatile. While the value of an altcoin can dramatically increase in value, it could also plunge to zero. Investing in altcoins can be fun and potentially very profitable—but it’s still a good idea to limit your investments in altcoins to no more than you can afford to lose. The global regulatory environment for cryptocurrencies is quickly evolving, and it’s possible that unexpected government actions could crater crypto prices.
Pros and Cons of Altcoins
Pros Explained
Participation in new technology: Blockchain technology, which powers all altcoins, is still emerging. Early tech adopters can enjoy becoming familiar with blockchain technology, especially as new developments and applications continue to emerge. Crypto-specific uses: Altcoins, unlike traditional money, can support more complex functions. Ownership of altcoins can, for example, enable token holders to contribute to governance decisions for the cryptocurrency.
Cons Explained
Market volatility: The prices of cryptocurrencies, including altcoins, are quite volatile. Cryptocurrency as an asset class is still emerging, with the true worth of cryptocurrencies still being determined by the marketplace. A cryptocurrency may see large gains or losses in a very short period of time, sometimes for reasons only tangentially relevant. For example, on Dec. 14, 2021, Tesla founder Elon Musk tweeted that Tesla may make some of its merchandise available for purchase with Dogecoin. The price of the crypto increased more than 20% the same day. However, by the next day, the price was down again.May be complex to use: Buying and storing your own cryptocurrency typically requires above-average computer knowledge, though most cryptocurrency exchanges and brokerages are user-friendly.
Are Altcoins a Good Investment?
Whether altcoins are a good investment for you depends on your understanding of cryptocurrency and your investing goals. Altcoins can carry substantial risk, with the less established altcoins generally being the most risky. Before investing in any altcoins, be sure to do your research as an investor, just as you would with any traditional security.
How to Buy Altcoins?
You can buy cryptocurrency including altcoins on exchanges such as Coinbase, Gemini, or BlockFi. Several traditional stock brokerages, including Robinhood and SoFi, also support Bitcoin and altcoins. Advanced crypto users can use a supported cryptocurrency wallet to buy altcoins directly, circumventing the need for any crypto exchange. To buy altcoins using a crypto exchange, you will need to enter your personal information and attach a payment method like a bank account or debit card. Once your account is established, you can begin investing in altcoins.
