Tuesday, October 22, 2024
Bitcoin is the most well known coin of Cryptocurrency, but there are other lesser known coins that are referred to as “Altcoins.” Altcoins are alternative coins that can also function as a form of currency.
You may have heard of some of these Altcoins, like Ethereum, Chainlink, Cardano, Polkadot, and many others. Where most people get confused, is deciding which Altcoins to invest in. This is because it takes time and research to understand a couple of things about Altcoins. Before investing in an Altcoin, try asking the following questions first…
The media, and social figures, have a tendency to influence the value of certain Altcoins. This is because the news will hype a certain coin, or a celebrity type figure will post about it on social media. Sadly enough, this kind of influence can be somewhat misguiding.
This is because because the news is supposed to objectively report facts, but often likes to ad their own opinion. Not that having an opinion is a bad thing, but just be cautious, that investing based off someone’s opinion can lead to losing a lot of money.
Sadly, this is exactly what happened when Elon Musk tweeted several times about Dogecoin. Because people respect the many successes Elon has accomplished, they trusted that investing in Doge was a good thing. Sure enough, the price of Dogecoin skyrocketed from $0.0032 to $0.74. However, what people didn’t people realize, was that Elon was actually trying to make a point (through a rather not funny joke).
Elon knew that the people would follow just about anything he said, even if what he is saying, was completely bad advice. It was a combination of Elon exercising his sarcasm, and his ability to influence the market. The crypto community was very quick to establish that Doge is an inflationary coin. Those who understood the economics of inflation, sold off their Doge early, and made a nice profit. Others who held on to the coin, lost most, if not all their money. The price of Doge has not nearly reached the same peak since, but the publicity did increase the value, if without addressing concerns about utility.
Is The Coin Inflationary Or Deflationary?
So what is an inflationary coin? Inflationary coins are coins that have no limit on how many can be digitally mined, just like how there is no limit on how many U.S. Dollars can be printed. “Meme coins,” like Doge, Safemoon, and Shiba Inu, are excellent examples of inflationary coins. These meme coins were made more for fun, but not for function. The opposite coins of meme coins, are deflationary coins, also known as “large cap coins”. Deflationary coins are crypto coins that have a limited amount available for the public to own.
These coins availability are similar to assets like gold, oil, and diamonds. There are only so much deflationary coins that can be digitally mined, just like there is only so much gold, oil, and diamonds that can be dug up from the Earth. Thus, giving the coin the property of scarcity. The two most popular coins that have scarcity are Bitcoin and Ethereum.
One way to see if a coin is inflationary or deflationary, is to Google “What is the total supply of (insert coin name here)?” Some of the most popular searches include Bitcoin, Ethereum, Cardano, Shiba Inu, Doge, Solana and more. You will be able to see the supply amount of the coin, and how much of that supply is currently in circulation. Circulation, means how much of the coin is currently available to buy, versus how much of the coin is not available to buy.
For example: Bitcoin has a total supply of 21 Million coins. Today, 19 million Bitcoins are currently in circulation. That means that there is only be 10% of Bitcoin left, before it’s completely sold out. This coin’s value is extremely scarce.
We have to remember, Bitcoin can be bought up by every country, not just America. Considering America alone has a population of 329.5 million people, the opportunities to own any Bitcoin are getting slimmer and slimmer. The demand for Bitcoin is high, while the supply of the coin is low.
If you miss out on Bitcoin, your next best bet is Ethereum. Although Ethereum has an unlimited supply, the coin is actually burned after it has been exchanged. Imagine buying a painting with cash. After you give the seller your money, they throw it all into fire pit, and it completely burns away. Because your money no longer exists, it’s no longer in circulation.
So if the country only had one billion dollars to function, and your painting cost you a million dollars, which was then burned away, the country now only has nine hundred ninety-nine million dollars left. Thus, deflating the amount of money available to use. This is how Ethereum operates. When you use Etherum to purchase digital products, it gets sent to what is called a “unusable wallet.”
An “unusable wallet” is a cryptocurrency address that burns the coin into nonexistence. These wallets are located on online platforms like OpeanSea and Rarible. You can buy digital products, like NFT’s and digital land using Ethereum. However, after you do, your Ethereum is burned forever, and there is only 18 million Ethereum released into circulation every year. So if you are going to spend your Ethereum, make sure it’s worth it.
So what about other Altcoins? If meme coins don’t have much value per unit, how do we know what Altcoins do have value? The answer to that is by understanding that in order for a cryptocurrency to have value, it needs to serve some kind of purpose on the blockchain.
What Purpose Does The Altcoin Serve?
Let’s think about how a car works. You can’t drive a car without an engine, and you can’t turn on an engine without things like gas, a battery, spark plugs, oil, etc. Think of the blockchain as a car, and Bitcoin is the engine. Break it down even more, and Ethereum is the gas that keeps the car running. Break it down even further, and place different Altcoins for different car parts.
Some Altcoins hold more value, because their function is essential, while other Altcoins may not help the car go, but make driving the car a better experience. For example, Meme coins, like Doge and Safemoon, are the equivalent of having a car air freshener, or a bobblehead for your dashboard. Other Altcoins like VeChain and The Graph can serve as the car’s GPS system, while Chainlink can serve as the car battery, and Uniswap serves as the exhaust.
Keep piecing the puzzle together and you will be able to understand which Altcoins have more essential functions, and which Altcoins are less essential. You can access this information by reading what is called “The Whitepaper.” The Whitepaper is a written document located on the coin’s official website or investment platform, that explains the coins purpose, and how it functions on the blockchain. The catch to reading some Whitepapers is that they sometimes use advanced terminology. This is why I like to break things down into simpler terms, so you don’t have to spend hours Googling.
Does The Altcoin Meet Any Of The Seven Properties Of Currency?
There are Altcoins that do meet some (if not all) of the seven properties of currency. These properties include:
Although several Altcoins may not have the property of Scarcity, like Bitcoin, most of them still meet the other criteria. The great thing about most Altcoins, is that they are “decentralized”.
Decentralized means cryptocurrency does not require a third party (like a bank) to approve each transaction of exchange nationally or globally. You can send money directly from you, to the seller, without the bank’s approval. This is because cryptocurrency is exchanged on the blockchain.
The “blockchain” is like the digital version of the Federal Reserve Bank. The Federal Reserve Bank is what prints our dollars. The blockchain is a digital system that uses trackable codes (also known as smart contracts) to develop new currencies that can be exchanged nationally or internationally.
Buying and spending cryptocurrency using the blockchain instead of dollars, meet several of the seven properties of currency better. This is because several Altcoins are already divisible, durable, fungible, portable, functional, and in some cases programable and scarce.
In conclusion, if you can find an Altcoin that has a limited supply, serves a functional purpose on the blockchain, and meets most of the seven properties of currency, it might be a good idea to snatch it up. Part of investing in cryptocurrency is finding Altcoins with potential. Sometimes it is hit or miss, but just remember, it’s okay to take calculated risks.