All cryptocurrencies except Bitcoin are usually called altcoins. The Crypto Crew explains how to understand that a coin is not a scam.
Altcoins or alternative coins are commonly referred to as all cryptocurrencies except Bitcoin. At times, some also single out Ether, as the current correlation between BTC and ETH is noticeably higher than with other altcoins. But despite its high capitalization, ETH still continues to be considered an altcoin. We can call it the “master viola” that sets the tone for all other bitcoin altcoins. To navigate through all coins you can use bitcoin360ai
But at the same time, ETH, like other altcoins, is dependent on “Bitcoin dominance” – this is the ratio of the market capitalization of BTC to all other coins.
Some altcoins use different consensus mechanisms to verify transactions and open new blocks or try to disassociate themselves from Bitcoin and Ethereum by providing new or additional capabilities or purposes.
Bitcoin accounts for nearly half of the total cryptocurrency market capitalization, while Ethereum accounts for almost a quarter. Altcoins have a market share of around 40%.
The first altcoin was Litecoin, which branched off from the Bitcoin blockchain in 2011. Litecoin uses a Proof-of-Work (PoW) mechanism called Scrypt, which is less energy intensive and faster than Bitcoin.
Altcoins are highly speculative, so before investing, familiarize yourself with the types of scams to avoid losing your funds.
Types of scams related to altcoins
One of the first and most popular types of scams related to altcoins is the initial coin offering (ICO). The ICO works on the following principle: a start-up company seeks capital to expand its business, in return investors receive a stake in the company. And instead of equity, they get cryptocurrencies. At first glance, an ICO is just another way to raise capital for a startup, but this proposition is not immune to manipulation. A company or an individual may say that they have a unique opportunity to invest in a new form of cryptocurrency with a guaranteed huge return. And then force you to transfer a bunch of new coins to a digital wallet that will “miraculously” be compromised.
Another method of fraud is the “pump and dump” method. Here’s how it works: the owner of Altcoin hypes the crypto asset, and when the price reaches its peak, the fraudster sells everything, after which the price of the asset collapses sharply, and investors lose their funds. Pump and dump schemes are usually accompanied by false promises in certain categories: guaranteed exorbitant profits and inexhaustible endorsements from celebrities and influencers.
As we saw in the Squid Game scam, experienced programmers now have the ability to create new games and entire imaginary worlds. An easy way to trick newbies into crypto investing is to trick them into buying a newly minted coin or game token. If enough people drive the price up through supply and demand, it gives the original scammers the opportunity to sell all their assets and make off with the money. This pattern is known as “pulling the rug.”
Fraudsters can also abuse Defi protocols. It’s a lucrative target for cybercriminals. While law enforcement agencies are just delving into the crypto world, criminals are evolving and developing new tactics to steal funds.
A significant number of people consider altcoins another “Ponzi scheme”, that is, a scam in which the money of one group of people is secretly used to pay promised income to another group of people. Unfortunately, such cases do happen, but they can be avoided.
How to avoid altcoin scams?
With the help of cryptocurrencies, you can really get significant profits, compared to traditional asset classes, but due to carelessness, you can become a victim of fraud. There are certain “red flags” in the crypto space that are signs of a possible scam, so let’s analyze them in more detail.
The promise of huge passive income. Thanks to innovations like the DeFi architecture, crypto businesses can not only copy passive income platforms but also offer much higher than usual incomes. So if there is an offer of too favorable terms and daily income – ask where the money comes from. If you don’t like or don’t get a response at all, don’t contact these currencies and platforms under any circumstances.
No risk. Even the most famous virtual currencies carry incredible risks. Any organization that says otherwise is either incompetent or planning a scam.
Fundamental analysis of altcoins involves reviewing and evaluating all available information about these currencies. This includes: exploring the use cases of the cryptocurrency and its network, as well as the team behind the project. It helps to fully understand and evaluate the best altcoins to buy.
When analyzing altcoins, it is necessary to determine whether the respective asset is overvalued or undervalued. Overvalued assets should be avoided, while undervalued assets are more suitable. This is because overvalued assets are more likely to underperform and return to their true value. On the other hand, undervalued assets have more potential for growth and are consistently profitable.
A careful study of the token’s technical documentation will provide a lot of relevant information. The white paper should give you a good idea of how the altcoin will provide value to its users.
Looking at supply and demand is one of the best ways to evaluate your next cryptocurrency investment. Simply put, an altcoin must have incentives to increase demand in such a way that the supply is constantly decreasing or stable. When demand exceeds supply, prices rise, fueling even more demand.
Online altcoin exchanges should also be thoroughly researched. Explore the target platform inside and out. Check out social media posts to see what other users have to say. Use only reliable, legitimate platforms to reduce the risk of losing funds.
It is very important to appreciate the team behind the project. You can find information about a team in the white paper, but try to do some independent research on them as well. Check out the team page on the official website as well as their LinkedIn profiles. The goal is to find out if the organization is experienced, with experts who know what they are doing.