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Invest in Altcoins in 2022

Last updated 5th Oct 2022
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If you are planning to invest in cryptocurrency, you should know there are many of them. Altcoins are alternative cryptocurrency tokens to Bitcoin.

Bitcoin was the only cryptocurrency token when it was released, but after a few years of market domination, several rivals started to pop up.

This guide will explain what are altcoins, how to invest in altcoins, and how altcoins work. Also, we will show how different ways to buy altcoins.

Best Ways to Invest in Altcoins in 2022

There are numerous ways to invest in altcoins in 2022. To make things easier for you, we have hand-picked a list of the best providers. If you would like to learn more, check out our guide on the best cryptocurrency brokers.

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What Are Altcoins

An altcoin or “Altcoin” is a combination of the two words “alternative” and “coin” and refers to any cryptocurrency token that is specifically not Bitcoin. Today, there are thousands of new cryptocurrencies popping up almost on a daily basis, many of which leverage blockchain technology to solve some kind of real-world problem. However, this has remained and is the true definition of what altcoins are.

Bitcoin is still the largest cryptocurrency token in terms of market capitalization; however, it paved the way for altcoins to be introduced to the cryptocurrency market.

Pros and Cons of Investing in Altcoins

Pros

Altcoins offer high potential returns, especially if you get to them at an early point in the project’s development. There is a large selection of altcoins, all of which have their own unique properties as well as competitive advantages.

Cons

Altcoins have significantly higher levels of risk, and some of them historically have even been scams. Many altcoins can also be difficult to purchase due to the fact that they are available on very specific crypto exchanges.

How Do Altcoins Work

Altcoins typically have the same premise as Bitcoin, and this is to take advantage of blockchain technology. This allows and records a transaction only when there is consensus that the transaction in question is truly legitimate. Many altcoins have taken this and have brought it to the next level by achieving different goals, and others have become layers that work on top of pre-existing blockchains with the goal of improving their functionality.

Ethereum, for example, is the second-largest cryptocurrency token in terms of market capitalization. Instead of just recording transactions on the blockchain, Ethereum records agreements which are introduced in the form of smart contracts.

This means that Ethereum leverages these smart contracts, which are essentially computer programs that execute automatically when predetermined conditions are met. Smart contracts are able to replace intermediaries like middlemen in insurance, banking, and other types of management.

That being said, there are a lot of different altcoins, many of which solve different issues. But they can be categorized as native cryptocurrencies, tokens, stablecoins, and forks.

Native cryptocurrencies are the coins that were created to run on a specific blockchain network. For example, Ethereum is a native token.

A token is a unit of value, and it is used to operate an existing blockchain that can be used for specific purposes within that ecosystem or environment. Most of these are mining-based altcoins, which use Proof-of-Work (PoW), a method in which systems generate new coins by solving difficult problems, to create blocks.

Stablecoins, on the other hand, are altcoins that are developed to offer advantages of cryptocurrencies without the price volatility associated with them. These are typically pegged 1:1 to the U.S. dollar. Tether is a notable example here, as 1 Tether will always equal 1 USD. These are not intended to help you as an investor earn a profit through price appreciation. However, they can easily transfer money on a global scale without losing money due to volatility throughout the transfer process.

Forks can happen when the nodes within a cryptocurrency network decide not to upgrade to the latest version of the code. This is due to the fact that groups of recorded transactions are organized into blocks, and each block is connected to the next through a complex level of cryptography. For a new block to be added to the existing chain, all previous transactions must be verified, leading to consensus. When a group decides to change the rules, they can validate a split in the chain, which is a fork. This way, a new chain emerges and starts logging the transactions under the new rules. Think of projects such as Ethereum and Ethereum Classic.

Ways to Buy Altcoins

There are numerous ways through which you can buy altcoins. While not all of them will be available on every cryptocurrency exchange or brokerage out there, a lot of them will be made available for you. All you really have to do is find a method that supports the specific cryptocurrency token you have in mind for purchasing.

You can use cryptocurrency exchanges, CFD brokers, P2P marketplaces, or in-person trading.

CFD Brokers:

  • The CFD broker is the intermediary between you, the investor, and the cryptocurrency market and provides you with a trading platform that offers you access to the altcoins that you require and conducts the process of trading the coin in question that you are targeting.

Cryptocurrency Exchanges:

  • Cryptocurrency exchanges allow you to trade cryptocurrencies and give you access to charting tools and other features. Keep in mind that not all of them will have access to the token you require.

P2P Marketplaces:

  • P2P cryptocurrency marketplaces allow you to buy or sell directly with another user. Keep in mind that you need to have a cryptocurrency wallet that supports the altcoin you are interested in purchasing.

In-Person Trading:

  • This is the type of trading where you meet the person you are trading with in person. Both parties would need to have a cryptocurrency wallet that supports the token standard through which the altcoin you desire is built on.

Here is everything you need to know about buying altcoins online.

Step 1: Create an account and verify it
Step 2: Deposit funds
Step 3: Buy Altcoin

How To Invest in Altcoins

There is a multitude of ways to invest in Altcoins:

Altcoin Brokers:

  • You can use altcoin brokerages that connect you to the market where the altcoin in question is offered. You will need to create an account with a brokerage, find the altcoin you are looking for, and purchase it. The brokerage in question sets the price for the altcoin you are looking for.

Altcoin Exchanges:

  • Exchanges allow you to invest in altcoins. Keep in mind that within these altcoin exchanges, the market determines the prices of the specific altcoin that you are looking for. You will have to create an account, connect your wallet and buy the altcoin.

Altcoin ETFs:

  • ETF funds which give you access to a diversified portfolio of altcoins tokens that you can trade with— usually at a higher level of transparency and liquidity.

Altcoin Index Funds:

  • You can buy a share of the specific altcoins through index funds instead of investing in the token directly, after which, experts will determine how to invest your tokens.

Altcoin Mutual Funds:

  • You can also invest in altcoins through a mutual fund if you do not want to own the token directly. You can add additional cryptocurrencies and professionally manage them.

Altcoin Trusts:

  • Altcoin trusts essentially hold the altcoins for you and allow you to trade a share of these altcoins through a brokerage or an exchange.

Altcoin Debit Cards:

  • You can purchase altcoins through the usage of a debit card. Connect the card to the exchange or brokerage that you will be using, and you are good to go.

Altcoin Apps:

  • Many cryptocurrency exchanges or brokerages will have their own native mobile application that you can download and install on your mobile device.

Altcoin Wallets:

  • You need to ensure that you have a cryptocurrency wallet that supports the specific altcoin you are interested in. For example, an Ethereum wallet will support the Ethereum token standard.

Is It Safe to Invest In Altcoins Right Now?

Cryptocurrencies have a high level of risk because they are highly volatile currencies.

Altcoins have additional risk because they are newer projects that are unproven, and some of them could be scams. That said, investing in altcoins like stablecoins has become a lot more secure as numerous regulated cryptocurrency brokerages, and exchanges support proven altcoins.

If you would like to find out more, our guide "how to invest in cryptocurrency today" will show you all the different ways to invest in cryptocurrency and discuss its pros and cons.

Khashayar Abbasi

Khashayar Abbasi

Khashayar discovered Bitcoin back in 2014 and has since spent countless hours researching the different use cases of cryptocurrencies. He has a bachelor's degree in International Relations and has been a writer in the financial services industry for nearly half a decade. In his spare time, Khashayar enjoys photography, cycling, and ice skating.