Todays topic is altcoins and ICOs. In this episode, were going to go over some of the different cryptocurrencies out there and explain what are ICOs. So lets get started!
Altcoins, or alts in short, are cryptocurrencies that are not Bitcoin. The word altcoin is an abbreviation of alternative coins. So Litecoin, Ripple, Dash or any other non-Bitcoin cryptocurrency all fall under the category of altcoins.
Now you may ask yourself, Why do we even need altcoins in the first place? The answer is simple: Bitcoin is not perfect. Usually, altcoins will try to create a better or different version of Bitcoin.
For example, Litecoin is an alt that confirms transactions faster than Bitcoin. Dash and Monero are altcoins that focus on the anonymity aspect, making transactions virtually impossible to trace. Each altcoin has its own unique thing it does best.
Altcoins can also vary from Bitcoin in the way they are mined. For example, Bitcoins mining algorithm is called SHA-256, while Litecoins mining algorithm is called Scyrpt. Different mining algorithms require different types of hardware to mine.
Another thing to keep in mind is that if an altcoin is relatively new or not that well known, it will probably be harder to buy and will have fewer wallets that support it.
Until today, thousands of altcoins have been introduced to the market, but only a handful have managed to gain a significant following like Bitcoin. One way to figure out which altcoins are gaining popularity is by measuring their market cap.
A Market cap means how big is a coins market in dollar terms. Its calculated by taking the number of coins in circulation and multiplying it with the dollar exchange rate. If, for example, there are 16 million Bitcoins in circulation and the price of one Bitcoin is $2,500, the market cap for Bitcoin would be 40 billion dollars.
For a long time, Bitcoins market cap accounted for 90% of the total cryptocurrency market cap. Today, as more altcoins are gaining attention and appreciating in price, Bitcoins market cap makes up less of the total cryptocurrency market cap which has managed to surpass 100 billion dollars in 2017.
First and foremost, I suggest you read about the altcoin youre interested in. Make sure you understand what makes it unique and see if it makes sense to you. Most importantly dont invest in a coin just because of the buzz around it.
Many coins out there employ what is known as pump and dump schemes. This means the coins creators generate a lot of hype about a specific coin in order to get people to invest in it and inflate the coins price. Once the coin appreciates in value the creators sell all of their coins at a profit while crashing the price due to the massive sell off. This leaves the majority of investors with a bunch of useless coins and no one to sell them to.
Other stuff you should look into include the coins market capthis will give you an idea of how well this altcoin has been received in the community.
I would also suggest getting involved in the coins community. Usually, most major coins have an official forum, a Facebook group, a subreddit and other places of gathering where you can ask the developers of the coin specific questions. A strong community is an important predictor for a coins success.
Now you know what altcoins are, and we can move on to our next topic which is closely relatedICOs.
ICO stands for initial coin offering. The term derives from the traditional finance term, IPO (or initial public offering).
An IPO is used to describe the launch of a new company on a stock exchange, also known as going public. The purpose of an IPO is to sell stock in the company in order to raise capital from the public.
ICOs on the other hand sell coins, also known as tokens, as a way to fund a specific project. The general idea is that if you believe the project will succeed, you buy the tokens that power the project beforehand at a discount, and then you will be able to sell them later on at a profit once their project succeeds.
Lets break this process down a bit further.
When a cryptocurrency company wants to launch a new project through an ICO, it creates a whitepaper. The whitepaper is a document that states what the project is about, what needs the project will fulfill, how much money is needed for the project, and how long the ICO for this project will run for.
After the ICO is set up, the public can start investing in the ICO by sending money to the project and receiving project tokens or coins in return.
If the money raised by the ICO does not meet the minimum funds required by the whitepaper, the money is returned to the backers, and the ICO is deemed to be unsuccessful. If the funds requirements are met within the specified timeframe, the founding team will now get to work and bring the project to life through the use of the funds raised.
To sum it up, ICOs are like Kickstarter for crypto projects.
The best example of a highly lucrative ICO was the pre-sale of Ethereum tokens. In mid-2014, one Ether token (also known as ETH) sold for around 40 US cents . If you bought one hundred dollars worth of ETH back then, you would have the equivalent of 75,000 dollars in 2017.
Today, more and more projects try to mimic the success of Ethereums ICO. ICOs are conducted over the Ethereum platform, and thats why youll need to buy the Ethereum token, known as Ether, in order to participate in them.
The recent high volume of ICOs caused Ethereums price to spike and also overwhelmed the Ethereum network. This caused delayed or failed transactions, leading to the suspension of Ethereum trading in several exchanges and problems with ICO funding.
The worst example of a disastrous ICO is The DAO. The DAO, or decentralized autonomous organization, project managed to raise $150 million worth of Ethereum. However, shortly after the ICO ended, a hacker managed to drain a third of the amount raised due to a bug in Ethereums code.
This crisis and the different opinions on how to handle it led to a split in the Ethereum network and the creation of both the Ethereum and Ethereum classic altcoins.
Just like with any other financial instrument, where there is the possibility for great reward, there is great risk as well, and ICOs contain a huge amount of risk.
ICOs can be considered as high-risk gambles on cryptocurrency startup companies. Many people today invest in ICOs not because they believe in the project, but because they just want to make a quick profit. This, in turn, creates a general hype before the project launches.
But as the buzz fades away, project creators and early investors want to take money off the table, so they start selling massive amounts of token. This can cause the price to sharply drop.
Another thing to consider is that the bar for creating an ICO today is pretty low. While conducting an IPO requires to comply with a lot of regulation, ICOs skip this entire burdensome procedure by raising money exclusively in cryptocurrency which has yet to be regulated.
Want to create an ICO?
Just create a shiny website outlining your concept, create a digital asset, get some crypto celebs to say nice things about it, and sell your projects assets directly to people around the web. You dont even have to have a working product.
These low barriers to entry bring about a massive amount of low-quality projects that will never see the light of day. This could be due to the fact that the founders lack the skills required to execute the project, or that the ICO was just a plain scam to begin with.
As you can imagine, this is a scammers dream come true. With a minimal investment of time and money, they can get tons of people to send them money without any legal exposure or liability to the public.
In order to emphasize the absurdness of how much dumb money is spent on ICOs, one developer went as far as creating a site called Useless Ethereum Token.
The website states:
Youre literally giving your money to someone on the internet and getting completely useless tokens in return.
There are no whitepapers, no products, and no experts. Its just you, me, your hard-earned Ether, and my shopping list.
Amazingly enough, even the Useless Ethereum Token project managed to raise over sixty thousand US dollars.
In some cases you may lose money in an ICO not due to an intended scam, but due to the hacker manipulation. For example, not long ago a hacker managed to hack an ICO website and change the Ethereum ICO deposit address to his own Ethereum address. This caused over $7 million to be sent to him. Of course that money is now lost forever.
To sum it up, ICOs should be considered as risky as gambling. Due to the irreversible and unregulated nature of cryptocurrency, you have virtually no recourse if an ICO turns out to be a complete scam or goes bust.
Well, first of all, you need to know what youre investing in. This means you should take the time to actually read the ICOs whitepaper, research the project and founders and get involved with the community around it.
Also, make sure you understand how the tokens for the project will be distributed. ICOs which hold a lions share of tokens for the founders may end up selling these tokens in order to make a quick profit after the ICO ends.
Another important question to ask is how much money is being raised and for what purpose?
If there is no cap on the amount being raised, the project may get overfunded. Getting more money than you need can also hinder project development as laziness and no clear focus may arise as a result. Some projects have managed to raise tens of millions of dollars before the first line of code was even written.
Most importantly, dont ever invest in something you dont understand.
To sum it up, ICOs are a new form of crowdfunding which very few people understand. If youre just getting started with cryptocurrencies and ICOs, you probably should do a fair amount of additional research before committing your money to any project, as exciting as it may sound.
That sums it up for today. I hope you enjoyed this lesson of Bitcoin Whiteboard Tuesday, and Ill see you.in a bit.
Blogger and owner of 99Bitcoins. I've been dealing with Bitcoin since the beginning of 2013 and it taught me a lesson in finance that I couldn't get anywhere else on the planet. I'm not a techie, I don't understand "Hashes" and "Protocols", I designed this website with people like myself in mind. My expertise is online marketing and I've dedicated a large portion of 99Bitcoins to Bitcoin marketing.
- Best Bitcoin/Altcoin Wallets For iPhone [2019 Edition] - October 1st, 2019
- Crypto Conundrum: Bullish Bitcoin Price Action Halts Altcoin ... - April 24th, 2019
- Altcoin Season 2019 Thrives: Everex (EVX) Leading Binance ... - April 21st, 2019
- What is an Altcoin? - CCN - February 9th, 2019
- Altcoin Trader South Africa - ice3x Altcoin Exchange ... - February 2nd, 2019
- Altcointrader.co.za Review - Altcoin Trader, Login ... - January 27th, 2019
- Bitcoin History Part 5: A Wild Altcoin Appears - Bitcoin News - January 9th, 2019
- Latest News on Altcoin | Altcoin Breaking News | DC Forecasts - January 9th, 2019
- Altcoin Daily Preview: Tron (TRX) Could Bounce back ... - January 9th, 2019
- Most promising Altcoins and ... - Captain Altcoin - January 8th, 2019
- Altcoin - Investopedia - December 12th, 2018
- GoChain (GO): Here's Why This Altcoin Might $GO All The ... - November 10th, 2018
- Find The Best Bitcoin, Altcoin, or Multi-Cryptocurrency ... - November 10th, 2018
- Altcoins Explained | The Best Altcoin Guide for the Beginning ... - October 3rd, 2018
- Altcoin.io | The cryptocurrency exchange of the future | Wefunder - September 30th, 2018
- Android Bitcoin ~ Altcoin Price Ticker ~ Coin Maker - September 4th, 2018
- 7 Altcoin Exchanges Without KYC & AML - CoinSutra - August 22nd, 2018
- Altcoin News Archives - Ethereum World News - August 7th, 2018
- How to Choose Which Altcoin to Invest In? - Coinidol.com - August 7th, 2018
- Altcoin News | Altcoin News today | Latest Altcoin News - July 27th, 2018
- USING ALTCOIN TRADER - rsainvestments.blogspot.com - June 24th, 2018
- Guide: Compiling an altcoin daemon in Ubuntu Linux ... - May 31st, 2018
- Top 3 Altcoin Trading Exchanges - [Reviews and Ratings] - May 27th, 2018
- PacCoin VPS Masternode Guide AltCoin Guide - May 12th, 2018
- Asian Cryptocurrency Trading Roundup: Top Altcoin is Tron ... - May 10th, 2018
- Alternate Cryptocurrencies aka altcoins r/altcoin - reddit - May 9th, 2018
- Garzik Forks UnitedBitcoin Away from "Maximalists" to Support Altcoin ... - April 13th, 2018
- Bitcoin, Altcoin and Cryptography explained - April 4th, 2018
- ZClassic and the Bitcoin Private fork : altcoin - March 4th, 2018
- Altcoin Trustworthy Decentralized Cryptocurrency Exchange? - March 4th, 2018
- Blockfolio Bitcoin Altcoin App on the App Store - March 4th, 2018
- Morning Asian Altcoin Trading Roundup: the leader is Tron - February 28th, 2018
- Webinar: Bitcoin Overshadowed by Altcoin Surge - Nasdaq.com - February 12th, 2018
- Bitcoin Mine News Bitcoin & Altcoin Mining & Trading News - January 7th, 2018
- Ethereum, Litecoin Prices Headline $20 Billion Altcoin Rally - January 7th, 2018
- What is an Altcoin? - CryptoCurrency Facts - January 4th, 2018
- What is an Altcoin? - ccn.com - December 20th, 2017
- Trading Bitcoin for an Altcoin Won't Shield You From the IRS ... - December 20th, 2017
- Buy or Sell Bitcoin, Litecoin, Altcoin Multi Crypto Currency ... - December 20th, 2017
- Altcoin Exchange Performs First Atomic Swap Between Bitcoin ... - December 6th, 2017
- GitHub - ander7agar/altcoin-rpc: A modern Bitcoin Core REST ... - December 2nd, 2017
- Altcoins - BTCMANAGER - November 28th, 2017
- Markets Update: Bitcoin Bull-Run Primes Altcoin Markets for ... - November 25th, 2017
- Altcoin Exchange, the Decentralized Cryptocurrency Exchange ... - October 17th, 2017
- Altcoin Watchlist | Meet & Learn Cryptocurrencies - October 4th, 2017
- CryptoCurrency Investing: Research and Due-Diligence ... - September 6th, 2017
- ATC Coin Review: ATCC altcoin with massively inflated ... - September 5th, 2017
- JRM Altcoin Update - Quit chasing the headlines! - YouTube - September 4th, 2017
- Bitcoin Cash Statistics Confirm BCH is Just Another Altcoin - Live Bitcoin News - September 2nd, 2017
- Which Altcoins to Buy This Week? (31st of August, 2017) - Live Bitcoin News - September 1st, 2017
- OpenBazaar Developers May Introduce Altcoin Support in the Near Future - The Merkle - August 27th, 2017
- Exante launches XAI, the world's first altcoin fund - GlobeNewswire (press release) - August 25th, 2017
- ALTCOIN | Bitcoin Insider - August 23rd, 2017
- Altcoin Forum - Alternative Cryptocurrecies Location - August 23rd, 2017
- Op Ed: Drivechains Could Kill Off the Altcoin Market - August 22nd, 2017
- Nakamoto Institute Daniel Krawisz: I Don't Like Altcoins, but I Like Forks - Bitcoin News (press release) - August 22nd, 2017
- Bithumb, Highest Volume Exchange Globally, Adds Monero - Inside Bitcoins - August 22nd, 2017
- One-Man Band To Create The Second Altcoin Forum In The World - Coin Idol (press release) - August 18th, 2017
- When altcoin life imitates art - FT Alphaville (registration) - August 14th, 2017
- ALTCOIN CAPITAL - Trusted Crypto Traders - August 12th, 2017
- Overstock Now Accepts Various Altcoins for Payment - Including ... - Bitcoin News (press release) - August 10th, 2017
- Cryptocurrency Symbol BCC Belongs to BitConnect Coin, Not Bitcoin Cash - Markets Insider - August 8th, 2017
- Crypto-Startup Hubcoin Announces Distribution of Pre-Mined HUB to Altcoin Developers - Bitcoinist - August 3rd, 2017
- This Altcoin Is Ready to Challenge Bitcoin's Domination of the ... - Futurism - July 31st, 2017
- Beginning of altcoin's end: US signals digital coins may be subject to federal securities law - CalvinAyre.com - July 31st, 2017
- All Major Indian Exchanges Reject Bitcoin Cash Completely - Live Bitcoin News - July 31st, 2017
- Global Advisors Launches ICO and Altcoin Closed-End Private Fund - Finance Magnates - July 31st, 2017
- USING ALTCOIN TRADER - rsainvestments.blogspot.co.za - Google - July 9th, 2017
- Payza Commits to Cryptocurrency: Unveils Full Bitcoin Services, Introduces Altcoin Exchanges - CoinDesk - July 7th, 2017
- What is an Altcoin? Bitcoin Magazine - July 7th, 2017
- CryptoPing completes $2.5 million ICO to further develop altcoin trading intel bot - CryptoNinjas - July 4th, 2017
- Saturday Slump: Ethereum, Bitcoin Prices Headline Crypto Market Downturn - CryptoCoinsNews - July 1st, 2017
- Monday Massacre: Bitcoin, Ethereum Lead the Way as Cryptocurrencies Retreat into the Red - CryptoCoinsNews - June 26th, 2017
- Altcoin signal app CryptoPing set to conclude ICO with over $1m already raised - CryptoNinjas - June 25th, 2017
- EasyMINE: Altcoin Mining for Everyone - Coin Idol (press release) - June 22nd, 2017
- Altcoin 2017 Forecast: Litecoin (LTC), Peercoin (PPC ... - June 18th, 2017
- Which Altcoins To Buy This Week (16th of June, 2017) - Live Bitcoin News - June 17th, 2017
- Bitcoin Altcoin Trader Price Analysis - June 13th, 2017
- 'Real Businesses are Using Waves', Says Rep as Altcoin Crosses $600 Million Market Cap - CryptoCoinsNews - June 11th, 2017
- Altcoin Definition | Investopedia - June 9th, 2017