How to pick and analyse altcoins – all you need to know

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Picking altcoins is slightly different from picking out clothes or choosing a smartphone. It requires a little more thought and a lot more research. But with the proper guidance and knowledge, you should be able to pick and invest in the right altcoins without much of a hassle.The term altcoin is a combination of ‘alternative’ and ‘coin’.

It refers to crypto tokens introduced after Bitcoin. These coins share the same characteristics and framework as Bitcoin. For instance, both are peer-to-peer systems that run on similar if not the same code.However, there is one significant difference between the two: the underlying ‘consensus mechanism’.

Consensus mechanisms verify the authenticity of transactions occurring on the respective blockchains. The Bitcoin blockchain uses the energy-intensive Proof-of-Work (PoW) mechanism, whereas the newer altcoins run the eco-friendly Proof-of-Stake consensus mechanism.In the PoW system, miners dedicate computing power to process transactions and earn rewards. In contrast, in the PoS system, miners pledge a specific amount of crypto to the blockchain’s development to qualify as authenticators.Also Read | Explained: Proof-of-work vs Proof-of-stake mining and why Ethereum is transitioning to latterHow do you pick an altcoin?Choosing an altcoin requires an understanding of the underlying utility value.

Based on their unique functionalities, altcoins belong to various categories:Mining-based altcoins: Altcoins earned through mining use the traditional PoW system. Here, computing power is dedicated to solving complex mathematical equations to decrypt and scrutinise transaction data. Some examples of mining-based altcoins are Litecoin (LTC), ZCash (ZEC) and Monero (XMR).Stablecoins: Stablecoins