Each day, there are more and more Altcoins popping up — and the market cap of the top Altcoins continues to rise as well.
In this article, we will go over the most important aspects of any Altcoin that you consider investing in so that you can make the right choice when choosing one to invest in. Check out these key aspects below to understand their market and other key aspects — and click here to know about the right platforms.
1. Proof of Work (PoW)
First comes on the list is PoW as one of the terms of Altcoins. PoW means Proof of Work which is an algorithmic system that is used in cryptocurrencies. The Proof of Work (PoW) makes Bitcoin miners solve mathematical problems to be able to validate every transaction and generate new units of Bitcoins to the blockchain. Miners solve a complex cryptographic puzzle to add a block to a blockchain. In exchange for solving these puzzles, miners are awarded tokens. The first miner who solves the problem with an accurate answer receives a reward. PoW is a secure system, but it is also energy intensive and can be slow.
2. Proof of Stake (PoS)
After Proof of Work (PoW) comes PoS in the list. PoS system is another example. The PoS is a highly-functional algorithm that a blockchain network uses to distribute consensus. The PoS-based cryptocurrencies are dissimilar to the Proof of Work (PoW) based systems where no requirement for expensive hardware is there. This makes PoS more environmentally friendly to the users.
PoS doesn’t require miners at all because it only awards tokens based on how many coins you hold. This means that validators aren’t required to do any work to validate transactions, which eliminates mining hardware costs.
In PoS, all nodes in a network create a list of validators (nodes that can add new blocks to the blockchain). Miners then randomly select a subset of validators, place bids for their vote, and whichever node wins gets rewarded for processing transactions.
Furthermore, since all stakeholders can validate transactions and create blocks, it theoretically makes these systems more decentralized than PoW. There are however some concerns about potential security issues with PoS systems.
3. Delegated Proof of Stake (DPoS)
DPoS is one of three consensus mechanisms used by blockchain platforms while the other two are Proof of Work (PoW) and Proof of Stake (PoS). In a Delegated Proof of Stake system, token holders vote for witnesses who they believe will act in the best interest of the network. The top witnesses are then tasked with maintaining the blockchain and validating transactions. DPoS is a more energy-efficient way of reaching consensus than Proof of Work (PoW) because it requires far less computing power. This makes DPoS well suited for mobile and IoT devices.
DPoS uses both systems that PoW and PoS use, as it pays witnesses for their service but also has a significant stake requirement so that top-level witnesses cannot compromise or corrupt the network.
4. Blockchain Governance
With a decentralized governance model, there is no need for a central authority to make decisions on behalf of the network. Instead, the community can come together and make decisions through consensus. This not only allows for more democratic decision-making but also makes the network more resistant to censorship and attacks.
In conclusion, Altcoins are a great way to invest in cryptocurrency. They are volatile but offer a lot of upside potential. So, you can invest in it. In fact, a lot of people are already doing. But, prior to that, it is of utmost importance that you do the required amount of research to fully understand the key facets of Altcoins. Understanding the technology and the codes of Altcoins and their meanings is the step that you need to follow before investing in Altcoins.
You also need to make sure that they have enough support from developers or they may not survive long term. Finally, make sure you are comfortable with the amount of risk you want to take on in this type of investment opportunity.