Saturday, February 1, 2014

Which Cryptocurrency Should You Invest In?



That is the question, isn't it? Where do I invest my money or mining resources when there are countless of new coins coming out every single day? I frequent the "Alternative cryptocurrencies" section on Bitcointalk very often and I am absolutely in awe at the amount of new coins that are launched every single day. As of today there are over 80 alternative cryptocoins and more being created on daily basis. You would need several days just to remember some of the wacky and downright bizarre names of some of these "Alt coins" and let's not even talk about deciding which one's to mine or invest in.

How to evaluate a cryptocoin?

All cryptocoins today run on the SHA-256 cryptographic algorithm or the Scrypt algorithm with a few exceptions. The first SHA-256 coin was Bitcoin and the first Scrypt coin was Litecoin. Most of the 80+ alternative cryptocoins with a few exceptions are copycats of either Bitcoin or Litecoin. So one has to ask, what is the point of all these alternative currencies? What possible benefit can these alternative currencies offer other than what Bitcoin and Litecoin already provide? That is the most important question one should ask themselves before investing a single cent of their own money or resources on any of these alternative currencies.

Many of the creators of these alternative currencies are nothing but clones of Litecoin/Bitcoin. All they do is slap a nice new logo on their new coin, come up with a clever or maybe not so clever new name for their coin, modify some parameters in the original Litecoin/Bitcoin wallet client and VoilĂ , you have yourself a new coin. Anyone can create a new cryptocoin and start spamming it of every forum they can find. Do you really want to invest in something like that???? I sure as hell DO NOT!!

If you notice a particular cryptocoin being hyped up and massive amounts of hysteria surround it, WATCH OUT! Unless that particular coins truly brings something technologically ground breaking, it quite simply will not survive in the long term. Yes, it may initially rise in value on whichever exchange it is being traded on, but that is not a signal to jump in head first. Many potential investors get mesmerized by the volatility and excitement of day to day price fluctuations and they start fantasizing about how much money they are going to make. That is not investing, that is gambling. Fear is much more powerful than greed, once the volatility and the novelty aspect wears off, all the gamblers will head towards the next best thing and whoever "invested" will be left holding the bag! Do not judge a cryptocoin based on how whacky the daily price fluctuations are, or how much it is being hyped up.

When evaluating a potential cryptocoin to invest in, spend some time with the community on the forum. Observe how the developers act towards other members on the forum and how helpful other members are to each other. The behavior of the community can tell you a lot about the caliber of people that are involved and if they truly stand behind the coin or are just looking to make a quick buck and bail. Even if a coin is technologically innovative and groundbreaking, but something seems "Off" with the members or something rubs you the wrong way, that is a big red flag. Intuition is very important in investing, we all have it, learn to use it. I have spoken to many of my fellow cryptocoin investors, and sometimes they tell me that even though they liked the idea behind a coin, something just did not feel right about it. If you get that feeling, then just walk away.

If you decide to research a particular cryptocoin on Google, beware of any articles that you encounter. Many articles are paid for by the makers of the cryptocoin and written as pure promo pieces. When reading these articles, evaluate to the best of your ability if the writer is trying to give a balanced review of the coin or if it is trying to get you all pumped up. I understand cryptocoins are a very exciting new technology, but try to be as level headed as possible.

One final point I would like to make. Only invest money that you can afford to loose. Cryptocurrencies are still in the early stages and even Bitcoin and Litecoin are still not fully adopted yet by society. There are more and more businesses that are now willing to accept digital currencies, but that can quickly change if the governments of the world decide to crush the cryptocoins. For anyone who thinks that is unlikely or impossible, let me remind you how long the "War on Drugs" has been going on and how much damage it has done to society in general. Do not underestimate the arrogance and stupidity of crooked politicians!!

May the Cryptocurrency Gods smile upon you! :)

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