Altcoin

What is an altcoin?
– Definition: An altcoin (short for “alternative coin”) is any cryptocurrency or token that is not Bitcoin. Altcoins are created by developers to serve particular goals: to change how transactions are validated, to add new functions, or to target specific industries or use cases.

How altcoins differ from Bitcoin (brief)
– Origin: Some altcoins are forks — copies of an existing blockchain codebase altered by a group of developers — while others are built from scratch.
– Consensus mechanism: Altcoins often use different methods to secure the network. For example, Litecoin (an early altcoin) uses the Scrypt proof-of-work algorithm rather

than Bitcoin’s SHA-256, which affects the kinds of mining hardware used and the speed of block confirmation.

Common technical differences
– Consensus mechanism: The method a network uses to agree on the ledger state. Proof-of-work (PoW) requires miners to solve cryptographic puzzles; proof-of-stake (PoS) assigns block-validation rights based on coin ownership. Different mechanisms alter energy use, centralization risk, and attack surfaces.
– Transaction throughput and fees: Some altcoins increase transactions per second (TPS) or use different fee models to lower costs. Faster block times typically reduce confirmation latency but may raise orphan/orphaned-block risk.
– Smart-contract capability: Some networks (e.g., Ethereum) support programmable logic—self-executing code—enabling decentralized applications (dApps). Other altcoins are limited to simple transfers.
– Privacy features: Privacy-focused altcoins add technologies (e.g., ring signatures, zero-knowledge proofs) to conceal sender, recipient, or amount. These features carry additional regulatory scrutiny.
– Token standards and interoperability: Token standards (for example ERC-20 on Ethereum) and cross-chain bridges determine how easily tokens interact with wallets, exchanges, and other chains.
– Monetary policy and supply model: Altcoins differ in max supply (fixed vs. inflationary), issuance schedule, and halving/burn mechanisms, affecting long-term scarcity.

Types of tokens and coins
– Coins: Native assets that run on their own blockchain (Bitcoin, Litecoin, Cardano).
– Tokens: Assets issued on top of another blockchain (e.g., ERC-20 tokens on Ethereum).
– Utility tokens: Provide access to a product or service on a platform.
– Security tokens: Represent ownership, profit rights, or debt—may be subject to securities laws.
– Governance tokens: Grant voting power over protocol changes.
– Stablecoins: Pegged to an external asset (fiat or commodity) to reduce price volatility.
– Meme and community tokens: Issued primarily by communities; value often driven by sentiment.

Popular examples (short summaries)
– Ethereum (ETH): Smart-contract platform widely used for dApps, DeFi, and NFTs; migrated to PoS to reduce energy use.
– Litecoin (LTC): Early Bitcoin fork with shorter block times and Scrypt PoW.
– Ripple (XRP): Focuses on cross-border payment settlement; has faced regulatory scrutiny.
– Cardano (ADA): Research-driven PoS platform emphasizing formal verification and peer-reviewed design.
– Binance Coin (BNB): Native token of the Binance ecosystem; used for fees, staking, and platform utility.
– Tether (USDT) / USD Coin (USDC): Stablecoins pegged to USD (different reserve models and transparency practices).

How to evaluate an altcoin — checklist
1. Purpose and use case: Does it solve a clear problem? Is the use case realistic?
2. Whitepaper and roadmap: Are the protocol design, token utility, and milestones clearly explained?
3. Team and contributors: Are developers identifiable with credible experience?
4. Codebase and audits: Is the code open-source? Have independent security audits been performed?
5. Tokenomics: Check circulating supply, max supply, inflation rate, and distribution (founders, vesting).
6. Market data: Liquidity (order-book depth), market capitalization, and exchange listings.
– Market capitalization = price × circulating supply. Example: price $0.50 × 2,000,000,000 tokens = $1,000,000,000 market cap.
– Fully diluted valuation = price × max supply. Example: price $0.50 × 5,000,000,000 max supply = $2,500,000,000 FDV.
7. Community and ecosystem: Developer activity, social channels, partnerships.
8. Regulatory and legal risk: Is the token possibly a security? Are there ongoing investigations?
9. Security history: Past hacks, incidents, or protocol failures.
10. Exit/liquidity risks: Is it listed on

listed on major centralized exchanges? If a token trades only on low-liquidity decentralized exchanges (DEXs), can you realistically sell your position without severe slippage? Check whether project-controlled liquidity is locked, whether there are withdrawal or KYC limits on exchanges where it’s listed, and the history of delistings for similar projects.

Next practical steps, metrics, and red flags to complete your due diligence

Step-by-step due-diligence checklist
1) Confirm identity and team credentials
– Look for named founders, LinkedIn or GitHub activity, and prior relevant experience. Anonymous teams increase risk.
2) Verify the code and audits
– Find the smart contract on a block explorer, confirm the contract is verified, and read audit reports. Note whether audit findings were fixed.
3) Examine tokenomics and vesting
– Get the circulating supply, max supply, allocation breakdown (team, treasury, ecosystem, public sale), and the vesting/unlock schedule.
4) Check liquidity and exchange listings
– Review order-book depth on major exchanges and slippage on DEXs. Verify if liquidity is locked and for how long.
5) Monitor on-chain usage and activity
– Track daily active addresses, transaction counts, and total value locked (TVL) for DeFi tokens.
6) Assess centralization and governance risks
– Who controls upgrade keys, admin privileges, or oracle feeds? Is there a multisig or timelock?
7) Search for legal/regulatory signals
– Look for SEC filings, enforcement actions, or warnings. Consider jurisdictional risks for token issuers and exchanges.
8) Look for security incidents and community sentiment
– Past hacks, exploit fixes, and how the team handled incidents matter. Read community channels for coordinated complaints.

Worked numeric example: dilution risk from future unlocks
– Current circulating supply: 100,000,000 tokens
– Current price: $2.00
– Market capitalization = price × circulating supply = $2.00 × 100,000,000 = $200,000,000
– Max supply: 1,000,000,000 -> Fully diluted valuation (FDV) = $2.00 × 1,000,000,000 = $2,000,000,000
– Suppose 200,000,000 tokens unlock in six months, raising circulating supply to 300,000,000.
If demand remains constant, theoretical price adjustment to keep market cap ≈$200M:
New price ≈ $200,000,000 ÷ 300,000,000 ≈ $0.667
This illustrates how scheduled unlocks can create downward pressure on price if demand does not increase.

Key on-chain and off-chain metrics to watch (with short definitions)
– Market capitalization: price × circulating supply; a size measure, not a valuation judgment.
– Fully diluted valuation (FDV): price × max supply; shows valuation if all tokens existed today.
– Liquidity depth / slippage: how much price moves when trading a given size; check order books and DEX slippage simulation.
– Total value locked (TVL): assets committed to a DeFi protocol; proxy for usage and trust.
– Active addresses / transaction count: measures user engagement.
– Token concentration: % of supply held by top addresses; high concentration is a control/rug-pull risk.
– GitHub commits / developer activity: ongoing technical maintenance signal.
– Audit status: whether independent security firms reviewed the code and whether findings were resolved.

Common red flags
– Anonymous or unverifiable team with no prior track record.
– Extremely large pre-mine or founder allocation with fast unlocks.
– Liquidity under the control of the team and not locked.
– Unverified smart contracts or obfuscated code.
– Promises of guaranteed returns, referral pyramid rewards, or unrealistic APRs.
– Repeated delistings or warnings from regulators/exchanges.

How to verify a smart contract and audits (quick checklist)
– Find the contract address on the project site and cross-check on a block explorer (Etherscan, BscScan).
– Confirm the contract code is “Verified” on the explorer.
– Read audit reports from reputable firms; confirm remediation of critical findings in changelogs or PRs.
– Look for indicators of control: owner address, renounced ownership, multisig, and timelock contracts.
– If the project uses bridges, check the bridge’s security history—bridges are frequent attack vectors.

Practical pre-trade exit checklist (do this before allocating capital)
– Confirm token is withdrawable to your wallet from the exchange you plan to use.
– Check withdrawal fees, minimums, and exchange withdrawal limits.
– Simulate trade size on the DEX frontend to estimate slippage for your intended order size.
– Do a small test buy and sell to verify execution and settlement.
– Ensure you understand tax implications in your

jurisdiction; keep records of trade timestamps, fiat equivalents, and transaction hashes for tax reporting and audit trails.

Other practical pre-trade checks
– Confirm wallet and chain compatibility (e.g., ERC‑20 vs BEP‑20). A mismatched chain can make tokens unrecoverable.
– Check token transfer and contract interaction approvals—revoke any unnecessary allowances afterwards.
– Review tokenomics schedule: upcoming token unlocks, inflation rate, and vesting cliffs that can create sell pressure.
– Verify on‑chain liquidity depth (pool reserves or order‑book depth) relative to your planned trade size. Estimate price impact first.
– Inspect oracle dependency: if the protocol uses price oracles, review their design and past failures.
– Consider fees: on‑chain gas fees can exceed small trade sizes; exchange withdrawal fees may affect net result.
– Prepare an emergency exit plan: predefine where you’ll sell and what steps you’ll take if liquidity vanishes (e.g., use cross‑chain bridges or centralized exchanges with higher fees).

Practical trade execution checklist (step‑by‑step)
1. Decide position size using a risk rule (example below).
2. Simulate the trade on the DEX frontend or use a small test swap to measure realistic slippage and gas.
3. Choose order type: market for immediate fill (higher slippage risk), limit to control price (may not fill).
4. Set slippage tolerance deliberately on the DEX; tighter tolerance reduces front‑running but increases chance order fails.
5. Send a small test transaction if moving between wallets or chains.
6. Execute the full trade only after test succeeds and you’re comfortable with estimated costs.
7. Immediately save the transaction hash and confirm final token balance in your wallet/exchange.

Worked numeric examples

A. Position sizing using fixed % risk
Assumptions:
– Portfolio value = $10,000
– Risk per trade = 1% → $100 at risk
– Token entry price = $2.00
– Stop‑loss = $1.60 (risk per token = $0.40)

Calculation:
– Max tokens = $100 / $0.40 = 250 tokens
– Notional exposure = 250 × $2.00 = $500

Interpretation: You risk $100 to potentially gain more if price moves favorably. This method controls downside exposure.

B. Simple AMM slippage example (Uniswap V2-like constant product)
Assumptions:
– Pool reserves: 1,000 X and 1,000 Y (implicit price = 1 X = 1 Y)
– You swap ΔX = 10 X for Y
– Constant product k = 1,000 × 1,000 = 1,000,000 (ignoring fees for simplicity)

After trade:
– New reserveX = 1,000 + 10 = 1,010
– New reserveY = k / newReserveX = 1,000,000 / 1,010 ≈ 990.099
– Amount out (Y) ≈ 1,000 − 990.099 = 9.90099
– Execution price ≈ 10 / 9.90099 ≈ 1.0099 → ~0.99% price impact

Notes: Real AMMs apply a fee (commonly 0.3%) which slightly changes outputs; larger swaps relative to reserves produce exponentially worse slippage. Always adjust for fees and use the exact pool formula in live calculations.

Post‑trade monitoring checklist
– Verify on‑chain that your transfer and approval transactions confirmed (use block explorer).
– Set price and wallet notifications (exchange alerts, block explorer watchlists).
– Monitor liquidity and open interest—sudden withdrawals from pools or order book thinning are red flags.
– Reassess fundamentals periodically: team activity, audit updates, exploit disclosures.
– Consider staggered exits (scaling out) to reduce market timing risk.
– For staked or locked tokens, track lockup end dates and unstaking delays—these affect liquidity and exit speed.

Common red flags to watch for
– Owner functions that can mint or blacklist tokens without multisig protection.
– Large single addresses controlling significant token supply or liquidity.
– Missing or unverifiable audits, or audits with unremediated critical findings.
– Rapidly changing contract addresses or frequent “token swap” announcements without clear migration steps.
– Bridges with recent exploit history or poorly documented custodial models.

Quick checklist you can print and use
– Contract address verified on explorer? Yes / No
– Audit(s) present and critical issues remediated? Yes / No
– Liquidity sufficient for my trade size? Yes / No (estimate: max trade ≤

estimate: max trade ≤ S * reserve_token / (1 − S) where S = desired max price‑impact (decimal). Example: reserve = 100,000 tokens, S = 1% (0.01) → max trade ≈ 0.01*100,000/0.99 ≈ 1,010 tokens.

– Owner / admin powers renounced or protected by multisig? Yes / No
– Large holder concentration (e.g., >10% single address)? Yes / No
– Tokenomics: inflation / emission schedule reasonable and documented? Yes / No
– Staking / lockup windows and unstake delays acceptable? Yes / No
– Bridge used? Known exploit history or custodial model documented? Yes / No
– Explorer “read contract” shows same source as published? Yes / No
– Official social channels and team identities verifiable? Yes / No
– Audits from reputable firms present and critical issues fixed? Yes / No
– My maximum acceptable total slippage (impact + fees) set in wallet? Yes / No

If you answer “No” to any material question: pause and investigate. Common next steps
1. Do a tiny test trade (micro amount) to confirm contract behavior and received tokens.
2. Check on‑chain holder distribution and recent large transfers (use Etherscan or similar).
3. Read audit reports and search for disclosed CVEs (common vulnerabilities).
4. Prefer pools with deep liquidity or aggregated routes (DEX aggregator).
5. Consider waiting for multisig or timelock proof, or for third‑party custody/insurance to appear.

Worked example — estimating safe trade size for an AMM (Uniswap v2 style)
– Known: pool token reserve x = 100,000 tokens. You want max price impact S = 1% (0.01).
– Formula (derived from constant‑product AMM): Δx = S * x / (1 − S).
– Compute: Δx = 0.01 * 100,000 / 0.99 ≈ 1,010 tokens.
– If token price is $2, that’s $2,020. Add AMM fee (e.g., 0.3%) → factor that into your tolerance.
Notes: this formula