This type of coin is 'among the riskiest of cryptocurrencies,' investing expert says—here's what to know

Original Article:

Source: Link

In this photo illustration, a visual representation of the digital Cryptocurrency, Bitcoin is on display on March 5, 2024 in Paris, France. As meme stocks like GameStop temporarily surged this month, it appears meme coins are having a moment as well. The price of Dogecoin, a popular digital token branded after the "doge" shiba inu meme, has increased by around 14% over the past month, according to CoinMarketCap. And the price of Pepe, a meme coin named after the "Pepe the frog" meme, has soared by over 100% since April 29, per CoinMarketCap. But before you consider investing in cryptocurrency, it's important to understand the difference between meme coins, altcoins and bitcoin. Bitcoin Bitcoin is the original cryptocurrency and the largest by market capitalization at over $1.3 trillion, according to CoinMarketCap. It was created by Satoshi Nakamoto, a person or group of people whose identity remains a mystery. Nakamoto envisioned bitcoin as an alternative version of virtual cash that wouldn't rely on a government or financial institution, such as a bank, to function and facilitate payments. Like many cryptocurrencies, bitcoin is powered by blockchain technology, which works as a digital, decentralized ledger that keeps track of transactions made within the network. Bitcoin also has a built-in limited supply of 21 million coins. This means no new bitcoins will be issued after 21 million coins have been mined. The scarcity is on purpose; the supply limit ensures that bitcoin remains a scarce asset so that, theoretically, as demand increases and supply remains the same, bitcoin's value increases as well. Altcoins Altcoins, also known as alternative coins, refers to any cryptocurrency that's not bitcoin. Although some of these digital tokens may operate similarly to bitcoin, they are built on different blockchain networks. There are thousands of altcoins, which are typically created with a specific purpose in mind. Take stablecoins, for example. A stablecoin is a type of altcoin that pegs its value to another asset, such as gold or the U.S. dollar, with the goal of stabilizing its price. Outside of stablecoins, many altcoins derive their value from market demand and traders' preferences. However, that can make them particularly vulnerable to rapid and unexpected changes in price, says James Royal, Bankrate's principal investing and wealth management analyst. "If demand dries up, you'll be left with only worthless digital assets and a good story," he tells CNBC Make It. Additionally, with so many altcoins available, it's important to be on the lookout for potential scams. One of the most common types of crypto investment scams encourages you to purchase a large amount of a given coin, then transfer it to the scammer's wallet. "Before you invest in crypto, search online for the name of the company or person and the cryptocurrency name, plus words like 'review,' 'scam,' or 'complaint,'" the Federal Trade Commission says on its website. Meme coins Under the umbrella of altcoins are meme coins. These virtual tokens are usually created for fun and named after internet memes or pop culture references. And although every meme coin is an altcoin, every altcoin isn't necessarily a meme coin. Although all cryptocurrency carries risk, meme coins can be especially treacherous for traders, Royal says. "Meme coins are among the riskiest of cryptocurrencies because they seem to emerge from nowhere and information about them can be sparse," he says. "They're expected to soar and plummet as the public sentiment shifts this way and that. Meme coins may capture the public's fancy today and be gone tomorrow." Cryptocurrency remains volatile and risky