7 Things To Know Before Investing in an Altcoin

If a coin has any of these characteristics, your money would be better put elsewhere.


1. Unjustified premine

The oldest method in the book. Here, a coin is released with a large chunk of coin set aside for the developer for one reason or another. They’ll try to justify it in some way, but it really just comes down to lining their own pockets at your expense.

Examples:

Phenixcoin: Massive premine with poor explanation given.

Zenithcoin: 50% of all block rewards goes to developer, with no explanation given

2. Disproportionate amount of coins generated at launch

Also known as instamining. This method became popular after people starting to become wary of coins with a premine. Here, a coin is released with parameters such that the developer can mine a massive amount of coins after the coin has been released, before people can get their miners set up.

Examples:

Feathercoin: 3 million coins generated during first 24 hours

Goldcoin: Massive amount of coins generated during first few hours

Bitbar: 2000 coins mined during first three hours. Two months after launch, this amount still represented 50% of all coins in existence

Mincoin: 868k coins mined during the first three hours. Two months after launch, this amount still represented 75% of all coins in existence

Alternatively, a coin could generate a disproportionate amount of coins in a given time frame.

Example:

Megacoin: 50% of all coins will be generated during the first 5 months. The rest will be generated over the next couple of decades.

3. Initially released in a remote corner of the web

Here, a person will “release” his coin on some obscure website, and begin mining for days with little to no competition before posting about it on bitcointalk; a very obvious attempt at masking a premine.

Example:

Pennies: “Released” via an obscure website days before a bitcointalk forum post was made.

4. Broken client at release

This could technically fall under developer incompetence, but I believe deserves it’s own section as many scams have been perpetrated this way. A coin will be released, but the client is either not provided or missing. Meanwhile, the developer mines his coin with little to no competition.

Examples:

Mincoin: No GUI client provided for weeks after release.

5. Developer incompetence

My favorite metric to go by. A coin is only as good as the developer(s) behind it, after all. Is the developer active? Does he appear to have a good grasp of how the bitcoin protocol works? Are the parameters chosen for his coin realistic? These factors and others are pertinent to consider when judging a coins worth.

Examples:

Fastcoin: Unsustainable parameters chosen

Gamecoin: Initial client released with a feathercoin logo, and FTC as the currency abbreviation.

Megacoin: Initial client released using same ports as Litecoin. Developer refused to admit this was a problem for weeks until he caved and issued a patch.

6. Presentation

A very strong indicator of how a coin will fare. More than anything else, coins live and die by their name and logo. A poorly chosen name or a poorly designed logo is a death sentence.

Examples:

Fastcoin: Exceptionally poor logo design.

Junkcoin: Name speaks for itself.

7. No Community

And finally, perhaps the most important of factors; the community. This applies only to established coins. Some time after release, there should be an active community of people not only supporting the coin, but developing relevant services for it. Coins that lack this weeks after released should not even be considered.

Examples:

EZCoin: Aged coin with no relevant services or community to speak of.

source: http://cryptolife.net/the-anatomy-of-a-scamcoin-7-things-to-know-before-investing-in-an-altcoin/

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