With the high value and media frenzy surrounding Bitcoin, many speculators are considering alternative crypto currencies. It is likely that the majority of alternative currencies will die overtime, while only a select few will catch on. Most of the current value in alternative currencies is speculative. If no merchants are willing to accept the currency overtime, then value will eventually erode away. The following are red flags that an alternative currency is a gimmick:
Gimmicky Name – Sometimes, it’s just the name itself that attracts gullible speculators. Although unique names are catchy and attract interest, make sure the coin has something else going for it.
High Interest – Some crypto currencies offer to pay you as high as 50% interest per year if you hold your coins over a period of time. Unfortunately, when you pay everyone 50% interest, the value of the currency as a whole will dilute over time. This is a gimmick to get gullible people to buy and hold the coin. Slight inflation is a valid concept, since coins will be lost over time. To prevent devaluation, make sure the inflation rate of an alternative coin does not exceed 2% per year.
Branded as Extremely Rare – Some digital currencies brand themselves as being extremely rare. This is also a gimmick, since you can still buy fractional coins. No one has to buy a whole coin. If the entire supply of Bitcoin was just one coin, then people would trade tiny fractions of that one coin. The value of crypto currencies are only as valuable as people are willing to accept them. The idea of having a low supply is just relative.