Mark Cuban: This is the first thing you should do before investing in altcoins (via CNBCMakeIt)
Reputation risk is the threat that an altcoin project may not be in good standing. Before investing, it's critical to determine if the founders of the project are credible.Market access risk refers to the accessibility of each digital coin, including where it's available for purchase.
If the altcoin is only available via an obscure backchannel, rather than a regulated exchange, for example, it may be worth thinking through the investment a bit more. If the method of purchasing a coin seems sketchy, it's possible the altcoin project is unsecure or a scam.Technical risk is a big one, since the quality of code behind each digital coin can vary.
Many of the dog-themed altcoins, for example, were created by developers who copied and pasted the source code of other coins to create their own. Dogecoin, in particular, is a fork, or code copy, of luckycoin, which is a fork of litecoin, which is a fork of bitcoin. This can leave room for weaknesses within a code, making the altcoin potentially less safe and susceptible to bad actors.
It's smart to make sure that a reputable third party has audited and reviewed the code of any altcoin you're interested in buying. An audit will uncover if there are issues in a digital coin's development, including if it's possible for a central party to control the network or its funds, which could be potentially harmful and cause volatility.
However, even if a coin is audited, it's still possible for a sketchy project to slip through the cracks, so experts are clear: You should only invest as much as you can afford to lose.
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