Shitcoins Explained: What Are They? And Are They Worth Investing In?

For a newbie into the world of cryptocurrencies and the amazing opportunities being brought about by DeFi, you might have been confused lately by a very popular terminology — “shitcoin”, often used to describe crypto products/assets much to your bewilderment. What exactly are shitcoins? That’s what this article discusses, I’ll be walking you through details of what these coins are, how to identify them and if they’re worth investing your money and time in.

You see, the term “Shitcoin” is an umbrella phrase used to describe all of the offshoots of faltering or already defunct cryptocurrencies. These currencies typically have no discernible purpose, no foundation for existence, and no underlying fundamentals. Infact, unlike Ether and Bitcoin, these tokens have no long-term value because their function is unclear.

The most famous example of a “shitcoin”is Dogecoin which was ‘forked’ from Litecoin in 2013, or conceptualized as a fun currency. It was created as a meme coin and had its appeal restricted to the Shiba Inu dog breed featured on its logo. Just like Dogecoin, many “Shitcoins” out there do not try to disguise the fact that they have no inherent value; in fact, they actively make an effort to capitalize on the idea that they make lousy investments. As a result, they are seen as having a very high risk of losing all of their value in a down market — making them a very terrible investment choice to make.

How “shitcoins” work

With the popularity of cryptocurrencies skyrocketing once Bitcoin was introduced, as well as the availability of substitute cryptocurrencies, many companies looked to build their own cryptocurrencies using blockchain technology in order to capitalize on the success of Bitcoin. This was the beginning of the formation of shitcoins

The lack of faith by investors in these new cryptocurrencies hasn’t deterred the formation of “shitcoins” one bit either, so with the huge possibility that these coins continue to flood the market, let’s touch up on how exactly they came about. Shall we? Alright, here are some ways in which shitcoins generally come about;

1. A lack of Purpose: Sometimes, individuals or groups create cryptocurrencies without a clear purpose or underlying technology. These projects often lack a solid foundation, value proposition, or innovative features, leading to a lack of interest and value.

2. Pump and Dump Schemes: Some people create cryptocurrencies with the intention of manipulating the market for personal gain, and they promote the coin aggressively, artificially inflating its value, and then sell their holdings once the price has risen. This practice, known as a pump and dump scheme, often leaving other investors with worthless coins.

3. Copying Existing Coins: Due to the open-source nature of many cryptocurrencies, it is relatively easy for anyone to create a copy of an existing coin. These clones, known as “forks,” often offer little to no modifications or improvements compared to the original coin. They may be created as a quick cash grab or to exploit the brand recognition of an established cryptocurrency.

4. Initial Coin Offerings (ICOs): During the height of the cryptocurrency boom, many projects raised funds through Initial Coin Offerings. While some ICOs were legitimate and promising, others turned out to be scams or poorly executed projects. Investors who purchased tokens during these ICOs often ended up with worthless or highly volatile assets.

5. Lack of Development or Community Support: Cryptocurrencies require ongoing development and active community participation to succeed. If a project lacks these crucial elements, it may become stagnant and lose relevance over time. The lack of progress and support can cause the value of the coin to decline and ultimately become a shitcoin.

6. Pumped-Up Hype and Speculation: In the volatile cryptocurrency market, some coins experience short-term spikes in value due to hype and speculation. These price increases are often unrelated to the actual value or utility of the coin. When the hype fades, the value plummets, revealing the coin’s lack of substance.

Are shitcoins worth an investment risk?

While it’s not impossible to make profits trading shitcoins, the risks involved are considerably higher compared to investing in established cryptocurrencies with solid fundamentals. This is because they not only lack fundamental value, innovative features, or a solid foundation, they are more likely to be associated with fraudulent or scammy practices.

Their lack of liquidity, failure to comply with regulatory requirements, and limited development make them an investors nightmare. So unless you’re willing to lose whatever amounts you’re looking to invest into shitcoins, you’re better off staying away from them.

The bottom line

The prevalence of fraudulent practices within the shitcoin space poses a significant risk to investors, as scammers manipulate prices and leave unsuspecting buyers with worthless assets, so armed with this information about how shitcoins come about, I’m sure you’ll do everything to avoid them.