What Makes a Great CryptoCurrency?

I ask the question because I honestly don’t know.  I don’t see an advantage to Bitcoin over another crypto other than Bitcoin was first.  A friend asked a question, “Will Bitcoin be the MySpace of cryptocurrency?”  Maybe.

We are seeing lots of them launch and grow in value.  The speculative fever reminds me of the NASDAQ in 1998.  Back then older people I knew said the move in stocks reminded them of the 20’s and if you do your history correctly you can always find a time when assets got overvalued.  The most infamous might have been the Dutch tulip bulb mania back in the 17th century.

I don’t think the economic or business theories that have shaped what other assets are valued at will be any different with crypto.  There are people I have heard that think this is totally new and defies previous laws of economics.  Those laws are hard and fast and when there is illiquidity in the marketplace as there is now, violent when they decide to mete out justice.

I have watched Bitcoin trade to dizzying heights and there seems to be no utility value other than speculative.  At the same time, you cannot short it other than not buying it and you can’t hedge it.  There are no options markets with strike prices that allow you to manage the risk of holding it.  Ethereum is the same way.

What are the principles you think will make a great cryptocurrency?  We know they are more than just mediums of exchange, so what technical aspects must it have to derive value from the marketplace?  How many cryptos can exist and actually be liquid mediums of exchange?

 

  • Matt

    Read recently that the Bitcoin blockchain has a throughput of only 7 transactions per second. Sounds like an Achillees heel for true scalability. Small transactions will never go through !

  • I don’t know if you attended the Token Summit last week but one of the best presentations there was given by Chris Burniske showing that the utility of some tokens is very low comparing with its price. But beyond the hype there are many applications that could be benefited by cryptocurrencies. The obvious one is money transfers. This does not make very sense within US but there are a lot of countries where high fees makes it difficult to pay small amounts. In this context the security and performance of a cryptocurrency/blockchain/tokens have a lot of sense. I made
    this
    spreadsheet showing different metrics. You can see they are slow to handle the scale of other payment systems. Following this logic we can say that new blockchain advances are interesting to compete with the current systems. In this context new research like DFINITY is interesting.

    (I added links but they were not rendered in this message)

    • I wasn’t able to go unfortunately. I was in St. Barth’s celebrating my 30th aniv! Thanks for your comment. I appreciate it.

  • The way to look at it is not to compare to the existing system, and what we currently have.
    It is rather an alternative method, alternative market, alternative set of processes. Imagine if we only dealt in cryptocurrency, cryptoassets, cryptovalues, token-based earnings, token-based spending, etc..

    • awaldstein

      I sense you are correct but both human nature and the cycles of tech disruption by definition surface that logic and those comparisons.

      • I don’t care about the system. The laws of economics remain. They scale across all systems. I see lots of utility for crypto but wonder what will determine which crypto currency has more value than another. Sort of like “Why is Apple worth more than Home Depot?”

    • JLM

      .
      Whose value is quoted in fiat currency?

      You are wondering into Jim Jones territory.

      JLM
      http://www.themusingsofthebigredcar.com

  • 1. Adoption makes one better than another. Bitcoin is accepted as payment in more places than most others (yes, primarily because it was first, but the fact that it is already accepted is why it has more value than some others).

    2. The technology that it enables or empowers. Ethereum allows you to attach a little bit of logic (or a contract if you prefer) to it…this opens up the ability to ‘do’ more things associated to the crypto currency and so it starts with a little extra value already baked in and as it gains more adoption (see #1) it also gains in value.

    3. Check out gdax.com (basically a marketplace by CoinBase). It’s already got some basic versions of the features you were asking about (for those in the know and technical ability)

    4. Personally, I think it also depends deeply on the foundation and/or developer community behind a given crypto currency. Much like traditional money value depends deeply on the government behind it. How trustworthy, stable, and valuable the ‘people behind the curtain’ are goes a long way in determining how valuable the crypto-currency could/should be long term (IMHO). BTW, this is partly why I predict we’ll see record prices/numbers when Kin hits the market (they will probably be the most ‘trustworthy’ group at scale to have such an offering).

    …anyway, just some of my own theories/thoughts…