Even though I am a software developer, this article is not going to be about any technical details about cryptocurrencies. My goal is to present my opinion on where the cryptocurrency market stands right now and how things should drastically evolve from here on out.
The different types of cryptocurrency projects
Many people feel like they have missed out on the opportunity of their life by not jumping on the Bitcoin bandwagon early enough. I felt pretty much like this myself until a few weeks ago. That is when I started to investigate the cryptocurrency hype because the itch to do so simply had become way too strong. If something hits the mainstream on such a massive scale, chances are there is something to it. So what exactly did I do? I simply started looking at all the listed cryptocurrencies one by one. I began to read whitepapers, trying to understand the goals of all of the many cryptocurrency projects out there. I quickly realized that all cryptocurrency projects can basically be put into one of the following five categories:
The copycats. The vast majority of projects belongs into this category. Simply alter the source code of Bitcoin or Litecoin a bit, give the thing a fancy name, set up some sort of out-of-the-box website and off you go. Needless to say that such projects have no chance of being a success. Usually, there is plenty of pre-mining and the only intention of the “creator” is to become real rich real fast. After a while I had learned to identify these projects quickly. A brief look at the respective website was all I needed. Sometimes, there was no website at all. Talking about red flags...
The joke projects. A few projects I found along the way are clearly meant to be nothing but a joke. Just take a quick look at the Theresa May Coin project and you will know what I am talking about. Naming a coin after the British Prime Minister can hardly be anything else but a prank.
The projects where the new cryptocurrency serves a specific purpose. In my opinion, these kind of projects can only end up being a massive failure. One of the craziest examples is the CONCOIN project, a coin just for prisoners. One can hardly imagine that the world needs an extra currency exclusively for those who have ended up behind bars for whatever reason. Prison personnel will most certainly be thrilled if you go ahead and tell them that inmates can now by drugs, knives and who knows what else with a brand-new cryptocurrency. And of course, each prisoner now needs his very own computer with internet access. If you happen to find one of these projects, just scream and run away. You are only going to waste your time.
The projects that are most likely nothing but a big scam. Everybody probably knows what a Ponzi scheme is. Some of the new cryptocurrency projects fall into this category. I am not going to give examples here since I don't want to hear from their lawyers. For the halfway educated person, these projects are easy enough to recognize.
The truly innovative projects. Very few ones fit into that category, but they are actually quite easy to recognize once you happen to find them and if you have a decent IT-background of some sort. Of course, such projects have a nice-looking website, but this is not what sets them apart from many of the other ones. The real difference is that these innovative projects present a vision which has the potential to create actual value for people and companies. They have an active community with followers who share their vision and are dedicated to help that vision come to live. Finding these exciting projects is not an easy task but if one keeps looking they will eventually show up.
How the game is going to change
Up until recently, cryptocurrencies didn't have a lot to offer apart from what is really obvious: Fast transactions, low fees and a certain level of anonymity. The undisputed leader of the current cryptocurrency market, Bitcoin, is now even failing to deliver on these promises. Transaction times and fees know only one direction right now, straight up. And well, there is no real anonymity worth speaking of, there never was. But even if all of this wasn't the case, these old coins have no intrinsic value at all. They are basically collector's items and their value will most likely eventually become zero.
So how exactly is the game going to change? The answer is quite easy: New projects need to make sure their coins serve an actual non-monetary purpose. They must deliver a technology which allows to run valuable services and applications on top of it, services that people and companies are actually willing to pay for. The respective project's very own cryptocurrency is the only method of payment if someone wants to use the available services of its decentralized virtual computer. This change seems to be not all this significant at first glance, but it really makes all the difference in the world. If the delivered services and features of a project are actually useful, then there will be a natural demand for its cryptocurrency. After all, it is the only way to fuel the virtual machine. All of this may seem rather theoretical so let's look at a concrete example, the DeepOnion project.
The DeepOnion project, a perfect example
The DeepOnion project is a relatively new one which entered the public realm midway through 2017. Just visit http://deeponion.org for more information. Despite still being pretty much a newcomer, this project has already gathered a loyal and ever-growing community of followers. So what is it about DeepOnion that has me all excited? As I have already mentioned, a new cryptocurrency project needs to offer more than just a bunch of coins ready to be mined. There needs to be a vision that offers actual value. Let's see what exactly DeepOnion has in store:
The most serious level of anonymity which is currently available. This is achieved by building on top of the highly secure Tor network. The Tor project has been around for quite some time now and it has certainly delivered on its promise. So using what is already out there is most definitely a great choice. It is way better than trying to re-invent the wheel. On top of that, transactions are confirmed almost instantly, making it potentially suitable for every-day purchases in the real world.
DeepVault. Now this should turn out to be a real killer feature and the best thing is it is already up and running. So what exactly is DeepVault? DeepVault enables you to upload a digital fingerprint of a file, in more technical terms such a fingerprint is called a hash value. This fingerprint is stored forever on the blockchain, the decentralized ledger which keeps track of everything that has ever happened on the DeepOnion network. Let's say you want to send a file to someone and this person needs to be absolutely sure the file has not been messed with. In this case you would upload the fingerprint of the document to the blockchain and the other person could then verify that the document is still, without the slightest shadow of a doubt, the original one. And here it comes: You need to pay a certain amount of Onion, the name of the cryptocurrency on the DeepOnion network, if you want to use this service. Now it becomes clear why such a project is far superior to the older ones, led by Bitcoin. You can actually do useful stuff and the coins have real value based on the demand for the services running on the network. And DeepVault is only the beginning. Just visit the project's website and be amazed what else will be released in the upcoming months.
Quite a creative way of spreading the word. Raising public awareness for a decentralized project without a marketing department is quite a challenge. Even though there is not all that much real competition out there (the great projects are few and far between), the sheer number of new cryptocurrency projects makes it quite hard to be recognized. So the founders of the DeepOnion project decided to pre-mine 90% of all coins. Sounds like a shocker, doesn't it? I must admit I was pretty stunned myself when I found out about this and I was very close to moving on to checking out the next project. I am sure glad I did not do this because upon further review, this all actually makes a lot of sense. It also takes some guts to do it this way because the founders must have known that quite a few people would be quick to call this a scam. So why all that much pre-mining? Most of these coins are given away via free air drops, mostly to people who actively help to increase public visibility. There is also a development budget and some coins are reserved for the founders. This all makes perfect sense because you need some sort of budget for development and marketing, and a reasonable reward for those who created the project in the first place is more than justified. Without any sort of pre-mining, all developers would essentially have to work on the project for free. Every decent person probably knows that this is hardly possible if you want to get things done quickly and with a high level of quality. So what initially might appear to be an obvious scam actually turns out to be a stroke of genius. At the end of the day, the project's success doesn't depend on who initially owns how many coins, but rather on the actual usefulness of the cryptocurrency. A few people might get rich in the process, but even then it will be those who believed and supported the project from the very beginning. Sounds fair enough to me.
Talking about money
The whole cryptocurrency market is going to change dramatically from here on out. Great cryptocurrency projects will be those that deliver great services on top of their respective blockchains. The cryptocurrencies of such projects will have a realistic chance to eventually become money, something that Bitcoin will most likely never achieve. In order for a certain asset to become money, it must meet two conditions (at least in my world, there are certainly plenty of other opinions out there): First of all the asset must have a non-monetary purpose. In other words, you must be able to do some useful stuff with it apart from just hoarding or trading it. Secondly, there must be a halfway stable supply-to-demand ratio which guarantees stable prices. Right now, very few cryptocurrencies meet the first condition, not a single one is even close to meeting the second condition. So it still might take many years before the first cryptocurrency can safely be considered money, but it will eventually happen. The train has yet to leave the station, still some time left to jump on this bandwagon.
Disclaimer: This article only represents my personal opinion. I am not a financial advisor, so please do your own due diligence before making any investment decisions.
About the author: I am a software developer who lives in Berlin, Germany.
So true. There are a lot of projects that do not stand a chance in the future. But the moment is now and low value projects can linger on longer than you think. I have some 2011-age coins that still have value (and are traded). From that perspective, cryptocurrencies have thought me how quickly the social animal: human, constructs a tool like currency to coordinate their mutual affairs.
I expect a few big coins to arise as leaders for a long time, surrounded by Dogecoins and other specific tokens in a constant swarm of new waves.
One thing is sure: the quest for good ideas is more important than ever. Both labour and capital have no power anymore. It is and will all be about ideas.
The Knowledge Economy.
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interesting article - I suspect we will continue to see a shakeout of bad coins as the valuable and useful ones take hold. Quick question:
does mean that do not consider the USD to be money? as it has no other use than to be legal tender - a purely monetary purpose?
Strictly speaking the USD is not money because of the lack of intrinsic value. FIAT money in general is nothing but a big scam. However, FIAT money is also a big exception because governments force you to take their money, at least in their countries. Therefore such FIAT currencies are at least backed by a country's productivity because you can buy goods and services with them in the issuing country. Old cryptocurrencies such as Bitcoin don't enjoy such a privilege. They are truly collector's items.
Innovation and the target market for a crypto is a must to succeed. Yes we see a lot of altcoins today but no substance. Read some of the white paper of these coins will give you more info if it's just trash and a lot of them do - no purpose other than making the devs rich. DeepOnion has the right elements for a coin to invest with. I read the white paper and it's obviously something that will go big if their targets are achieved.
Excellent article, I wrote a similar one. Things are only just getting started! Hang on tight. Voted up
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