The amount of cryptocurrency in circulation has exploded over the past few years. What began as a small world of a few quality coins has exploded into a massive market, with hundreds of thousands of new currencies being created weekly.
In this post, we will be discussing why the coins that power the underlying tokens are a safer bet for most investors, as well as how the tokenization of everything is both a promising and risky endeavor.
Bitcoin's Coin
Bitcoin was the first cryptocurrency, and the first "coin" to exist. The $BTC coin is the base currency of the Bitcoin blockchain, and what miners earn for powering the network and validating transactions.
After Bitcoin, other well-known coins were launched including Litecoin, Monero, and hundreds of others. Back then, launching a new cryptocurrency involved recruiting decentralized nodes that would execute the client software, and mine the respective coin.
While some crytocurrency networks had tens of thousands of nodes, others only had a few dozen. In any case, launching a new cryptocurrency involved building out a physical network of nodes, which required electricity and computer equipment to power the network.
Ethereum and Tokens
Ethereum (ETH) was launched in 2015 and introduced the capability to permissionlessly create tokens (ERC-20) atop the Ethereum blockchain.
As long as someone had enough $ETH coin (gas), anyone, anywhere in the world could create their own token atop the Ethereum blockchain, which made creating a cryptocurrency much, much easier.
Generally speaking, coins require more effort to create, because they involve building out a physical network of decentralized nodes. Each independent node operator needs to keep their software up-to-date, monitor their equipment, and troubleshoot when problems arise, in order to earn the network's coin.
Conversely, tokens don't have to be mined like Bitcoin, Litecoin or Monero. Instead, they are oftentimes minted instantly out of thin air, and pre-allocated to the team, investors, and community, sometimes with very little foresight by the team.
Solana and Memes
Solana innovated upon Ethereum's tech, allowing anyone to create a token much faster and much cheaper. In fact, every week somewhere between 30,000 to 250,000 new tokens are created atop the Solana blockchain (with over 90% of them being meme coins).
Determining which of these tokens may actually have value in the future takes a lot of time, effort, and research. At the end of the day, many investors will feel safer simply investing in the coin that powers the underlying tokens, whether it be $ETH, $SOL, or the plethora of other blockchains that facilitate token creation.
Although coins are probably the safer bet for now, we should recognize that the tokenization of companies and real world assets is progressing rapidly. Therefore, investing in some of these tokens could be like investing in the early tech companies of the 80s and 90s.
Stocks vs. Tokens
Traditionally, stocks have been issued by a centralized party, like the DOW, S&P, or NASDAQ through a regulated IPO approved by the SEC. These IPOs (which only "accredited investors" can participate in) led to the rich getting richer, and the poor(er) missing out on opportunities.
Initial Coin Offerings (ICOs) through Ethereum changed the game entirely. ICOs allowed anyone, anywhere in the world to raise money for a project. Of course, the majority of these token launches were low quality projects or scams, but it leveled the playing field nevertheless.
Until next time...
The "companies" of the future could very well be today's sprouting decentralized communities, all powered and governed by their respective tokens. That said, the coins which underpin these tokens are the safer bet for investors without the time, energy, or expertise to research new projects thoroughly.
If you learned something new from this article, be sure to check out my other posts on crypto and finance here on the Hive blockchain. You can also follow me on InLeo for more frequent updates.
Further Reading
- Why are there so many Cryptocurrencies, and how many of them will Survive long-term?
- Will Compute Be The Most Valuable Commodity In The Future?
- How To Spot The Difference Between Good and Bad Crypto Projects
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