The first thing all people will quickly notice when entering the "crypto-verse" is that there are sooooooo many currencies! It is both overwhelming and scary! How do you distinguish those that are good crypto versus bad crypto versus mediocre crypto (hence the title of this blog)? Well, the first thing I can do to help you in that endeavor is to share the process I went through when screening all the tradeable cryptocurrencies on CoinBase. In other words, you need to "Categorize your Crypto-Universe"!
Why do you need to do this? Because there are levels to the Crypto technology stack as depicted in the figure below.
Let's discuss these three levels and how you should use them to categorize all the cryptocurrencies available for you to buy!
- Blockchain Platforms: This is the foundational level that enables the creation and manipulation of a blockchain (think of a database that stores transactions of some kind). Bitcoin was the first blockchain (aka Blockchain 1.0) but mostly just a blockchain (though there are some efforts to extend it). Ethereum is a blockchain platform that enabled the ability to write small programs (called "smart contracts") that manipulate the blockchain data. That was a major step forward for blockchain platforms. Some people call this Blockchain 2.0. Cryptocurrencies that are platforms charge for the use of their platform (like Ethereum gas). That is how the currency becomes more valuable - the more applications using the platform, the more valuable the platform. Soooooo ... let the platform wars begin!!! Enter Cardano and Polkadot as major challengers to the current champ (Ethereum). Sorry, but Bitcoin is not really a platform and may never be.
- Platform Services: Well what if these Dapps (or decentralized apps or better thought of as "blockchain apps") need services to make them cooler, faster and offer better features to their end-users. For example, they may need external data, identity management, security services, etc. As developers think of more cool things to offer end-users (customers), a whole array of services can spring up to support Dapps. So, the target audience for these cryptocurrencies is other developers (this is the developer version of B2B services). The more developers, the more valuable the "service" token they are charged to use the service. If you are evaluating platform services to platforms remember that creating a platform is more difficult, more time-consuming, and requires a bigger budget or larger community. So, that means there will be far fewer platform coins then platform service coins. Also, remember that in terms of the "total addressable market", platform services are targeting other developers and not regular people (aka "end-users"). This brings us to our final level: End-User features.
- End-User Features: this is where the rubber meets the road and where this technology MUST deliver a benefit to the end-user. If crypto-currencies don't help people make their lives better, then the entire technology stack deserves to be thrown on the scrap-bin of history! The entire purpose of this whole interconnected set of technologies is to improve the lives of people. Thus, I consider the end-user features the most important types of crypto-currencies (even though for the time being, platform coins may dominate in price and mindshare). Examples of End-user features are: sending money across the globe cheaper and faster; lending money cheaper and faster; buying and selling digital assets (NFTs); and sharing virtual goods in games across games and even across gaming platforms (i.e. Playstation to XBox). The market for these types of currencies is every person on the planet!
Now you are ready to divide your crypto-currency Universe! I hope this helps you begin to separate the wheat from the chaff in evaluating crypto-currencies! If you have any questions on this post, please comment below and I will do my best to address your topic in future posts. Unfortunately, since I am working on a new programming book my time is limited so I may not be able to respond to every comment. Best wishes and I'll be back soon as we dig deeper into these technologies!