A Framework for AltCoins
Where am I putting my money?
Last week I put some money into Ethereum. I am also putting some money into Golem and SiaCoin. These are the 3 cryptocurrencies I am the strongest believer in, though I have holdings in Bitcoin and LiteCoin as well. My total holdings right now are valued at $7,163.
Here is a public link to the top 25 AltCoins including exactly how much I hold of each.
I purchased 1 Bitcoin (BTC) at a price of $827 USD on January 28th, 2014 and largely forgot about it. A little over a week ago I looked up and saw that a single Bitcoin was worth > $2500 USD and realized I needed to dig deeper. Since then I’ve sold and bought 5 of the hundreds of cryptocurrencies out there and seen a surprising increase in value in my holdings.
What is going on?!
This post is a brief overview of my reflections based on the activity that has been happening in the last month that has driven the creation of > $50 Billion USD ($50,000,000,000) in non-Bitcoin cryptocurrencies. I just described where I’m putting my money, I also want to tackle two other sections
- What on Earth is happening?
- What framework am I using to evaluate cryptocurrencies?
Blockchain is Emerging
Something is happening. That’s for sure.
The chart below shows the growth of the total Market Capitalization of non-Bitcoin cryptocurrencies over the last 4 years.
Zooming in on the last month, over $50 Billion USD ($50,000,000,000) of market value has been generated in cryptocurrencies in 30 days:
So what are these AltCoins?
AltCoins are blockchain-based tokens that are tradable and have a monetary value. There are now several hundred alternative cryptocurrencies.
Coincap.io currently lists 586 distinct coins. At the time of writing 27 of them have a total Market Capitalization of over $200 Million USD.
The image below shows key stats like the total value, price, supply, and change in price of these currencies and has a link to purchase or sell many of them.
New tools
The simplest way I would describe what these “AltCoins” are is to say they are new tools for specific kinds of trade, commerce, or contractual agreements.
Vitalik Buterin, the founder of Ethereum has a 3-minute YouTube video that gives a slightly overwhelming, but very valuable overview of the many tools that can leverage AltCoins. They include but are not limited to:
- Financial Tools: Remittances, micropayments, and e-commerce
- Contract Tools: Online secure management of property and contracts
- Messaging Tools: For peer-to-peer networks
So any given AltCoin, take for example Augur is a tool that enables people to make predictions on just about anything.
Part of the reason that Augur is considered valuable is that people spend a lot of money on betting. But I think the real reason that Augur is considered valuable is because if we honestly assess our current betting markets, it is surprising that people don’t bet on even more things.
These days we mostly bet on cards, sports, and political outcomes. If we really wanted to though we could probably bet on whether or not our friend is likely to order coffee or tea with their breakfast. If the cash register at the local cafe accepted blockchain contracts we could make our bet, submit it to the server, and win or lose based on their true order.
Similar to how taxis were always around but never used quite like Uber is, prediction and betting markets are around, but there may be a chance to grow that market 100x.
Most AltCoins take a slightly different “industry” that they are trying to support and expand. These industries range from Storage Space (i.e. MaidSafe, StorJ, and SiaCoin) to Computer Processing (i.e. Golem) to Finance (i.e. Bitcoin). Some industries have multiple competing currencies.
So how am I making the decision of what to invest in?
What framework am I using to evaluate cryptocurrencies?
I’ve developed a 3 part framework that I’m using to decide what to invest in and what to avoid. The acronym is MUT: Market, Usability, and Trust.
- Market: What is the total addressable market for this product?
- Usability: Is there a current or imminent real-world value-add?
- Trust: Is this being built with integrity?
Market
I believe that what matters in NOT the current size of the market, but the future potential size of the market.
This is similar to what I mentioned about Augur. It isn’t about how much money is spent betting today, it is about how much more money will be able to be spent on betting because of the new cryptocurrency.
The Market that I am most optimistic about amongst AltCoins is Ethereum because it seems most like the Google’s Play Store (or Apple’s App Store). Ethereum isn’t about finance or betting or storage — it is a platform where developers can build whatever they imagine. I think the upside potential here is limitless.
In contrast, I think Bitcoin — even though finance and currency are major markets — is relatively more limited in terms of the possibilities for market expansion
Usability
There are a handful of AltCoins that are emerging that don’t appear to have an immediate (or imminent) use case beyond being a decentralized and secure way to transfer funds. AltCoins like DogeCoin aren’t exchangeable for something like processing power or storage space.
I am skeptical of new entrants to the market that use sexy marketing language to describe why their AltCoin is the next bigger, better version of BitCoin but don’t have a clear investment thesis.
Trust
When AltCoins are set up the creators of the coin can retain a certain amount of the coin for themselves. They can also regulate (or deregulate) the ability of a small group of high net worth individuals to be able to dominate a market. They can also decide how many additional units of the AltCoin will be generated at points in the future.
There are some coins that have unclear schedules, relatively non-transparent insights into how many units have been retained for the “founders” or are vague about the future developments expected for the AltCoin.
In an ecosystem with a relatively large number of unknowns I believe that signals of integrity are incredibly important.
Framework Assessments
As noted, I’m not an expert on this. I imagine there are 1,000s of opinions on the relative Market Size, Usability, and Trustworthiness of each of the top AltCoins and I’m keen to understand more of these perspectives.
Based on the research and reading I’ve been able to do in the last week, I’ve found handful of sources that are compelling to me that signal Low, Medium, or High Market Size, Usability, and Trust.
As a part of my overview of the top 25 AltCoins I’ve included links to the articles and opinions that lead me to rank certain AltCoins as more or less likely to thrive in future.
Conclusion/Request
I’m a firm believer that blockchain based technologies will drive a tremendous amount of economic (and civic) activity.
There is a world’s worth of information that is emerging and the story is constantly evolving.
If you have opinions, reflections, links, research, or alternative frameworks for evaluating the future prospects of blockchain powered technologies — this is my
Call to Action: I’m looking for people to talk about this with and learn from and with. Do you know anyone that is interested in this? If so, can you please tag them here — I’d greatly appreciate it.
