A new Bitcoin to emerge from Japan?

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Surfing on the Internet and reading blogs on crypto currencies makes you feel that participants at least agree on something: Crypto is the best place to invest for the future.

However, the crypto community appears to be much more fragmented when it comes to define the best strategy how to.

It is fine that each poster promotes its own views and ultimately its favorite coins. Internet is free speech territory and crypto assets are probably the most libertarian inventions in the history of mankind. Bitcoin is not even 10 year old and nobody really knows where we are headed to.

The fast increasing number of investors is reshuffling the crypto world. There is more money at stake and more people voicing their points. The days when the Bitcoin community was about some happy few are long gone. It is now about merry many!

A few years ago, Bitcoin was the main topic on all crypto forums. Today, newbies often qualify it as slow, outdated and expensive. They tend to prefer established altcoins like Ether, Litecoin and Ripple for speed reasons. Or they invest in ICOs as new white papers are published every week.

Newbies must be respected for two reasons. Firstly, because we were all noobs once. Secondly, because crypto assets are all about network. A coin that is supported by a vast crowd of fools will be more valuable than one being promoted by a handful of crypto experts.

Bitcoin’s weight in the total crypto market capitalization stands at an all-time low of 33%. It’s a sign that its leadership is challenged. Indeed, part of the community seems to consider that practicability is an important feature that Bitcoin no longer represents. They have a point. Buying a coffee with Bitcoin could cost you the price of a bottle of fine wine.

The longstanding crypto investors still like Bitcoin for being a store of value. There is a scarce number of coins, it is decentralized, its algorithm was never hacked, etc. We all know the pitch.

Part of the community could argue that some other coin has similar attributes and regard it as a better store of value. Remember that it is still early in the crypto era. Nothing is fixed and it’s all about the network.

Right now, Bitcoin still benefits from the first mover advantage, a strong community of supporters and the dispersion of investors on too many different coins.

A successful challenger would thus need to have 3 qualities: practicability, store of value, network effect.

For qualifying as practical, a coin needs to enable fast and cheap transactions. Its technological roadmap should show a clear way forward and the developers must have a proven history of successful upgrades.

The notion of store of value is more subjective. So far, let’s assume that investors have highly regarded Bitcoin thanks to its scarcity, decentralization, robust network and fair incentives. Regarding the last point, money creation based on Proof of Work (POW) still appears to be fairer than the Proof of Stake (POS) method to the eyes of the majority. Finally, the liquidity of the coin also brings value but it mostly depends on the size of the network and decentralization.

The network effect is also hard to measure. The overall ecosystem supporting the coin must be assessed: developers, investors, exchanges, regulators, merchants, etc. Furthermore, the network potential relative to other coins does matter. Can a coin grow its network faster than others for some reason?

This is why Japan and its crypto friendly legal framework must be mentioned. The crypto market is now wide open for Japanese institutional and retail investors. Also the legal tender status of crypto currencies makes it easy for Japanese merchants to accept crypto currencies, thus enabling a potentially fast adoption.

The attributes of Bitcoin, leading altcoins and Japanese coins are summarized in the following table:

Bitcoin is strong in all aspects apart from speed and cost of transactions. It may be significantly improved with the Lightning Networks technology. Meanwhile the scaling issue remains. The upgrade history showed strong tensions in the community, resulting in forks like B-cash.

Ethereum performs better in practicability but worse as store of value. Ether was premined which affects decentralization. The community was affected by the DAO attack which lead to the Ethereum Classic fork. Also, the number of ICOs launched on the Ethereum blockchain resulted in slow downs and congestion thus bringing the scaling issue on the table. Finally, the mechanism of future money creation is still unclear due to the potential switch to POS.

Litecoin scores well on all aspects. It is a strong contender. However its network is third to Bitcoin and Ether and probably at par with B-cash. Litecoin biggest threat is to fail at growing its network. The coin is ready though. The adoption by users will be the key factor to watch for Litecoin.

B-cash beats Bitcoin on the cost of transactions but remains second on decentralization (large blocks are beneficial to large miners) and the network size. Its roadmap is also questionable with 2 hard forks planned for 2018. B-cash can be seen as the main competitor of Litecoin to gain immediate market share.

Ripple is fast and cheap. However it is a centralized coin with a large supply which affects its long term potential as a store of value.

At this stage, the relative network potential of these top coins is equal. Depending on market forces and future technical developments, these coins have an equal chance to grow their market share compared to the others.

Switching to the Japanese coins, NEM is fast and cheap with a clear roadmap (Catapult) which must be taken with caution as the coin never experienced a major upgrade. The network solidity has never been tested in situations of strong demand of NEM powered ICOs for instance. 9 billion coins were created in one shot. This is bad for decentralization as early investors own the majority of coins and as there is no further distribution.

MONA was forked from Litecoin, this is why these coins share the same attributes. While the developers are not very vocal on the roadmap, atomic swaps are being tested and MONA was the first coin to implement Segwit which shows that MONA is technologically advanced. Its network is exclusively centered on Japan where merchants increasingly adopt it for payments.

Over the course of 2018, NEM and MONA have a greater growth potential than the top coins thanks to the clear legal status of crypto currencies in their home country. Both coins are suited for payments. They are practical as newbies like it. Also, the Japanese merchants are likely to prefer Japanese coins over the top altcoins which lack local support.

As a store of value, MONA is a solid contender to Litecoin, B-cash and potentially Bitcoin if it grows its network and consequently its liquidity.

NEM was long valued at the same level as Litecoin until the coincheck hack. NEM will gain value if it attracts ICOs on its blockchain or if it becomes the leading coin for payments in Japan.

MONA is valued 45 times less than Litecoin but has similar attributes and a bigger growth potential in the short run. MONA appears to be significantly undervalued at the moment. A long term target of 10’000 yens (approx. USD 94) per MONA is justified.

MONA has the practicability to attract Japanese merchants and newbies. It also has solid aspects of store of value which can be appealing to professional investors in Japan and abroad.

Given the current weakness of Bitcoin, the Japanese could make MONA their preferred coin in the coming months. They would have all the right reasons to do so.