Why We’re Big on Bitcoin and Ambivalent About Most Altcoins
One of the most common queries we hear from our community is this: why doesn’t Luno support more cryptocurrencies? With over 1500 alternative cryptocurrencies (altcoins) now in existence and some exchanges aiming to support as many as possible, we understand the validity of the question.
Although we’ve explained our selection criteria in the past, it’s worth reiterating why we currently only support Bitcoin and Ethereum.
At Luno, our main priority is keeping our customers’ cryptocurrency safe, and ensuring the platform is simple to use for everyone. Any coin we decide to support needs to align with those objectives. Though it might seem like it’s in everyone’s best interests to support as many as possible, we don’t see it that way.
Security, utility and market traction
One of the first things we look at is the security of the network. We take extra care to ensure the network is not vulnerable to issues such as:
- 51% attacks
- Double spending
- Security breaches
- Technical glitches
- Pump and dump schemes
Beyond security, we also take to a few other considerations:
- Does it solve a clear and unique use case? Does a working solution already exist?
- Does it have a large community of people who will be willing to adopt this solution?
- Is it decentralised? i.e. is it controlled by a single organisation or person?
- What does the team look like? Do they have experience?
- Does it have associations with pump and dump schemes or fraud?
There are lots of compelling cryptocurrency projects on the go at the moment.
Hopefully, this period of experimentation will lead to some useful, innovative outcomes.
Although optimistic, we remain cautious. Currently, we feel uncertain about the longevity of most of the projects in this space. Until then, we believe it doesn’t hurt to be extra careful, and we encourage you to do the same.
Keeping it simple
When it comes to payment systems, simplicity is always best. Too much variety only adds unnecessary friction.
We want anyone to be able to use Luno with ease. That means we think seriously about anything we add because we don’t want to complicate it.
Having lots of cryptocurrencies would make Luno more overwhelming and would increase the risk of problems like:
- Sending cryptocurrency to the wrong address
- Buying the wrong cryptocurrency
- Spending too much
- Confusing less-experienced users
- Creating pressure to ‘collect’ them all
The Luno team also needs space to focus on what’s essential: security, safety, compliance and so on. Adding new cryptocurrencies takes resources which could be better suited for other areas.
A multi-currency future
However, that’s not to say Bitcoin is the only worthwhile cryptocurrency. We predict a decentralised cryptocurrency will upgrade the world to a better financial system.
But there’s no way of knowing if that will be Bitcoin or something similar. Most altcoins represent new technology and are not designed to replace Bitcoin as a payment system. So it’s both possible and likely that at least some will coexist alongside it, serving various niche needs.
Altcoins are not inherently valuable, nor are they an automatic money-making machine. The vast majority are poorly made and short-lived.
For a cryptocurrency to have value, there must be a robust, sustained market demand for it. This is the most basic of economic principles, yet it often gets forgotten.
Regardless of how advantageous an altcoin is on paper, it has no value if people don’t want it. Short term price increases aren’t a useful indicator though, as these may be caused by temporary market manipulation, such as pump and dump schemes. So we look for a sustained, stable growth.
That’s why we keep a close eye on all new developments in the space and are in constant conversation with other cryptocurrency companies, influencers, banks, regulators and more. We’re 100% open to the possibility of adding more cryptocurrencies, if appropriate.
This industry is set to change and develop in ways we can’t even begin to imagine right now so it would be unwise to say we know what the future holds.
Seeing as we take a long-term view, we’re willing to wait and see how things pan out with new developments.
We’re not in a rush to support every new cryptocurrency that seems promising. That would jeopardise our long-term view. This industry moves at lightning speed, but it’s still okay to be patient if it means we make the right choices for our customers.
One coin to rule them all
Bitcoin remains our primary focus for a few key reasons.
One of Bitcoin’s strongest assets is the surrounding community. That’s not something you can force or buy. The Bitcoin community is split into dozens of competing groups with varying beliefs and ideals, but it’s still united by an overall vision. That means that, even as groups chase different goals, the whole community converges to make Bitcoin better.
That community gives rise to powerful network effects. Having seen years of steady long-term price increases, Bitcoin has enough liquidity to trade efficiently and is becoming less volatile by the day. It has a track record of stability over almost a decade, with few technical glitches. As the largest cryptocurrency by far, Bitcoin is too big to be vulnerable to a 51% attack or price manipulation. Unlike many altcoins, Bitcoin is truly decentralised.
Bitcoin has significant market traction due to its clear, unique use case.
Most important, it’s aligned with our broader goal of upgrading the world to a better, cheaper, fairer, faster financial system.
Ethereum has similar qualities, although it’s a few years younger than Bitcoin and serves a different purpose.
DYOR — do your own research
Litecoin founder Charlie Lee encourages investors to buy an entire Bitcoin before purchasing any altcoins — including his own. This isn’t feasible for everyone, but it is a guideline.
Before you get involved in altcoins, it’s a good idea to ensure you’re familiar with Bitcoin.
If you’re interested in alternative cryptocurrencies, you can still interact with them via Luno. If you have Bitcoin or Ethereum in your Luno wallet, you can use ShapeShift or Changely to convert it to your desired cryptocurrency, instantly.
Originally published on the Luno.com blog.
