It’s easy to get lost in the charts when cryptocurrencies like bitcoin and Ethereum are known to take wild intra-day swings, based on little more than a rumor. This high volatility is mostly due to an absence of underlying value in the market where faith and vacillating consensus determine the price of any single cryptocurrency.
However, enthusiastic traders have consistently jumped at the chance to chase profits, even if getting caught in a daily downturn of 30% is the potential cost. Speculation itself is precious, accordingly, which is why calls for the death of bitcoin are always matched by an equal number of those attempting to buy the dip.
This trend has led to a market perspective that sees almost every cryptocurrency as a store of value. While this is technically true, the value can leak out as quickly as it accumulates. Some semblance of stability can be found in the perspective that these coins have utility, like Ethereum’s smart contract capabilities or IOTA’s relevancy with the Internet of Things, but this functionality is currently used to justify speculation more than anything else. Possibly the consequence of a young industry, where few solutions have matured, it’s only made worse by the dawning realization that being a “store of value” is no longer unique.
With the distinctiveness of value storage effectively nulled, the utility of many cryptocurrencies sitting idle, and more of them being released by the day, it’s only a matter of time before the market wakes up to the hypocrisy. Cryptocurrencies can indeed collect and build fiat value, but this attribute is not endemic to all of them, and not sustainable. Just as the dot-com bust illustrated that a website isn’t a magic bullet, future crypto platforms won’t be valued because they have tokens. It’s what their users are doing with these tokens that matters most.
Bitcoin was the first cryptocurrency to change our perception of money, but it’s fallen short of its original ambition. The seminal coin has largely failed to make an impact as a ‘digital cash’ variant, which may be attributable to its relatively basic premise. While bitcoin is getting better at being a more effective type of money, thanks to developer progress on solutions like the Lightning Network and SegWit, it’s still running on notoriety alone. Ethereum has threatened bitcoin’s dominance since 2015 when it proved it could be just as fast, transactional, and liquid, yet also offer smart contract functionality and host decentralized applications.
Moreover, Ethereum spawned thousands of cryptocurrencies that are effectively clones but can be used in a variety of interesting ways. The blockchain startups launching these tokens create a coin with all the properties of bitcoin and then some—a paradigm that sends confusing signals to the cryptocurrency market. If literally anyone can print their own digital cash, what’s the value in any of them? The answer to this strange existential question is twofold: their value is still based on how people perceive them, but this perception will be more and more informed by their efficacy as a business solution rather than their novelty.
Tokenization And The Carousel That Is Cryptocurrencies
Now, enterprising companies can build tokens to be used in specific, proprietary ecosystems. Smart contracts do more than create tokens, they also establish guidelines for how they’re used. The power of blockchain gives any startup the ability to build an impressive and revolutionary purpose for its token, it simply depends on the creativity of the developer. Some ideas are better than others, but universally, it’s the idea (and the teams follow through on it) that will define price—and nothing else.
When cryptocurrency is viewed as nothing more than a medium for transacting on any blockchain-hosted platform, those startups who have built an exceptional service will also have a token with greater value. How much value is still undetermined, but if the token is in demand by a large audience which wants to use a specific blockchain, the only direction is up. Beyond paying for services, these tokens can also be used to incentivize certain behavior from participants in a precise, sustainable way. Countless industries have figured out how to integrate cryptocurrency and alter the status quo, including academia, retail, logistics, finance, big data, cloud storage, and more.
In the cloud storage industry, for example, it’s currently companies like Amazon (AWS) and Google that provide most of the business world with digital memory space. However, the centralized method of content hosting and storage isn’t infallible (or cheap), if the Equifax breach is anything to go by, so blockchain company Storj created a better alternative.
By paying users STORJ tokens for allowing the decentralized network to borrow their unused memory, the company has an enormous amount of space on a distributed cloud. Participants can buy (or earn) STORJ tokens to rent this space inexpensively and safely.
In the retail sphere, blockchain is nothing less than a savior for shoppers and merchants alike, thanks to innovative solutions like HoToKeN. Currently sweeping across Asia, stores award regular consumers with HTKN for completing specific ‘missions’ that deliver value, such as posting a review online, answering a questionnaire, or recommending a product.
These consumers can redeem HTKN flexibly at their favorite participating stores, restaurants, and shops, creating a closed value loop that represents a better deal for all parties over platforms like Groupon, Shopee, or FourSquare.
A Flash In The Pan?
Multiple governments have admitted that cryptocurrencies are inseparable from blockchain, and so their hands are stayed from restricting the latter due to the former’s immense economic benefits. With a cautiously hands-off approach from regulators, cryptocurrency users are left to their own devices, so new market dynamics will evolve rather than be forcibly installed. While it’s still unclear how this will play out, constructive parameters in place for business and a remarkably self-sufficient community speak to the encouraging progress being made in the new status quo.
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