There is a seemingly ever-present and always lingering question on the mind of nearly every bitcoiner: what’s next?
The recent flood of alternative cryptocoins, or altcoins, into the cryptocurrency space has led many to speculate on the validity some of these coins. The nature of premined and instamined coins has earned many of them the title of “scamcoins.” It goes without saying however, that not all of these altcoins are scamcoins. In fact, there are quite a few coins that bring massively beneficial solutions to profound and widely-felt societal issues.
To understand the difference between the “fool’s gold” and the invaluable “24k nuggets” of this current altcoin rush, one should look at 1) differentiating factors, 2) long-term viability, and 3) underlying value propositions that can drive demand. Our CEO, Jaron Lukasiewicz, coined (pun intended) a phrase recently to help describe what actually makes a coin have worth: “value by consequence”. In essence, the true value of a coin is derived from how it supports a broader infrastructure that provides useful value to people.
To test this hypothesis, we took to the cyber streets to see what coins can actually stand up to this method of valuation. Through our research, we discovered three coins that we believe to have the potential to embody the future of virtual currency: Datacoin, Protoshares, and Devcoin.
Back to Basics: Bitcoin’s Value Properties
Before we dive into what creates value in an altcoin, it’s helpful to take a step back and understand what made Bitcoin successful. Bitcoin has a few fundamental points of value that are crucial to its mass appeal—it is naturally scarce, as only 21 million Bitcoin will ever be in existence, it is a definitive, incorruptible verifier of financial data, and it is the most globally accessible capital transfer method currently available. Its scarcity is important because it is a ward for inflation, a problem nearly every person on the planet using fiat currency experiences at some point in their lifetime. The fact that every transaction is verified on a secure, open ledger reduces the likeliness of technological accounting errors and certain types of fraud, which protects users in certain transactions. Finally, sending money is still very difficult to do through the traditional banking system, and Bitcoin provides a simple way to transfer money.
Bitcoin has not only established itself as a valuable coin according to the qualifications of value, but has proven itself to be an exemplary example of what a cryptocurrency should be: innovative, lasting, and last (but definitely not least) practically useful. This is a characteristic that altcoins such as Datacoin, Devcoin, Protoshares, and others, have extended further.
What Makes a Great Altcoin
The question we get asked the most when introducing people to different types of digital currencies is, “Well what does it actually do?” Then comes the, “Well why does that matter?” Obviously the answer varies according to the coin. For instance, Datacoin is a decentralized data storage solution that has a tremendous scope of applicability, including making e-libraries more accessible to the masses, enhancing the copyright process, and confirming the validity of legal documentation. Devcoin provides decentralized public patronage for writing, the arts, open-source development and many other non-profit endeavors. Protoshares supports a decentralized ownership transfer system that allows people to easily trade assets.
What do all of these potentially promising altcoins have in common? They all support a higher infrastructure or purpose that people value, and their market price is driven by demand for this infrastructure and not the coin itself. We believe most successful altcoins will share this characteristic. This is the first part of a series of articles on altcoin valuation, and we will explore the details of these coins in future articles.