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The value of a cryptocurrency/token depends on its use case

The value of a cryptocurrency/token depends on its use case

The advent of Bitcoin and its phenomenal rise in price value has led to a rush into the cryptocurrency space with hundreds of alternative cryptocurrencies also known as altcoins. Bitcoin as the first cryptocurrency has the “first mover’s” advantage. However, there are other cryptocurrencies with use cases and value propositions that address different problems or market opportunities which Bitcoin doesn’t aim to address.

Essentially, cryptocurrency projects are assessed by market sentiment and use cases which the project intends to solve. Market sentiment is a natural phenomenon which drives speculative tendencies and it affects all asset classes from commodities to stocks. It is primarily responsible for  determining the subjective value of a cryptocurrency coin/token associated with the project.

On the other hand, the use case determines the intrinsic value of a coin/token. It also determines if the project will be one with long-term prospects.

The level of success of a cryptocurrency project use case is dependent on its uniqueness, which is a function of how innovative and efficient (in terms of transaction fees and speed of execution of transactions) it is able to solve the problem it was conceptualized to address.

As a result of the speculative aspects of cryptocurrency tokens, many within the mainstream financial services sector and other well informed investors do not see them as genuine or reliable investment assets.

However, because of the revolutionary nature of the underlying technology that powers cryptocurrency tokens (the blockchain), the ability of a coin/token to remain viable and operational rests significantly on a business-related problem, it is designed to solve. Hence the importance of the use case and its uniqueness as a criterion for evaluating the value of a cryptocurrency token.  Table 1 below gives a summary of ten major global cryptocurrencies and/or tokens and their well-defined use case.

These use cases are unique and are focused on addressing specific market challenges using blockchain technology as the basis of offering more efficient, faster, cost effective, anonymous and transparent services. Even though not all the ten listed are able to do so in a way that overwhelmingly challenges the traditional setup, they have been able to carve a niche for themselves which has made them resilient and capable of surviving the push-back so far.

Table 1: Ten major cryptocurrencies/ tokens and their use case

S/NCryptocurrency TokenUse case
1BitcoinPayments and Store of value
2EthereumSmart Contracts and Distributed Applications (DApps)
3MoneroAnonymous, Private and Fungible Digital Money
4FactomDecentralized Notary
5DashDigital Cash
6GolemDecentralized Supercomputers
7SiacoinDecentralized Cloud Storage
8IOTAInternet Of Things
9RippleBank’s Cryptocurrency for money transfer (challenging Swift)
10CivicUniversal Digital Identity

 

However, when compared to make of the cryptocurrency tokens with origins in Africa. There seems to be a clear inadequacy in terms of clearly articulating the use case which they are meant to address, and where they are able to properly articulate their use case, there is an absence of uniqueness which should naturally increase their likelihood for success. So far, there are quite a few cryptocurrency tokens from Africa – Nurucoin, Kobocoin, Abjcoin, and Suremit (RMT token) etc.

See Table 2 below for summary of some African cryptocurrency tokens and their use cases:

Table 2: African cryptocurrency tokens and their use cases

S/NAfrican Cryptocurrency TokensUse cases
1AbjcoinE-payments and offline transactions (not sure how this would be achieved)
2KobocoinE-payments and remittance services
3NurucoinIntra-African trading platform
4Suremit (RMT Token)Remittance services

 

The common denominator for the above listed African cryptocurrency tokens is that they all seem to offer use cases that are already well served by alternative solutions in the markets. These alternative solutions are owned by incumbent service providers within the financial services sector who control the entire market, thereby presenting a herculean task for these new entrants to break in and capture significant market share.

A look at the prices (for those that are currently being traded) indicates that these African tokens are not doing well in terms of unit price of tokens and market capitalization, which is an indication that the market is not impressed by their use cases and lack of uniqueness.

It is imperative for those who are interested in venturing into the cryptocurrency token space to realize that  beyond the market sentiment and hype, the factors that increase the chance of success are the use case and uniqueness of the value proposition of the token. And for those who are interested in trading cryptocurrency tokens, they must ask themselves the following questions: what cryptocurrency tokens have the most practical application? Which ones have the best use case? Does the use case have value propositions that are indeed unique? These would serve as the best way to gauge if they are venturing into an asset that may have long- term value.

 

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