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Friday, March 29, 2024

Alternative Ways to Carry Out Evaluations of Cryptocurrency Market Capitalization

Cryptocurrency Market Capitalization

For the most part, you can’t evaluate cryptocurrencies like other types of assets. They are not corporations (intact, a notable amount are foundations) and many many cryptocurrencies are not scarce in the traditional sense. As Atheneum’s hard fork with Ethereum Classic showed us, cryptocurrencies can easily be replaced.

Alternative Measures of Value to Market Capitalization

Cryptocurrencies are a step up from traditional financial systems. They represent a window of opportunity to more transparency in finance, more accountability in finance, and a refined model for the use of money. There are, however, several issues which spring forth from the cryptocurrency model.

Unlike traditional commodities, there is no real scarcity with many cryptocurrencies, which are easily replaceable. The Ethereum $50 million DAO hack, for example, was followed by a replacement of the stolen cryptocurrencies. The hack was a blow to the Ethereum ecosystem, which had to make tough decisions such as the creation of new coins. The precedent set, however, puts into question the context of scarcity for cryptocurrencies. The fact remains, however, that Bitcoin cannot be replicated. The advantage of the cryptocurrency is evident in the fact other participants on the network can identify any changes or manipulation.

Whitepapers

One of the best ways to better understand a cryptocurrency’s viability is through analysis of its whitepaper. It’s important to read the whitepaper of a coin before investing. It reveals information about the team, the history of the project, and the infrastructure which supports the cryptocurrency. The whitepaper can usually act as a giveaway, revealing whether a project is a scam or not. The slack channels or blogs of coins can also serve as a great source of information on the development of cryptocurrency projects. If a project provides very little communication on their developments, it could be an indication of poor progress.

The utility of a cryptocurrency could be one of the strongest factors influencing its price. Some tokens are used to acquire voting rights on a blockchain network while other tokens are used to acquire goods or services. Some networks like Grin actually implement medium-term deflationary pressure on the price of their cryptocurrencies in order to encourage spending.  This should highlight just how diversified the nature of tokens are in the cryptocurrency market and how important it is to read white papers to understand better how tokens work.

Tokenomics

Tokenomics sheds light on new ways of gaining benefit from the internal economic systems within cryptocurrency networks. A dual token system, for example, presents a toke that stores value and a token that provides utility for the users. With a dual token system, the economic interests of investors are separated from the network users’ interests. This reduces the conflicts that may arise between supply and demand driven incentives in the system. A user that wants to spend tokens for example, increases the supply of tokens on the network. A user that wants to hold tokens for investment purposes, instead may not want to increase supply of tokens on the network. Two different types of tokens that serve these purposes represent different values.

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