Why So Many Cryptocurrencies Exist — an explanation

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Currencies are usually in very limited numbers, but not cryptocurrencies. Not only ICOs issued tokens, but stand-alone cryptocurrencies are created with a high rate of impact. Why is that so and does it really make sense?

There are hundreds of different pencils in a well-stocked stationery store where the layman wonders if they will not put all the light gray graphite on a piece of paper. What are the respective unique selling points of one HB pencil over another is often not recognizable.

Especially newcomers in the crypto sector are on pages such as our price index as in that stationery shop.

In total, Coinmarketcap lists 1,654 cryptocurrencies. Keep in mind that these are only officially listed currencies — regardless of those created away from the attention of listing platforms anywhere in the world.

It should also be emphasized that only about half are actually cryptocurrencies in their own right. Unfortunately, the difference between a token and a coin is often ignored. This is fatal, because only the latter cryptocurrencies in the true sense.

Coinmarketcap itself lists 839 such cryptocurrencies. Although that is less than a thousand, but still a large amount.

Why are there so many cryptocurrencies?

Cynically one could say: out of greed. Most of the cryptocurrencies — and even more of the tokens — are mostly created for sale on exchanges at a higher price.

The amount of cryptocurrencies is also a phenomenon known from open source culture. A look at the Linux family tree shows that other sectors can have a hundred variants of a thing. As in the case of Linux, the various cryptocurrencies want to emphasize certain aspects more than others do. So Monero focuses on anonymity or Ethereum on smart contracts, while Bitcoin remains true to its actual use case.

With Hard Forks, this situation has intensified. Ideally, Hard Forks can be considered as a proposal that follows an alternative strategy. Bitcoin / Bitcoin Cash and Ethereum / Ethereum Classic are two examples of this.

Are so many cryptocurrencies useful at all?

Only in a few cases does the coexistence of cryptocurrencies make sense. Finally, the added value or purpose of a currency is that there are as many employment agencies as possible. So, if the company divides itself and uses different currencies, this results in certain “friction losses” due to the currency exchange.

So it looks like you’re losing efficiency as currencies become more diversified.

Nevertheless, one has to put into perspective: Not every cryptocurrency, which is called such, fulfills a real currency purpose.

First of all, there are the utility tokens. Although they are not really to be understood as cryptocurrencies, as briefly mentioned above, they are often called simpler. They are used to pay fees for a decentralized application (dApp). For example, there may be a service that provides car and passenger transport through a decentralized platform. If users want to use this service, they will pay in their own currency created just for this purpose, in this example the “passenger token”.

Why are there utility tokens instead of platforms accepting Bitcoin?

One could also attach to the above example that a single currency would suffice. However, the purpose of utility tokens is for investors to acquire them as speculative objects in ICOs . You buy a token so z. for example, for one dollar — but hope that users are willing later, (for a car agency — which costs a token) buy the token for five dollars.

With a new token you create the opportunity to sell this initially.

You do not necessarily need your own token to create a financing vehicle that can be used to develop a new platform. Another alternative would be to issue a kind of stock on the Blockchain instead of the specially created object. Then the tokens or this cryptocurrency are owned only by investors and z. Dividend payments — Users of the platform do not need the additional currency. In this context, one speaks of security tokens.

One notices the examples, however, the risk that outweighs the aspect of greed in the end. Accordingly, young projects should always ask what is the specific role of their issued token or their new cryptocurrency, which in the end stands for added value. In addition, projects should consider whether they can help the entire ecosystem by developing an application based on a specific cryptocurrency.

The investor should ask the same question in investment decisions: What is the unique selling point of the project? Does it actually need a new cryptocurrency or an issued token?

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