Ladies and gentlemen (and scoundrels and ne'er-do-goods), if you own cryptocurrency as I do, or have been thinking about owning it, you may find the sheer volume of cryptocurrencies a bit overwhelming. Certainly myself when I try to sort through coins on coinmarketcap.com to find a hidden gem that has speculative rise potential I get a headache.
Which led me to thinking, maybe there is a meaningful way to segment coins into categories to make the process of evaluating them easier. As I thought about it, four clear categories came to mind. These were (i) digital cash, (ii) smart contract, (iii) privacy, (iv) equity.
In this post I want to consider these categories, the future of these categories, and coins that sit largely within each of these categories. While it seems to me that at this point coins do sit predominantly in one category, there is overlap, and my strong sense is the most successful coins will tend to expand horizontally over time to fill more categories.
Well, I'll begin to go through category by category.
(i) Digital cash is just that, a blockchain equivalent of cash. Bitcoin, the father of a great tribe of cryptocurrency children, is the first and most obvious example of this. These kind of coins are a means of value exchange, or value storage. The big difference between digital cash on the blockchain as we know it and traditional fiat cash is blockchain digital cash like Bitcoin is effectively deflationary, while fiat currencies are inflationary, in fact deflation is generally considered a catastrophe to be destroyed at all cost with inflation by central banks. While Bitcoin supply is increasing very slowly, it only has a few million more to go til full supply is reached. But I say Bitcoin (the same holds true for other cryptos) is deflationary because the number of users is increasing much faster than supply, so the tendency is for a 1 unit to be worth more over time.
(ii) Smart contract coins are blockchain ecosystems that facilitate self-executing contracts, ie. contracts that do not necessarily require participation or action by parties to the contract once the contract is set up. If the determination for the conditions of the smart contract require external data this can be sourced from reliable external oracle(s). Ethereum is the best example of a smart contracts cryptocurrency platform. Although there are numerous others, given the first mover strength of Ethereum unless things go very wrong it's hard to see any of them seriously challenging Ethereum for the time being.
(iii) Privacy coins make private the identity of sender or receiver of digital cash, and some of them make private the amount sent and the amount a particular wallet address holds. Privacy was a major concern for the community since the start of Bitcoin, unsurprisingly given the distrust for central authority inherent in the protocol and the somewhat individualistic and cyberpunk-esque aspects of participants in the cryptocurrency space early on. But actually there are many reasons why privacy would be needed by mainstream financial players were they to enter the cryptocurrency space. For example, the knowledge that a large or renowned investor is investing in an asset will cause that asset to rapidly rise, making it expensive for that large or renowned investor to buy, so they try and use different brokers and trusts et cetera to hide their purchase from the market until it is completed. The need for privacy coins should be obvious if you consider that for non private coins all transactions are on a public blockchain: financial institutions, pension funds, high net worth individuals et cetera simply cannot accept that all their financial flows be publically broadcast.
There are numerous privacy based coins on the market today. The two that technically I'm most comfortable with are Zcash and ZenCash, both very similar in technical terms. I prefer ZenCash at this point, but as I have posted about elsewhere this actually has more to do with market fundamentals rather than technical differences between the two coins.
(iv) Equity coins provide an equity, or equity like, right that generates an income from the underlying cryptocurrency business. There are very few coins on the market that offer equity or equity like rights, and those that do often range from very bad deals to borderline scams. For me, the best example of the terrible deal offered to retail investors in this space is BCAP which I wouldn't touch with a 10 foot barge pole wearing a hazmat suit. It looked great to begin with and excited me, a profit-sharing interest in capital investments in crypto startups. Until I did my due diligence and saw that it was a "take their money and screw them" offer extraordonaire. I didn't invest, and BCAP is currently trading around 40% below what investors paid for it while the market has tripled. I can imagine a number of said inivestors feel none too charitable towards a pint-sized celebrity who starred in a 90s hit children's movie who promoted BCAP. Ughh.
Personally, I believe the reason few or nearly no good equity coins have been offered is that the connected, wealthy and dynamic business men and women in the cryptocurrency space are greedy like all humans and want to keep all the equity for themselves. And if you can raise $10s of millions on an ICO with a website, a sketchy barely plausible idea, and no product or even sometimes substantial whitepaper, why give the suckers equity? That said, over the coming years, and particularly if ICOs are regulated as it appears they will be, easy money won't be had as easily as once it was and some legitimate businesses in the crypto space will offer equity through blockchain tokens in order to raise capital.
Well men, women, and other genders, I hope that at least if you can categorise cryptocurrencies down into discrete categories, this may make analysing coins to invest in easier, and allow for allocation distribution amongst categories. And if you want my picks for these categories, and even if you don't I'll give them to you anyway, they are:
(i) Bitcoin and Dash
(ii) Ethereum
(iii) ZenCash
(iv) wait for a better deal to come along in this space.