So far in the Ultimate Cryptocurrency Guide, we have looked at Utility Coins and BaaS tokens, today we will take a gander at payment coins such as the much maligned Ripple (XRP) token. However this is a big subject and so I have split it into 2 parts (if you're just interested in Ripple, feel free to jump to part 2).
If I were the sort of person that paid close attention to chronology, then this article would have been first in the series, simply because the first ever cryptocurrency Bitcoin, is a payment coin.
So let's have a look at what payment coins are, what they do, how they do it, and whether they are worth investing in or not.
Beating The System
Most countries in the world have agreements in place with the equivalent of federal banks. The arrangement in place allows a state bank to print the legal tender of the country in question.
So in America they spend dollars, in England we spend pounds, China spend yuan, and so on. The dream of the Bitcoin founder Satoshi Nakamoto was to create a payment system that operated independently of the federal banks.
It took some time but today, using a couple of extra applications it is possible to live your life almost entirely using Bitcoin, never having to once cash out to the fiat currency used by your particular country.
There are a wealth of organisations that take Bitcoin, however there are still plenty of circumstances whereby you simply cannot survive on BTC alone. For instance you cannot pay your taxes in Bitcoin, you can't buy things from Amazon, Wallmart, or other large organisations.
This may change in the future, but for now, the most popular and useful payment crypto token in existence, cannot fully facilitate a lifestyle with many different complex financial needs.
So if that's the case, what hope is there for all the other payment tokens out there?
Payment Coin Summarised
So a payment coin is summed up quite simply by saying; it is a token which allows you to make payments to an individual or company as a means of paying a debt, or purchasing goods and services.
There are various things to consider when assessing a payment coin, if you consider these things carefully then making a decision over which ones to back seriously, or just take a gamble on, will become very clear to you.
Why Change Systems?
I am now paying attention to chronology because this question is the most important question you should ask of any crypto payment coin.
Quite simply, if there is no reason for a user to change systems, then the coin will fail. For instance there are many sites who will offer you discounts as big as 33% and sometimes higher if you pay with Bitcoin.
Therefore the fees you pay, added by the time it takes you to change your money into Bitcoin are made worth it by the savings you make on the goods or services you're purchasing.
So if I come along and say *"Hey! Use my GeeWhizzCoin it's got a faster, bigger blockchain with smaller fees." Then while that is giving an incentive to the user, it is not offering much more to the vendor.
If you are selling a product online, and you accept BTC payments then you don't send out the product for at least a few hours after such time the blockchain has been verified and you definitely have your payment.
So offering a faster blockchain doesn't really cut it with me. Smaller fees might sway me, but what if I have set up a shapeshift or similar account to handle my incoming BTC payments and convert them to Fiat? Does your new coin allow me to do that? No? Well bye bye, I'm not interested.
Plus as we all know once you've settled upon a system you're happy with you tend to stick with it.
Most people don't shop around for a cheaper mobile phone tariff. Very few of us regularly check other gas and electricity providers to see if we can save a few bucks a year. This goes doubly so for organisations, because changing systems are an expense in itself.
Just ask the UK bank TSB (formerly Lloyds TSB), they recently changed their online banking system to save an estimated 100 million a year.
That system has been down for the last few weeks leaving millions of customers with locked accounts, denied credit cards and other banking nightmares. The fiasco will cost TSB an estimated 1.4 billion in compensation payouts.
A vendor needs a seismic reason to change systems, therefore payment coins that talk of lower fees and big block sizes are all focusing on things that won't make a jot of difference to their value. Which leads us onto our next question.
Who Is Going To Accept It?
Obvious right? The value of a payment coin will live and die by the amount of vendors whom accept it as payment. If you can only buy antique back scratchers in an obscure shop, in a small village in England with my GeeWhizCoin, how valuable is that coin ever going to be?
Any rise in price of GeeWhizCoin will never be explainable, and thus the best I could hope for my token would be for it to become a pump 'n' dump coin, boom & bust.
So again this comes back to the question above, if you are looking at a coin and it says it will do something so revolutionary that it is obvious vendors will accept it, then go for it. Otherwise it is just another vanity coin and will never be worth much more than you paid for it.
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DISCLAIMER: I am giving you investment advice, however seeing as I'm not soliciting you into my office, I am in no way responsible if you lose every penny because of my advice. So bear the following three points in mind as you're complaining:
- I follow my own advice so I too will have lost all my money.
- I don't live in the United States, so your chances of suing me are less than minimal!
- I don't actually care.
Image Credit:
Title Image - By Ramiro Mendes for Unsplash
IN THE NEXT ARTICLE WE LOOK AT THE VARIOUS TYPES OF CRYPTOPAY COINS OUT THERE INCLUDING RIPPLE XRP. HAVE YOU HEARD OF ANY GOOD PAY COINS? HAVE YOU BEEN FOOLED IN THE PAST? AS EVER LET ME KNOW BELOW!