Where to begin?
Originally published on Publish0x
Currently, there are over 1,000 different an distinct coins and tokens floating around the crypto space. “More than 6,500 cryptocurrencies in existence as of September 2021” according to Investopedia. More than 11,000 listed on CoinMarketCap. So how could anyone know which one is the “right one”, and moreover why are any of them worth actual money? What even are they. My friend just told me he made 200x on a shitcoin and staked it for 2,000% APR but got rugged and now he’s reckt… but now he’s okay because he just got a mutant ape and it mooned??? What does any of that mean, what in the world is going on???
It was simple before, when there was only Bitcoin. Now, with the rush to tokenize everything as a crypto asset we have thousands upon thousands of crypto assets each with various qualities and often of dubious value. And yet, there is value. Real value is being transferred across blockchain networks at rates that rival the traditional finance world. Every coin or token in fact, holds value for different reasons. Some of them seek to be fully decentralized assets, meaning no one owns them, no one controls them, and some are tied to the success of an organization. Some are proverbial tulip bulbs and some are seeking to provide legitimate value. Not to knock tulip bulbs, Some people have made a lot of money cashing in on transitory community sentiment, just be careful about putting too much into a meme just because it happens to be trending that day.
So how do I make sense of this sea of crypto chaos?
Bitcoin
With so much to sort through, it helps to get an understanding of where all of this came from. The story of crypto is the story of Bitcoin. Bitcoin has the largest market cap by far and to date, controls the sentiment of the entire market with an iron fist. When creating a new asset, many use their performance against Bitcoin as the measure of success instead of against more traditional assets like the US Dollar.
Bitcoin was a direct reaction and challenge to the state of our global financial system, and has caught on because it’s value is inherent in its necessity and its viability. Bitcoin has not been without its limitations though and some of what immediately followed after was an attempt to resolve those. This is where we get the next generation of coins, Bitcoin derivatives like Bitcoin Satoshi’s Vision (BSV), Bitcoin Cash (BCH), and Bitcoin Gold, as well as Litecoin (which now seeks to compliment Bitcoin as “the silver to Bitcoin’s gold”). This is also where we get Dogecoin, which was originally meant to merely be a satire based on a popular dog meme and has since taken on a life of its own.
Smart Contract Networks
Ethereum (ETH) also rose up within this environment. The second largest coin by market cap (at the time of writing), Ethereum sat on the forefront of innovation, popularizing decentralized finance, smart contracts, digital ownership, decentralized automous organizations, and creating a system that allows anyone at all to easily start their own coin, as a token on the Ethereum Network. Ethereum has been so influential that it practically set the trend for the entire next generation of coins. Many of the top 100 coins by marketcap are tokens on the Ethereum Network in fact, and every time one of them are sent, swapped, used in a smart contract, transacted with at all, users must do so by paying their fees in ETH. The Ethereum foundation’s mission statement is to create a ‘World Computer’, and their network is more like an operating system akin to Windows, Linux, or Mac OS than a simple ledger. They are also not without their own limitations however, which revolve around the fact that the Ethereum Foundation’s continued influence on the Network make it much less decentralized than Bitcoin (meaning that it is possible for them to influence their own network and outside forces to influence them), and fees. (Fees for Ethereum are currently as much as $500 to swap or even more to use defi platforms.) They are actively engaged in developing solutions to their scalability barriers and until they do, for most people the current state of Ethereum makes it unusable.
There is now a new generation of Networks each with their own coins that seek to either aid in those solutions, or provide their own as new networks. Polygon has stepped in to provide a second layer on top of Ethereum. Their MATIC token makes it faster and cheaper to send transactions through a side-chain, complimenting and adding to the value of the Ethereum Network. Others like Cardano (ADA) seek to rebuild what the Ethereum Foundation set out to do from the ground up in an entirely new network with the full functionality of ETH and more, but with all of the scalability issues managed from the start. They were among the first to introduce a different security model to the market. Whereas before security was managed by incentivized computational work (mining), leading to a concentration of the rewards given out only to those able to afford the best and the most powerful equipment, now anyone can recieve rewards as the network grows by staking their assets on the network, which better democratizes the distribution of rewards according to the size of each stake rather than running expensive super computers. Other Networks soon followed, each with their own unique contributions to the space. Among them are Avalanche (AVAX), Elrond (EGLD), Algorand (ALGO), Terra (LUNA), Solana (SOL), and more.
Now, instead of being in direct competition many of these networks work within their own niches. Coins like Bitcoin and Litecoin have come to be used as stores of value like silver and gold have been historically. Smart Contract Networks like Ethereum, Cardano, Elrond, et al., are offering something different. Many see each of these as being competitors to the next and others envision a multi-chain future where all of them have some share of the greater crypto space, working together interoperably. Interoperability is another one of those buzzwords that float around the crypto space and it is entirely possible that the ones that survive long-term will be the ones that play the nicest with all of the others, and that can make themeslves the most useful to the most people.
Centralized Networks
A great deal of the coins that exist now are tokens on one of these Smart Contract Blockchains. They all have their own reasons for being, as well as their own properties for achieving value, (called tokenomics). Some of them also represent a business, like Celcius (CEL), Filecoin (FIL), Flexa (AMP), Binance (BNB) or Crypto.com (CRO). Some of them are less centralized platforms like Uniswap (UNI), Yearn Finance (YFI), Curve Finance (CRV), or Aave (AAVE). Not to turn this into a list of lists but each one of these could be their own article. They are all different, in different places on the centralized <-> decentralized spectrum, different value propositions, different management (most of them have some level of direct management) or governance (where the community votes to decide any future changes). And, there are so so many more than I could ever list. Most of them have tokenomics that tie the value of their token to the popularity and use of their platforms.
Celcius for example, asks you to hand over custody of your assets for them to lend out. In return they repay you in the interest that they have earned from lending. They also have their CEL token (on the Ethereum network), and users can opt to earn all interest in CEL for a greater payout. They incentivise holding their token by paying greater rewards to those who hold more value in their account in CEL, and then purchase the tokens off of the market in order to pay them out. This means greater use of the platform, which leads to greater scarcity of the asset as well as greater buying pressure. The value will rise with the success of the company. You are in a sense, participating in the success of the platform in a more direct way than you would if you owned a share of the company on the stock market. And did I mention you also earn a yield on the CEL token itself? Currently set at 4.86% APR. With free transactions (they cover the fees), and soon free in-app swaps, this company offers a plethora of perks for using their platform (as long as you are willing to give up self-custody).
One of the largest centralized coins is BNB, the token of the Binance exchange. At the time of this writing they have the fifth largest marketcap and their Binance Smart Chain network hosts a tremendous amount of tokens (with fees all paid out in BNB). It is home to some of the larger decentralized exchange platforms like Pancake Swap (who’s token in turn is, CAKE), and hosts more meme/community/shitcoins than you can shake a stick at. It seems that every few weeks another scam token is sent to my wallet offering tens of thousands of dollars in value if only I connect my wallet to their site to unlock. (Do not do this, it never ends well). The reason for all of this activity is that Binance made their network cheeeaaaaappp. Cheap to mint, cheap to transact, cheap to build on. The value of the BNB coin has increased dramatically since its inception, and why shouldn’t it when it is tied to the success of what is currently the largest centralized exchange. Whether or not that trend continues depends on whether Binance continues to be in business, whether they are attacked on legal grounds, whether they can successfully navigate the roadblocks and red tape strewn all across the landscape of international finance. Some people don’t mind that a central authority can manipulate their money, as long as it becomes more and more valuable year by year, while others see the only real value in coins like this when absolutely no one, no government and certainly no organization, can touch it.
Decentralized Organizations
There is also now the beginnings of something called a Decentralized Autonomous Organization (DAO), where there is no central authority that can make decisions about what happens within it. These rely on community governance, which is usually represented by a token. Yearn Finance (on the Ethereum Network) is one such organization, who’s token “of no value” (according to the creator) is currently worth more than Bitcoin (per token but not marketcap). Users of their various financial products earn their native token YFI and the platform is then governed by those holders. The same goes for Aave (also on Ethereum) with their native token AAVE, Sushi Swap (on Polygon) with SUSHI, as well as many others such as a decentralized exchange on Elrond (EGLD) called Maiar Exchange and their token MEX. All of these allow anyone to participate in types of financial activity that up to now has had a high bar for entry. These include things like providing liquidity, lending, insurance, arbitrage, and on and on. The DAO model could be developed and used for other traditional industries as well, which could potentially restructure our entire economy from the top down hierarchy that we all know and hate to a more equitable flat structure. Crypto is making it’s way into video games and rideshare companies, almost everywhere you look there is a decentralized model waiting to blossom. We may be on the cusp of a world full of companies that exist out of full community ownership.
Memes
Another major type of coin or token is the meme or so-called “community tokens.” The value and purpose of these are driven almost exclusively out of community sentiment. There is usually little to no inherent value, they almost exclusively exist as a token on another network (with the exception of Dogecoin), and their value represents the way the wind is blowing on the particular day more than anything else. This plus mostly tiny miniscule market caps, lead these tokens to be some of the most volatile in the whole crypto space as people trade in and out looking for that next 1000x pump and dump opportunity. It’s crazy and wild and makes no sense and people make and lose so much money here it’ll make your head spin. Ocassionally one of them has made it to the top 100 by marketcap (Dogecoin (DOGE) and Shiba Inu (SHIB) are examples of these). These become much less volatile and the community around those two specifically are trying to turn them into viable assets by improving the products associated with them. Whether or not they can succeed in building a solid asset out of community sentiment is still questionable. Many times they have special tokenomics built into them to encourage people to hold, such as taxing all transactions and passing a portion back to holders. This could lead to a pretty nice return if the tokens can hold their value. Much of the value is in marketing and driving up community sentiment for the promise of future rewards more than any real use case.
Stablecoins
There is one more category I’ll cover here before wrapping this up. A class of crypto has developed to facilitate trades in and out of fiat currencies. Almost every major fiat currency has at least one token pegged to it, and the US Dollar has several. Called Stablecoins, they are pegged to the value of the currency they represent. They are not the same as that currency, they are not that currency but, they represent the currency in the crypto space. Sometimes this is accomplished by holding a one-to-one reserve of the actual fiat and sometimes they are produced algorithmically adding or subtracting supply to maintain the price balance. Some of the biggest by marketcap are Tether (USDT), DAI, USD Coin (USDC), and Binance USD (BUSD). These allow people to trade in and out of crypto assets and move fiat value around the blockchain, and between blockchains, in ways that otherwise wouldn’t be possible without a US Government backed digital fiat currency (which does not currently exist but is eventually coming).
Summing it all up
There is so much to sort through when first encountering crypto that it can leave you feeling exhausted while you’ve only barely scratched the surface. I couldn’t begin to cover it all, even if I had perfect knowledge of the entire space. Almost all of the coins in the top 100 by marketcap can be organized into one of these categories.
Store Of Value:
Bitcoin (BTC), Bitcoincash (BCH), Bitcoin SV (BSV), Litecoin (LTC)
Smart Contract Networks:
Ethereum (ETH), Cardano (ADA), Avanlanche (AVAX), Elrond (EGLD), Algorand (ALGO)
DeFi:
Uniswap (UNI), Aave (AAVE), Pancakeswap (CAKE), Sushiswap (SUSHI), Yearn (YFI), Maiar Exchange (MEX)
Centralized Exchange:
Crypto.com (CRO), Binance (BNB), Kukoin (KCS), FTX (FTT), Huobi (HT)
Memes:
Dogecoin (DOGE), Shiba Inu (SHIB), Hoge Finance (HOGE), CumRocket (CUMMIES), Dogelon Mars (ELON)
Stablecoins:
Tether (USDT), DAI, USD Coin (USDC), Binance USD (BUSD)
There are so many more categories (and some coins cross between more than one). There are many many more categories as well like Oracles, which are organizations that connect blockchain networks to the real world, and thereby make themselves integral to the infrastructure relying on Smart Contracts. There are also businesses, like Aerovek which seeks to be an Uber for air travel. There is gaming crypto, a whole new world… universe… Metaverse of new products and experiences powered by the so-called Web 3.0. This guide, is meant to be only a general overview of the entire space to help newcomers make sense of it all. There is a lot more that could be written about for every single one. When beginning to look through this ocean of available assets, it can be daunting and it is best to learn about each of them one at a time, before moving on to the rest. I find more than a couple here to be worth less than the bits they are printed on. I also very much prefer others. None of the assets discussed in this article however are endorsements, but rather a snapshot of the market as it is today and hopefully a roadmap to get started on your own research. From Bitcoin and Ethereum maximalists, to those hyped up over their favorite community token, there are more opinions in crypto than there are people sometimes. I hope this makes it easier to navigate the space and understand what these different coins are and how they can be used (or avoided) when building your portfolio.
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