Forget Cryptocurrencies, Invest In Platforms | Seeking Alpha

If the story of 2017 for the financial star incited in vast part on the mainstream approval of Bitcoin, then the story for 2018 in the cryptocurrency star has already altered concentration to all the other coins, the “Alt-Coins.” This has come into concentration recently with Ripple’s 1000%+ benefit in the last month. While an outlier, most Alt-Coins in the tip 150 have beheld gains between 300%-600% in the same period, and the sum marketplace capitalization in crytpocurrencies has surged 400% in just 60 days.

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With this design in mind, the purpose of this letter is to give the reader something that has nonetheless to seem here on SeekingAlpha, or anywhere else as distant as we can tell, namely a roadmap to know this jungle of ideas and technologies. It aims to explain in a awake and laconic way just what this space looks like, and how one might think about investing (yes, really) in this space. To this end it provides a taxonomy for all cryptocurrencies, and suggests an investment are of focus. The taxonomy of the roughly 1400 “coins” currently in existence suggests there are only 3 forms of “coins,” where these do not embody unregulated (and quite dubious) securities. The investment concentration might be put in a line: forget cryptocurrencies (from Bitcoin to RaiBlocks), and invest in platforms (like Ethereum). Let’s start with the taxonomy.

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Three Types of Coin

The terms “coin,” “token,” and “cryptocurrency” are mostly used interchangeably. To make the contention that follows clearer, however, we haven the tenure “coin” for the general category of technological ideas that are singular to blockchain-type technologies. we wish essentially to heed these, which seem as the first 3 ideas in the draft below, from the fourth, which is not a blockchain-type technology, but an unregulated confidence “gussied up” as a coin, and which might best be called a crypto-security.

BitDice (CSNO) is an example of a “cryptosecurity.” The association primarily hoped to constraint the online gambling marketplace by enabling players to use Bitcoin (and other cryptocurrencies) to play on their games. Yet, since cryptocurrencies make up only 5% of online gambling, they sought to enhance into normal fiat banking gambling. To account the technological expansion, they offering their BitDice “coin.” Owners of this silver are entitled to a ensue of net income on a unchanging basis, a little like a dividend, but the “coin” has zero to do with any technology, blockchain or otherwise. Their games still run on normal mechanism technology, since not all mechanism programs run well on blockchain. As a result, the Bitdice “coin” is effectively a confidence (even if the SEC has not nonetheless decided on the matter).

This eminence is critical because cryptosecurities are not compulsory to register with the SEC, do not have the same authorised standing to redeem waste (especially if the association is located in some place other than the United States), and indicate no tenure over the equity of the association (quite distinct binds and bonds). Moreover, because these companies are not publicly traded and purebred with the SEC, they are underneath no requirement to record 10K or 10Q reports, disclosures about insider investments, and so on. One would be wise, then, to equivocate all cryptosecurities (see the SEC’s ubiquitous warning).

I haven the tenure “cryptocurrency,” for coins like Bitcoin and DASH, which aim to reinstate existent currencies and use blockchain-like technology. This arrange of thought is quite different from platforms, like the Ethereum network. Bitcoin uses blockchain record to keep lane of who owns which coin. The Ethereum network uses the coin, Ether, to energy the blockchain record as a arrange of “gas.” The network itself is a global, decentralized practical appurtenance which runs other apps (called D’Apps because they are distributed apps). In short, a height like the Ethereum network, is like an handling system, and while one of the D’Apps that could be run on it is a coin, almost anything else programmable could be too. There are really only 3 competitors for Ethereum: NEO, which is focused on China, Cardano (ADA), which is run by “academics” who exercise only peer-reviewed ideas, and of course Etherum Classic, which is a split chronicle of the Ethereum network.

Except for the education in the subsequent section, all else is a “token,” which is to contend a blockchain-like record focused on a specific idea. Ripple (XRP) is a model case. Though not built on the Ethereum network, as most other tokens are, Ripple enables banks to send income internationally low and fast (within seconds), rather than watchful days for bank clearway (as has been the box with normal transfers). The technology, moreover, can be “plopped” on tip of the program infrastructure that most banks already use. While one might be tempted, then, to think of Ripple as a coin, the was a record grown with a specific aim in mind: to solve a problem banks faced transferring income internationally with blockchain technology. This is the hallmark of a toke: it is a specific use box of blockchain record for an existent problem.

Other examples of tokens embody SiaCoin (NYSE:SC), which uses blockchain record to offer cloud storage services as a fragment of the cost of Amazon Web Services, Golem (GNT), which uses the advantages of distributed computing and blockchain to offer supercomputing services, and OmiseGo (OMG), which is a decentralized financial sell (and remuneration use as a result). These tokens are legion, and make up the bulk of the silver universe.


My wish is that the above will infer useful in simplifying the jungle of alt-coins. Yet, any classificatory intrigue needs education so as not to mislead. To my mind there are two such element qualifications.

A first concerns the (unhappy) phrase: “blockchain-like technology.” we have been essay “blockchain-like technology” because IOTA does not use blockchain, but instead uses the mixed (based on different mathematical principles, privately destined acyclic graphs). A transaction is accurate in this system when enough other sell have left through, so that it is held up in the “tangle” of transactions. RaiBlocks (XRB) also uses destined acyclic graphs, but it verifies through (delegated) explanation of stake. It is still a blockchain technology, then, but a rather different sort, which might be cruise a hybrid. In any case, not all coins use blockchain technology, and noticing technological innovations is essential for bargain either a new aspirant is expected to reject a seated favorite.

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The second gift concerns the probable category of coins that Venezuela’s due Petro represents. While sum on the silver sojourn sparse, it does look as though Venezuela is formulation to use blockchain record to secure the leger for their due Petro. What is particular about this offer is that the value of each Petro is to be indexed to the value of a tub of oil in Venezuela’s oil fields. This would qualify, then, as a kind of banking silver underneath the benefaction scheme. The additional advantage it looks to solve is sensitivity of price. While the cost of oil moves rather more fast that the world’s haven currencies, e.g., the US Dollar, it positively moves reduction fast than Bitcoin or any other due cryptocurrency. This hybrid between cryptocurrency and a emperor commodity might so spin out to be just what is indispensable for a viable cryptocurrency (assuming they rise the record correctly).

What this Means for Investing

Cryptocurrencies are entering the proviso of mass adoption, and while we doubt that Bitcoin will transport poorly, given the determined institutional support it has (by way of futures, sell integration, even probable leveraged ETFs), 2018 is expected to see the largest gains in the Alt-Coin universe. Among the possibilities, the unpractical intrigue already indicates where an financier should combine their focus: platforms.

Of the 3 sorts of coins, cryptocurrencies, like Bitcoin, take last place because they face an capricious future. Even if Bitcoin were to repair the technological problems compared to scale subsequent week, so that it had low fees and could routine as many sell a second as Visa (about 1500), it would still be a bad banking because it would be too flighty to duty as a banking (see: Forget Bitcoin, Buy Ether). What binds for this suppositious Bitcoin binds for any compared proposal, from LiteCoin to RaiBlocks (though maybe not the Petro as noted). To outcompete fiat currencies, cryptocurrencies need to have reduce fees AND roughly homogeneous volatility. Presently, the only genuine advantages they have is with general transfers and the enterprise for anonymity, the last of which will face augmenting headwinds from authorised bodies.

Individual tokens, like Ripple, are expected to do well if they yield genuine solutions to genuine problems, and so as a organisation take second place. Not every technological problem is better solved on blockchain technology, as not all of them need a trustless, permanent ledger. But for the cases that do, and Ripple is positively one, an investment in these technologies is in element sound. As a group, we think that tokens are like to conclude the most over 2018, but this is simply because there are so many of them.

Platforms, to my mind, take the tip mark for long-term growth. The reason is obvious: they support the other tokens and cryptocurrencies and so have the standing of handling systems rather than particular programs. The largest and by distant the most widespread of these is Ether, and while we am eager about Cardano as a technology, the silver is still in the early developmental stages.

An engaging probable entrance point is that the Ethereum Network is incorporating other coins as part of the “second layer.” This is to contend that the Network is technologically contingent on them for the possess operation, so that it will embody not only Ether, but also RaidenNetwork and OmiseGo among other probable coins. This is rather Microsoft’s use of the height prevalence (Windows) to pull some specific technologies into prominence, including the Office Suit and (for quite some time) Explorer. To continue the analogy, suppose that it is the late 1990s and you had the ability to buy into Microsoft Office as an eccentric company, meaningful that it would be pushed to every user by Microsoft’s dominance. This is roughly the conditions with the RaidenNetwork and OmiseGo. One way to buy into the destiny of Ethereum, then, might be to collect up a few of these compared coins.

That’s it. Those are the reasons because you should forget cryptocurrencies, and buy platforms or at slightest look at tokens instead. Until a really good thought emerges that solves the sensitivity problem for cryptocurrencies, one should look to someplace other than Bitcoin for 2018.

I look brazen to your comments as always!

Disclosure: I/we have no positions in any binds mentioned, and no skeleton to trigger any positions within the subsequent 72 hours.

I wrote this essay myself, and it expresses my possess opinions. we am not receiving remuneration for it (other than from Seeking Alpha). we have no business attribute with any association whose batch is mentioned in this article.

Additional disclosure: I possess or trade fundamentally all mentioned. Of what was mentioned, at the time of writing, we possess Bitcoin, Ripple, Ether, Neo, RiaBlocks, OmiseGo, Binance Coin, RaidenNetwork, and Enji Coin.

Editor’s Note: This essay covers one or more binds trade at reduction than $1 per share and/or with reduction than a $100 million marketplace cap. Please be wakeful of the risks compared with these stocks.

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