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Why are there so many different cryptocurrencies?

date_range July 12, 2022
person Michael Portnov
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Decentralized finance and digital assets are part of a new and rapidly changing segment of the financial services landscape. The concept of anonymous cryptographic electronic money had been proposed for a long time, but it wasn’t until 2009 that the decentralized cryptocurrency Bitcoin was created. Namecoin, Litecoin, and Peercoin followed in the years that followed, and cryptocurrency began to gain traction.

Numerous cryptocurrencies have entered the market up to this point, and new ones are being added on a weekly basis. But why is one cryptocurrency insufficient, and why are so many required on the market?

THE ICO BOOM

An ICO, or initial coin offering, is the cryptocurrency industry’s equivalent of an IPO (the process of offering shares of a private corporation to the public in a new stock issuance). The ICO boom may be one of the reasons for the proliferation of cryptocurrencies, after the boom of the Bitcoin. The massive success of coin offerings (that have been listed as crypto tokens) has fueled more token sales. This has been made even easier by the lack of regulatory oversight over the ICO ecosystem.

Mastercoin was the first coin offering to be recorded, taking place in 2013. Others soon followed, fueled by the success of crowd sales such as Ethereum, NXT, IOTA, and Stratis. And then: boom! In the decentralized financial industry, one ICO is followed by another. And one cryptocurrency by another similar.

SMART CONTRACTS ARE CHANGING THE WORLD OF TRADE FINANCE

Initially, cryptocurrencies, with their smart contract mechanisms, demonstrated the potential to disrupt banks’ role in trade finance. Whereas banks currently act as third parties between importers and exporters and facilitate global trade through lending, lines of credit, letters of credit, and other financial instruments.

Smart contracts on the blockchain eliminate the need for banks to do so.

Rather than arranging financing and risk management through their banks, importers and exporters can use cryptocurrency mechanisms to create smart contracts that automatically issue payment upon delivery of the goods. Wallets are becoming increasingly popular. And even banks are looking for solutions in the cryptocurrency space in order to engage with customers who would otherwise avoid them.

SEEING CRYPTO AS MORE THAN JUST A CURRENCY

Crypto is changing the way we live — even if we don’t fully realize it. But any discussion of cryptocurrency value must address the nature of currency. Because of its inherent physical properties, gold was useful as a currency, but it was also inconvenient. Although paper money was an improvement, it required manufacturing and storage and lacked the mobility of digital currencies. Money’s digital evolution has shifted away from physical characteristics and toward more functional characteristics.

As previously stated, many large banks are now investing in either collaborating with existing crypto clients (JPMorgan with Zcash) or developing their own cryptocurrency (Bank of America). Cryptocurrency appears to be extremely important, and it is not just about the currency. They aren’t going away, and they can’t be limited to 100 years like other, old types of currency could.

But, most importantly, transactions are fast, digital, secure and global, allowing for the preservation of records without the risk of data piracy. Fraud is actually reduced.

Furthermore, cryptocurrencies, according to experts, should not cause inflation. Also, no central bank can increase the total amount of cash in the system.

CONCLUSION: IT IS ALSO ABOUT THE BLOCKCHAIN

In terms of significance, another important point to remember is that as cryptocurrencies become more popular, the true masterpiece is the decentralized ledger technology, blockchain, on which crypto is based. Blockchain is merely a platform, and its technology enables cryptocurrencies and digital tokens to operate within it. 

It is important to mention that, in certain a sense, new cryptocurrencies are being created to support and follow the latest blockchain technology. The emergence of different cryptocurrencies in the market can not be observed as an isolated phenomenon. On the contrary, it all has to do with our changing world, blockchain at its core.

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