Cryptocurrencies: Why Are There So Many?

Cryptocurrencies: Why Are There So Many?

“Are there too many cryptocurrencies? But not all digital assets are created equal. So, Can choice be a good thing?”

The cryptocurrency industry has grown at a phenomenal speed. Currently, there are about 21,000 different types of coins across different subsectors. From Metaverse to DeFi, investors have lost their choice.

However, the following questions arise, especially among those who are skeptical about cryptography.

“Why Are There So Many Cryptocurrencies?”

We’ve seen over and over again how new altcoins are created in the blink of an eye. A few hours after Will Smith hit Chris Rock at the Academy Awards, the Will Smith Inutoken appeared and was pumped and dumped using low liquidity. Also, after Queen Elizabeth’s death, “Meme Coins” bearing the name of the queen appeared on the market one after another. This was considered bad taste, and some critics claimed it would “make the impression of cryptography worse.”

Thousands of cryptocurrencies are rampant, and some have names with major coin motifs, but Bitcoin and Ethereum continue to hold the dominant position. These two digital assets together make up 58.2% of the market. For this reason, most altcoins are fighting for a smaller slice of the pie.

Is choice a good thing?

Let’s start with a discussion in favor of this overwhelming cryptocurrency assortment.

Bitcoin and Ether are widely recognized and accepted, but it can be said that many blockchain and crypto projects want to have their own tokens. The football fan token won’t make sense if Manchester City or Paris Saint-Germain can’t offer their own digital assets and services.

Stablecoins are also a group of cryptocurrencies where a variety of options are important. While assets pegged to the U.S. dollar predominate, some investors prefer to buy their own currency-denominated stablecoins, such as the euro and sterling. As some stablecoins issuers face the unpleasant question of whether the coins they distribute are properly backed up in the reserve currency, they can offer various products to enable investors to perform due diligence and find assets that meet their risk tolerance.

The cryptocurrency market is similar to a supermarket. The largest retailer has 10 different types of cereals and countless kinds of ketchup. However, each has its own price range and values. In addition, the store’s specialized staff performs taste tests and safety checks before placing them in the store.

The same may be true of crypto exchanges. Mainstream exchanges like Binance and Coinbase might have a rigorous listing process in place to ensure that they can offer their customers not only established cryptocurrencies but also new tokens with potential. Now, with so many digital assets, this is sometimes like looking for a needle in a haystack.

Benefits for Crypto Investors to have a Wide range of Choice

Investors can put their money in a variety of assets, including high-risk, high-return ICOs; however, these require due diligence. Some digital assets are better suited for long-term investment, while others are more speculative in nature and have the potential to generate higher returns in the short term.

In general, it is good to have some diversity of assets in your portfolio in order to mitigate risk; however, with such a large number of cryptocurrencies available, it can be difficult to choose which ones to invest in.

How to Choose the Best Cryptocurrencies?

With so many altcoins to choose from, how can you select the best one for you?
Each investor has different objectives and risk tolerances, so there is no simple answer.
So, DYOR (Do your own research) is a good method for selecting digital assets.

You should also consider the following factors:

• The Technology: You need to understand the real problem the project is solving. Look for the 2 percent of the coins solving real-world issues and have proper usability. The ones bringing something new to the table are incredible, and it may be worth it.
• The team behind the project: Is the team composed of experienced developers? Do they have a good track record?
• The project’s roadmap: Does the project have a clear roadmap? Are there milestones that have been achieved so far?
• The project’s Whitepaper: Is the Whitepaper well-written and comprehensive? Does it provide a detailed description of the project and its technical aspects?
• The token economics: Is the token necessary for the functioning of the platform? What is the total supply of tokens? What is token distribution?
• Partnerships of the project: You should look deeper into the project and the partnerships to figure out how promising the solution is. Great partnerships could mean the future flow of smart money into the project.
• The project’s community: Is there a strong and active community around the project? Are there regular updates from the team?

These are just some of the factors you should consider before investing in a digital asset. You can check our dedicated video for a deep understanding of How to Do Your Own Research in Cryptocurrency.

The Downsides of too many Cryptocurrencies

Of course, coins also have some drawbacks. In the presence of thousands of altcoins, trying to keep creating new cryptocurrencies will undoubtedly lead to further divisions in the industry. Suppose a project claims to only accept its native tokens that are specific to that project. In that case, consumers will have to convert from a more well-known cryptocurrency, which could increase the cost as they have to pay transaction fees in the process.

It’s impossible for Gmail users to imagine a world where they can only email those with a Gmail account, while Yahoo and Outlook also act as walled gardens. However, it seems that this is the status quo in the crypto industry. Efforts are being made to promote cross-chain communication and build bridges between blockchains, but there is still much to do. Like the Ronin hacking incident in March, these bridges may also have security vulnerabilities.

Criticism in Cryptocurrency

There is also criticism that the issue of too many cryptocurrencies is proving how inefficient the market is. Is there any meaning in having Bitcoin with a certain amount of 21 million coins in circulation while some other coins are supplied without limit?

Some believe that the market is too crowded and that consolidation is inevitable. After all, in any industry, only a handful of companies usually dominate the market. According to this view, the cryptocurrency industry will eventually shake out the weak projects, and only the strongest will remain.

However, there are also those who argue that too much choice can be a good thing. They point out that the industry is still in its early stages and that it is natural for there to be a large number of projects trying to solve different problems. They believe that this experimentation period is necessary to find the killer applications that will take cryptocurrencies to the mainstream.

A Glimpse into the Future

According to 99 Bitcoins statistics, there are more than 1,700 dead coins. This is a true graveyard for failed digital assets, which fall into four categories: development is stagnant, trading volume is low, online presence is low, and they are not listed on major exchanges. Given the current bear market, there is little doubt that the figure will rise in the coming months.

The Crypto Market vs. the Dotcom Boom

It’s worth remembering that the 2021 Crypto bull market is similar to the dotcom boom of 20 years ago. In the early 2000s, the number of Internet companies traded on the stock market exploded, and many had high valuations. Many of them eventually went bankrupt, including Pets.com and Boo.com.

Although KPMG has warned in a recent report that cryptocurrencies that lack a “clear and strong value proposition” could also disappear in the coming months, “it may actually be very healthy from an ecosystem perspective as it can clean up the mess created in the well-being of a bull market.” It’s the survival of the best companies.”

And this is another lesson that comes from the bull market. Some cryptocurrencies will survive and thrive no matter how cruel and protracted the bear market is. In addition, cryptocurrencies are still a very experimental technology, and projects can fail on the way.

Many crypto experts claim that the crypto market is still far from mature. So, the current market conditions may be a shake-up that the industry needs in order to weed out the weak projects and find the Cryptocurrencies that will take it to the mainstream.

The crypto industry is innovative, and exciting use cases for digital assets are constantly emerging. Due to this, the number of new cryptocurrencies may not be reduced soon. This means that investors need to perform detailed due diligence on the coins they invest in. So, major exchanges have a key role in listing only those they trust that give value to the ecosystem.

Final Thoughts

In conclusion, the cryptocurrency industry is still in its early stages, and a lot of experimentation is going on. This is natural, and it is necessary in order to find the killer applications that will take cryptocurrencies to the mainstream.

However, there is also a lot of speculation, which can lead to market bubbles. These can eventually pop and leave investors with worthless coins. This is why it is important to be careful when investing in cryptocurrencies and to only invests in those that you believe have a strong value proposition!

Why Are There So Many Cryptocurrencies?

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Disclaimer: This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.

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