The Altcoin Evolution – Part III: The Challenges – Use Case & Value

In the last episode of “Altcoin Evolution”, we discussed hurdles that can prevent more casual crypto investors from acquiring some of the more obscure altcoins. Obviously, accessibility to investment is paramount to getting in the hands of consumers, and for projects to continue their own ‘evolution’. Despite continued market-wide shifts to make crypto more easily accessible, the road is still long and tumultuous.

Another “crypto-winter” is never out of the question, and how broader society at large adapts to digital currencies is still yet to be determined. Still, the potential hazards are flanked by the vast amount of potential upside with the developing tech and consistent emerging projects in the space.

The Altcoin Evolution: You’ve Got Questions, We’ve Got… More Questions?

Beyond last week’s coverage around accessibility, another variable arises in crypto from attaching tangible function to different coins. The questions are practically endless: What is the purpose of the project and token? How does it integrate into our current financial industry (or into other industries such as art and culture, or information systems)? Does the project have its own form of blockchain, or is it operating on one of the larger, more established arenas? Unique value propositions are paramount in any project, and these could include any number of things that can be derived from any of these questions.

Some coins are designed with specific usages in mind, often on existing blockchains, and are typically referred to as “utility tokens”. Let’s elaborate further: tokens generally break down into one of two buckets – utility tokens or security tokens. The differentiator between the two has by and large been established as the SEC’s Howey Test, which historically has been used to define a securities contract. Utility tokens are predominantly providing consumers with a product or service, rather than being seen as a traditional investment vehicle. Security tokens’ value proposition is typically pretty straight-forward, however things are not typically as clear with utility tokens in today’s landscape.

A majority of these tokens, especially around the NFT space (which we’ve regularly turned to throughout this series), are currently working on the Ethereum blockchain. This applies to ECOMI (and it’s OMI token), as well as some of the original projects on Flow that existed before the FLOW token (such as CryptoKitties), both of which are referenced in earlier installments of this series. These were designed with the concept of providing access to goods/services, such as NFT collectibles, creating an economy based around exchange of the coin. In essence, a marketplace functioning sans fiat currency.

ECOMI is built on the back on the backbone of the Ethereum network. | Source: OMI-USDT on TradingView.com

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Is It, Or Isn’t It?

Of course, the lines between utility are often far from being black and white. Some NFT critics suggest that for the likes of NBA Top Shot, Topps MLB, or ECOMI, IP integration won’t be enough to carry the load. Critics of other NFT projects, like CryptoPunks or Bored Ape Yacht Club, often argue that the communities generated from this projects won’t have staying power (despite prices for CryptoPunks being as high as ever, approaching year five of the project).

Furthermore, while emerging and established NFT projects make for prime examples in this conversation, these criticisms don’t start or finish with NFTs. For many years now, the biggest Cardano (ADA) critics have furrowed their brow that the utility and use case around the coin was not clear and well-defined. Despite this, Cardano is the third largest cryptocurrency by market cap. Talk about an altcoin evolution.

Our objective here isn’t to make an argument for or against any of these projects, but only to emphasize that dialogue in the crypto-community around utility is ever-present. After all, the value of IP is often arbitrarily assigned even in contexts outside of crypto.

Don’t Stop Now… It’s More Than IP

Furthermore, utility of course doesn’t stop or start with just IP either. Writer and founder Zoe Scaman outlined her recent perspective of “five key components of a crypto-native, fandom-centric brand”. The core components include Worldbuilding & Narrative, Cultivating Community, Status & Access, Open IP, and Shared Equity. These traits undoubtedly outline “value”, but the measuring stick is as unclear as ever. The bearish perspective would likely suggest that even these core components aren’t enough for true longevity, while the bullish perspective would state that these qualities can build NFT projects that will last a lifetime. Like many things in life, the reality likely lands somewhere in the middle of it all. 

In all, the concept and evolution of utility coins is still relatively new and fresh – even when compared to the phenomenon of digital currency as a whole. The wild west is an apt metaphor for the developing landscape of purpose driven coins. However, as society’s reliance on digital innovation continues to gain ground, so does the opportunity for crypto projects to find more platforms to exercise use case.

A prime example just this week was the decision-making at OnlyFans, as reported on at our sister network at Bitcoinist. As the site reportedly tightens down on adult content, the need for a decentralized, creator-first platform becomes abundantly clear. Many have speculated that some sort of crypto solution, such as the Bitcoin Lightning Network, could fill the void.

As DeFi and other use-case driven crypto projects inevitably move forward, there will be even more utility opportunities and functionality needs. The difficult part is valuing them. For emerging tokens and projects, demonstrating the problem and how the project addresses the problem, is vital.

In next week’s “Altcoin Evolution,” we’ll take a look at the final set of challenges – ‘selling’ a project or token to the general public and what it takes for crypto projects to stand out.

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Charts from TradingView.com, Image courtesy Jerry Sena