The Best Crypto Coins To Own – Fundamentals

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Disclaimer: Crypto is a fast-paced economy and things change quickly. Information on this post might be outdated even if written today. Do your own due diligence and stay safe. I might get affiliate commissions for purchases made through links in this post. Read the disclosure.

Alpha Gained:

The Network Effect

Let’s imagine you are the only person owning a mobile phone. Now in this weird situation, who would you call? There would be no one else using a mobile phone, so would it make sense for you to own a mobile phone? No, it wouldn’t make sense. What if you were the only person using Facebook, would you use it?

The network effect is crucial for mass adoption. Mass adoption can only happen when enough people start to use a given solution. When talking about cryptocurrency, mass adoption hasn’t happened yet. When talking about a certain blockchain like Ethereum, we can talk about mass adoption happening for the usage of Ethereum blockchain. 

However, when the network effect is too huge, it creates problems for the underlying technology as it’s not able to keep up with the demand and this was exactly what happened to Ethereum and is happening to Ethereum, which sparked the initiative for developing ETH 2.0. During the 2021 bull run, Ethereum experienced a massive surge of new users to the platform via the NFT craze, and this created high gas fees for all Ethereum blockchain users.

While network effect is exactly what we need for blockchain and cryptocurrency technology to thrive, we also need to make sure the given blockchain can handle user growth.

This leads to the question of what kind of blockchains do we need? We need speed, security, decentralization, scalability, and expanding userbase.

The reason why Ethereum became the second biggest coin by market cap and the biggest coin by usage was that it experienced a network effect. The network effect was created by the fact that they deployed smart contracts which enabled developers to build different dapps to the platform.

When a blockchain has a variety of dapps working on it, people can use the platform in many ways, and thus network effect is ready. DeFi and NFT’s were the biggest driving factor for Ethereum’s growth, but nowadays that is the standard and now people want more and in a more efficient and cheaper way. And this creates narratives.

Example of growing blockchains with a network effect:

  • Ethereum (ETH)
  • Avalanche (AVAX)
  • Solana (SOL)
  • Fantom (FTM)
  • Terra (LUNA)

Narratives

Narratives are born inside the crypto community. News and other market influencers create narratives based on events that happen inside the blockchain development and expand those to social media like Twitter. NFT craze, DeFi space, play-to-earn model, etc. are all different narratives and all narratives drive prices up in the crypto space.

If you see DeFi pumping and prices flying, it only means that the narrative has switched from NFT for example to DeFi. This also means that the investors’ focus is on DeFi and that these projects are the ones that will more than likely see a price pump in the following days and weeks.

Rather than finding what is the current narrative, the focus should be on what is the next narrative and why. With Ethereum the narrative was easy to spot as the blockchain started to show high gas fees (transaction fees), this sparked the idea and conversation of where can users find a blockchain that is low on fees, yet had a nice collection of dapps already built. So became the time for Solana to shine.

This switch in narrative brought a lot of investors’ capital to the Solana blockchain. After people saw how Solana could be the next Ethereum, prices skyrocketed. This happening also sparked the next narrative of performance (as people now had lower fees, the next discussion was speed), and thus the next narrative was born. People started to look for the next blockchain that had a massive performance advantage (around the same time, Solana blockchain went down after the throughput went too high, 400,000 TPS).

So came time for Avalanche and Fantom, offering performance, better than that of Ethereum and also offering the Solidity (smart contract coding language) platform, for developers to transfer their projects from Ethereum to Fantom and Avalanche.

As you can see, the narratives are born quickly and more than usually there’s a blockchain to fill the gap that has been presented by other blockchains. Everything, however, starts from the user experience and if users feel there’s a spot for improvement, the money flows from one blockchain to another.

Recurring narratives

  • Speed
  • Security & Privacy
  • NFT’s
  • DeFi
  • Scaling
  • Gaming
  • Metaverse
  • Web 3.0

Blockchains

When it comes to blockchains and what are the best coins to own, the answer more than usually begins from these questions:

  • What is the big idea (disruptive, innovative, problem) behind the coin/project/token?
  • What kind of team is developing the solution?
  • Has the project been audited and is there regular development happening?
  • Is the coins price in what stage (accumulation, pumping, dumping)?
  • Does the coin have real-world utility for growing demand?

Evaluating projects and the ROI is not an easy feat, but when you do it daily and weekly, you will see quality without thinking too much. The information is presented to you in a clear and concise way so that the decision-making becomes easier by day.

It’s a different thing to invest in a blockchain than it is to invest in a dapp. Dapps work with the blockchain and blockchains create the infrastructure for the dapp to work properly. Without blockchains, you can’t have dapps, so investing in quality blockchains is essential. The demand for a blockchain is based on the network effect and the use-cases a given blockchain has.

The more users a blockchain has, the more promising its future is.

Major blockchains

  • Bitcoin (BTC)
  • Ethereum (ETH)
  • Cardano (ADA)
  • Solana (SOL)
  • Polkadot (DOT)
  • Terra (LUNA)
  • Avalanche (AVAX)
  • Fantom (FTM)
  • Cosmos (ATOM)

Decentralized Applications (Dapps)

Blockchain without dapps can be a lonely planet. Bitcoin is a blockchain, but the utility of this blockchain is currently small and thus it has gained the crown of store-of-value. This comes with no surprise because in a sense you can’t really use Bitcoin efficiently.

Bitcoin blockchain facts:

  • Transactional throughput: 7 TPS
  • Transactional finality: 60 min

Ethereum blockchain facts:

  • Transactional throughput: 14 TPS
  • Transactional finality: 6 min

Avalanche blockchain facts:

  • Transactional throughput: >4,500 TPS
  • Transactional finality: <2 sec

Solana blockchain facts:

  • Transactional throughput: >6,500 TPS
  • Transactional finality: <1 sec

When you compare the values and start to think about how you can actually use a blockchain, smart contracts and performance are things we have to take into account. Blockchain itself is usually only a layer or a base that smart contracts enhance to real use-cases.

This leads to the investment decision of which dapps are the best ones on a given blockchain and why. When looking for DeFi apps, for example, the list is long, and pretty much every project is offering the same things. Cross-chain, leveraged trading, aggregated dex’s, etc. are all nice promises until actually made a reality. Thus it begs the question of who can honestly pull off everything that is promised.

It’s not only about the quality of dapps but also the development of dapps, and how easy it is to develop for the given blockchain, how many dapps are already available for the blockchain, and if users see the dapps easy to use and the blockchain something that might survive in the coming years.

The biggest driving factor for a blockchain is a working DeFi and NFT-platform. If these two exist successfully in a blockchain, it has a better chance of surviving multiple years of a bear market but also gains user adoption over the years.

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Written By Juha Ekman

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