No, altcoins are not a scam. But they are not a bitcoin competitor either.
Why Bitcoin, Ethereum, and Dogecoin can’t be compared: they play different sports.
“This new coin is the new bitcoin.” I’ve heard this sentence countless times.
And, every time, it’s only a matter of time before they are proved wrong. Why does this happen every time and yet most people still fall for this narrative?
Greed. Wanting to get rich quickly and easily. Falling for false promises. But most importantly they feel they missed the bitcoin train.
They didn’t.
So let’s explain the difference between bitcoin, the original cryptocurrency, its properties and purpose, and the altcoins—and why I would never compare bitcoin with an altcoin, both from a utility and an investment point of view.
With an extra fun part about the so-called shitcoins.
Bitcoin: The King
Bitcoin was born in 2009 out of the idea of an anonymous person who used the pseudonym Satoshi Nakamoto. Satoshi wanted to make a coin that had a finite supply, was censorship resistant, decentralized, permissionless, and immutable. Nothing more than that.
The narrative around bitcoin changed often, some people wanted to go more towards its use as a payment system, with necessity to modify the original code; while other people preferred to maintain the original characteristics of immutability, leading more towards the narrative to be used as a store of value. The latter faction prevailed, creating a precedent and declaring the code immutable, or very difficult to be changed without a huge amount of consent. This doesn’t limit the use of bitcoin as a payment method—there are other technologies built on bitcoin that make its use for low fees and fast payments possible.
In relation to a real-world commodity, bitcoin is often compared to gold, which also has a scarce supply (not exactly finite), is used to settle large transactions, and is a store of value.
Before diving into the world of altcoins, it’s necessary to write a little more about the decentralized aspect of bitcoin. We’ve already seen how the code is immutable or very difficult to change unless there is a unanimous consensus. Also, bitcoin has the highest number of nodes, providing more decentralization, and the Proof of Work algorithm has proven to be very resilient in many cases. When China banned mining, miners simply moved to another country; when mining was not profitable anymore, miners looked for cheaper and renewable sources of energy.
But what is the most important aspect of bitcoin decentralization is that it doesn’t have a creator or a CEO. While the founder (or founders) of every altcoin is known, in the case of bitcoin, the name Satoshi Nakamoto probably was a pseudonym of a person (or a group of people) that started the project, helped it in the first phase, and then vanished completely and forever, handing it over to the people. This makes bitcoin more resistant to attacks as there is no company behind it and no foundation; there is not one person who can claim ownership and change or influence decisions. Bitcoin belongs to the world.
Altcoins
The first alternative coin appeared in 2011, called Namecoin, created with the intent to improve internet security and privacy and with the aim to create a decentralized DNS system.
Then came Litecoin, which allows faster and cheaper transactions, but, apart from this, it has not brought significant advantages from a technological standpoint and slowly became irrelevant. Then, in 2013 alone, Peercoin, Dogecoin, Gridcoin, Primecoin, Ripple, and Nxt came onto the scene. Of these, only Ripple and maybe Dogecoin are still alive today, the first one because it has a huge company behind it, and the second is a joke that never gets old, but it has no real use case apart from being a joke.
In 2014, Monero was created to facilitate anonymous transactions, offering the same guarantee for secure and irrevocable transactions that are also not traceable. Monero is still around today but used almost exclusively for illegal purposes.
To get to the first altcoin blue-chip, we need to fast forward to 2015 when Ethereum was created with the aim of developing so-called “smart contracts” — pieces of code that can autonomously process transactions according to certain pre-established conditions without human intervention — that make transactions traceable, transparent, and irreversible.
The whole world of decentralized finance was born with and on Ethereum. In the DeFi Summer of 2020, most of the altcoins (or tokens) were born. Every project created its own token with a specific purpose, which could be a governance token to vote on new proposals, or to give a specific advantage to users of a platform such as redistributing profit to token holders.
After Ethereum, the Decentralized Finance moved to alternative chains or layer 2, and most of these chains use their own token as a “fuel”, whenever a chain was hyped, the price of its token started pumping briefly, only to go back to lower levels when the general interest diminished.
As you can see, ETH, but also MATIC, ADA, and AVAX … are not created to be a currency, but rather a token used to pay GAS to be able to use the relative platform: to interact with smart contracts on Ethereum, you need ETH; to do the same thing on Avalanche, you need AVAX. Every chain has its pros and cons, can be faster, or more secure, implement feature X or Z, and, for now, they are all competing for the best technology and to attract the majority of the users.
If you want to compare this to the real world, think about Amazon AWS and the cloud computing services solution they provide. Basically, you can “rent” resources such as a server, more CPU, more RAM, and a hard drive from Amazon and pay in Dollars. If you want to access the “decentralized server” of Ethereum and its smart contracts you need to use some ETH tokens to access it.
In the same way, the BNB (Binance) or CRO (Crypto.com) tokens are called “utility tokens” as they serve some use case within a specific ecosystem—in this case, the exchange they were emitted from. You can use them to pay trading fees, lower your fees, get a debit card with more perks and rewards, or participate in various promotions. In some cases, you can even share the revenue from the main company’s profit, exactly like a dividend in the stock market. And, while some crypto companies like Binance went for this strategy of emitting a token, some others, like Coinbase, decided to go for the standard route and emitted shares on the stock market with the ticker COIN.
I haven’t spoken about the metaverse tokens, which allow the user to buy in-game objects such as land or characters in a game or the governance tokens that allow the holder to vote on proposals of a specific platform, but you get the basics: every altcoin has its own purpose and it is different from bitcoin.
Altcoins are not a store of value, neither are they ultrasound money (sorry ETH fanboys!) no matter how they try to make their tokenomics attractive with deflationary emissions or burning some tokens. If an entity, even a decentralized one, can easily change the emissions rate or the maximum supply, this token is not meant to be used as a store of value. The bitcoin emission rate and max supply were fixed in stone since the genesis block in 2009 and have never been changed.
So how can we classify the altcoins if they are not a store of value or a bitcoin competitor? Aren’t they still crypto?
They are investments, like stocks of a reputable company, that have a CEO, a board, and people working to make the best possible product, to innovate in a totally new and unexplored field such as the decentralized web, called web3, with the final goal to attract more users and become the de-facto standard.
Like Ethereum is in competition with Avalanche and Solana, Amazon is in competition with Alibaba, and, in both cases, a good company strategy will attract more users to the platform, making the price of their token or stocks go higher as their market share grows. But these decisions are still carried out and implemented by humans, and it is our trust that these people will make good decisions that can affect our investment in these platforms.
Bitcoin, on the other hand, doesn’t need to innovate.
Bitcoin’s code has remained mostly unchanged since the beginning, apart from some fixes or improvements. Some people see this as a weakness—like bitcoin doesn’t innovate—but this couldn’t be further from the truth.
The truth is that bitcoin doesn’t need to innovate and compete with any altcoin. Bitcoin’s use case to be a decentralized store of value used for international settlements is well served by its design, being Proof-of-Work with finite supply and predictable emissions. It was never meant to be the world computer or to have any other use case. Developers can still build on Bitcoin, creating a Layer 2 solution that uses the Bitcoin blockchain as a security layer, without having to modify the base layer.
Investing in altcoins
For every altcoin you want to invest in, like in the stock market, you need to ask yourself the typical questions you would ask yourself before investing in a company traded on the stock market:
- Do you understand the product they are building?
- Do they have an advantage over their competitors? Which one?
- What about their team and CEO? Are they skilled enough to carry on this project?
- Do you think they will attract more users who will pay for their product?
But what about shitcoins?
“Shitcoin” is a fun term used for every low cap cryptocurrency, meme token, or tokens that have little or no utility.
Often, they are created to make quick gains for the creator and the early buyers, who will use the late buyers as exit liquidity to secure their gain. Most of the time, it is a zero-sum game where, for every person who gains a dollar, somebody else lost one. But the only loud people you will see on Twitter or YouTube are the ones who made money because the ones who lost are usually too embarrassed to speak out!
Sometimes, they can be tokens from a project that only has an idea and still hasn’t developed anything, so you are buying into the hype and the promise that they will be able to develop what they promised and do it better than their competitor. Or maybe they just decide to abandon the project using any excuse and, with the lack of regulations in this sector, they often will not suffer any consequences.
Shitcoins can’t really be called “investments;” they are more of a gamble, a roulette game, where some people will win and some will lose. Some will say that they are the quickest way to get rick, but I would argue it can be also the quickest to go broke.
I personally prefer to go to Las Vegas to play these games.
“If you’re rich enough that your money is your own problem, fine. If you know zero is a number your investment could go to, fine.”
“But a lot of people are being ripped off, and that’s really bad.”
If you want to “invest” in shitcoins, better stick to bitcoin. Look at this guy who invested in more than 30 shitcoins to have a return aligned with the BTC and ETH market.
So is the entire crypto market is a Ponzi scheme?
Of course not.
If you are here for the money, there is no way to deny that an altcoin with a serious project and a good team can have a better upside potential than bitcoin, but once again the comparison is wrong. An altcoin can’t be compared with bitcoin but rather with a stock in a company.
But most of the ones you see are not serious projects, or they are selling buzzwords and will never deliver or are just unregulated venture capital funds. Always do your research and think twice before you press buy. Don’t be a victim of FOMO (Fear Of Missing Out), especially when you see the price going up, which is usually the worst moment to buy anything.
As a friend put it:
So why I am bullish on bitcoin, cautious about altcoins, and will never touch shitcoins?
I want to close with a quote from the Unconfiscatable conference, as it really made me reflect. I will use this as a guide every time I want to invest in a new altcoin because the project can look ambitious, the team skilled, the roadmap solid, but sometimes there is no need for this project at all in the world. They create a solution for a problem that wasn’t there and proceed to invent the problem.
I definitely think Web3 is here to stay, but there there are a lot of useless “technologies”, venture capital pump and dumps, cash grabs, and projects that are only branded as “decentralized” where the company behind it can add or remove tokens and modify the blockchain rules if needed. Beware.
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