For long-term crypto gains, look for utility

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The long-term viability of even coins such as Dogecoin has been called into question by experts

With over 4,000 cryptocurrencies to invest in, it’s hard to know which coins to choose. However, while all are subject to volatile price fluctuations, experts emphasize one quality above all others: utility.

In the cryptocurrency world, utility refers to digital tokens built on a specific blockchain ecosystem often based on the ERC-20 ethereums standard which grants token holders certain rights. For example, filecoin holders are allowed to use its decentralized data storage network. Alternatively, a game development company could issue utility tokens to fund its next release, which holders could spend on gaming accessories.

Any cryptocurrency is as good as its use case, says Katharine Wooller, UK and Ireland managing director of crypto wealth building platform Dacxi.

Many investors buy bitcoin because it is the best known name in the industry. But while bitcoin may improve financial inclusion and enable borderless payments, experts consider its use case to be limited ethereum is the preferred ecosystem for building cryptocurrency projects. Ethereum and many other currencies offer direct utility in various areas, which could increase their value in the long run.

The most visible cryptocurrencies are those that address or solve specific problems at the macro level, explains Roman Matkovskyy, associate professor of finance and accounting at Rennes School of Business.

Technical jargon can be confusing. But if you are a layman investor, you are probably only interested in buying coins on a cryptocurrency exchange and storing them in a digital wallet.

Still, it’s essential to do your homework and spend time researching and analyzing long-term intended use of parts, warns Wooller. A white paper detailing the plans, purpose and technology of the parts, published prior to its initial parts offering, is available free online.

But just because a piece has a utility doesn’t mean success, Wooller emphasizes. There must be sufficient demand for the ecosystem.

Create value from utility

In addition to the 4,000-plus cryptocurrencies already available, there are over 2,000 dead coins that have failed, according to Coinopsy, which tracks cryptocurrencies that have been abandoned by their creators or have no volume of ‘exchange.

The majority of these dead pieces struggled because there was no demand for their ecosystems.

Cryptocurrencies, by their nature, have no underlying value and their prices are determined by supply and demand.

Future potential growth will depend on how they approach the problems they try to solve and the acceptance of cryptocurrencies in general, says Matkovskyy. If we agree to use them, value will be created in the process.

The fact that cryptocurrencies are decentralized and not tied to a bank or government means that they have become a popular hedge against rising inflation and low savings rates, especially since the start of the decade. pandemic. They have significantly outperformed gold and other assets over the past 12 months.

Utility is the lifeblood of the crypto ecosystem. Without it there is only speculation

Worryingly, however, there has been a recent trend for so-called coins, such as dogecoin and shiba inu, with the former rallying over 12,000% between early January and early May. Retail investors have invested money in these cheap alternatives to bitcoin and ethereum in the hope that they will generate explosive gains.

The problem? The parts themselves are largely unnecessary. While still token-based and built or connected to the blockchain, the coins themselves cannot be used for other purposes and holders are not granted any specific rights. Dogecoin, for example, was launched in 2013 as a joke, and shiba inu, created in August of last year, started life as a satirical tribute to dogecoin.

Although any investment in cryptocurrency is risky, these very coins are not considered a long-term store of value, unlike utility coins. While they may have mass speculation on their side right now, they are unlikely to survive for the long term, argues Mathieu Hardy, director of development at crypto-focused fintech firm OSOM Finance.

The coins even symbolize the antithesis of utility, says Hardy. Once blockchain networks reach critical mass, he adds, that speculation will die out, taking the majority of coins with it.

Paddy Osborn, Managing Director of the London Academy of Trading, says it’s clear that crypto with utility offers much higher returns than coins with no intrinsic value or function.

The challenge, Osborn adds, is to identify these hidden gems in this very complex and rapidly changing industry, before they get too expensive.

Crypto of interest

So who should investors turn to if they are looking for long-term utility gains, rather than quick profit?

For many experts, Ethereum is the first choice. It provides a platform for developers to build applications and run them on a blockchain without the intervention of third parties. Ethereum price could overtake bitcoin in several years, some analysts believe ethereum is slightly faster, has more developer interest and promises more applications.

Osborn highlights three other pieces that he believes are worth checking out. Polkadot builds a network that can support several different blockchains and allow them to work together. Internet Computer aims to disrupt the internet space by creating a decentralized web platform that runs on a blockchain. And then there’s vechain, which helps companies track their products securely through every step of the supply chain.

The speed at which cryptocurrencies are created means it’s important that you stay on top of any new development, advises Osborn.

For Hardy, it’s hard to say for sure which coins will win. However, those with the highest level of user adoption and functionality are likely to last longer and will still be around after a stock market crash. Utility is the lifeblood of the crypto ecosystem, he says. Without it, there is only speculation.

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