Factors That Make One Cryptocurrency Worth More Than Another

[EuSouBitcoin]

From an economic standpoint, which factors make one cryptocurrency worth more than another?

1) current number of coins
2) maximum number of coins
3) rate of growth in the supply of coins
4) how many people/businesses accept it as a form of payment
5) total number of users
6) technical aspects of the protocol
7) number of exchanges that allow conversion to other cryptos or fiat currencies

Discuss.

[1714099684]

1714099684

[1714099684]

1714099684

[1714099684]

1714099684

[Zangelbert Bingledack]

1) current number of coins
2) maximum number of coins
3) rate of growth in the supply of coins
4) how many people/businesses accept it as a form of payment
5) total number of users
6) technical aspects of the protocol
7) number of exchanges that allow conversion to other cryptos or fiat currencies

Rephrasing yours:

1) issuance schedule (incl. lack of premine)
2) currency (how much "currency" it has in the world - that is, how many people accept it)
3) user base
4) technical soundness (assuming bitcoin-based) and track record
5) innovations
6) liquidity

More:

8) strength of dev team (very important)
9) MARKET CAP! (high market cap creates higher market cap)

In terms of potential value, we should analyze bitcoin-like altcoins in terms of what value they bring to Bitcoin:

- arbitrage (if MtGox had litecoins you could buy BTC with LTC at BTC-e and sell them on Gox for LTC, then repeat...much faster and cheaper than fiat...but BTC price is often correlated with LTC price, so less correlation is a plus here)

- tumbling (making Bitcoin more anonymous by converting to another blockchain then back...more anonymous altcoins may be better)

- hedging (same as with arbitrage, you want an altcoin that is less correlated with the BTC price)

- testing new ideas (the more differentiated from Bitcoin, the better)

- fallback in case of Bitcoin failure (both similarity and difference are useful...LTC is good because close, but if BTC fails due to PoW issue, PPC may be better)

If they aren't Bitcoin-like, such as ProtoShares or MasterCoin, they perhaps should be evaluated on separate merits.

[Zangelbert Bingledack]

For example...

Litecoin:

1) issuance schedule --> [graph]
2) currency --> meager, but high relative to other altcoins
3) user base --> high
4) technical soundness/track record --> high
5) innovations --> low(?)
6) liquidity --> low, but high compared to other alts
7) strength of dev team --> high? and Charles Lee is well-connected, working at Coinbase and brother owns BTC China
8) market cap --> high

arbing: moderate, potentially, but not enough liquidity now

tumbling: somewhat helpful

hedging: moderate

testing: low

fallback: high, or low depending on reason for the posited Bitcoin failure

[Cryddit]

Number of coins is just a divisor.  The cryptocurrency is worth the total value of the coins issued, period.  Doesn't matter how big or small the individual pieces are unless you overflow or underflow the integer or float types in the software you're trying to use for a daemon, client, or miner.

Maximum number of coins - See above.  However I would advise a new cryptocurrency not to hit maximum coinage until Bitcoin has already been there for several years, because you're not going to have a serious value uptake until at least that time, and you have to be able to pay mining awards until you have sufficient actual value in tx fees for the miners to be able to survive.

Rate of growth in supply.  See above, again.  You need to provide incentive for your miners, or else somehow secure the protocol more solidly than bitcoin is secured against a 51% attack.  If you can do it without making your miners spend effort or compute power, you can asymptotically reach a lower total tx fee level than bitcoin.  Also, from an economics perspective it would be best to have growth in supply not *too much* outstripping the total value of the coins issued.  But if you set your growth rates at the outset, you can at best guess as to that.

Number of businesses accepting it as payment is *THE* big factor in value of a cryptocurrency.

Total number of users is the same thing.  Businesses accepting it as payment and people using it for payment are actually using the currency.  (Mind you I said "using" not "hoarding" - hoarders contribute nothing to the value of the currency - although they may make the price of individual coins artificially higher, they do so by making the number of coins in circulation artificially lower.)

Technical aspects of the protocol are important in the very long run.  The purpose of the protocol is to secure the coin against attacks.  Bitcoin does this in a very expensive way, with proof of work and specialized mining rigs and so on.  That means Bitcoin's transaction fees will remain higher than those of an alternate coin that figures out how to do it (just as securely) in a less expensive way.  But this doesn't become important at all until Bitcoin is dominant and the tx fees of Bitcoin are high enough to be a serious point of pain for a lot of people.  Seriously, consider people who want to vend bags of chips, individual candy bars, bubble gum, and bottles of soda pop.  They want tx fees on tiny transactions to be as near zero as possible, and Bitcoin absolutely can't do that.  If you can, then there's a good reason for people to use your coins.

I would advise you not to worry about exchanges.  If people use the coin then exchanges will naturally happen.  If you get on exchanges before you get much actual use, you'll get a pattern of mining that works like an attack, from people who don't want your coins except to immediately sell them.  This is especially true for ASIC-friendly or GPU-friendly mining algorithms.  So unless working with (or outcompeting/obsoleting) the exchanges is the primary *point* of your coin, or unless you want to *encourage* pump-and-dump behavior, I would say stay the hell off the exchanges for as long as you can while otherwise promoting people actually using it to pay for things.

[BitDreams]

Name recognition, longevity and first mover advantage.

[Lethn]

Don't forget about difficulty, I'd say that actually has an effect on price more than anything else, unless of course there is some big news or technical change that people like which happens.

[Zangelbert Bingledack]

(Mind you I said "using" not "hoarding" - hoarders contribute nothing to the value of the currency - although they may make the price of individual coins artificially higher, they do so by making the number of coins in circulation artificially lower.)

They increase the market cap, which reduces volatility and sends a price signal to everyone else to alert them to its value. Speculation is a very valuable service. However, we don't need to measure hoarding specifically, since it is already reflected in the market cap.

[kdrop22]

interesting one, following the discussion...

[NUFCrichard]

strength of dev team (very important)

For smaller alts this is the main one in my opinion

[Impaler]

Name recognition, longevity and first mover advantage.

THIS, first-mover-advantage it is the main advantage BTC has over all other coins, and all most all Alt coins line up in 'market cap' value in proportion to their age, the older the coin the more it's worth.  Coins that have absolutely no business being used by anyone for anything, (IXCoin was a pre-mined scam if I recall correctly) have value simply by virtue of their age.

Innovation, Dev teams and the like can certainly help in the more recent Alt-splosion because it's so hard to stand out from the crowd.  But the sad fact is that aggressive hype aka 'pumping' is a very good substitute for actual development work, hence things like Feather Coin.

[Hawker]

From an economic standpoint, which factors make one cryptocurrency worth more than another?

1) current number of coins
2) maximum number of coins
3) rate of growth in the supply of coins
4) how many people/businesses accept it as a form of payment
5) total number of users
6) technical aspects of the protocol
7) number of exchanges that allow conversion to other cryptos or fiat currencies

Discuss.

BRAND

BRAND

BRAND

Seriously, its a consumer good. Its all about the BRAND. Right now, Bitcoin has the market leader position and as such it will thrive unless a game changer comes along.

[AnonyMint]

Some of the reasons stated in the OP only matter to the short-term ponzi-bubble of the coin.

Here is a reality check for Bitards.

For the long-term value that the coin will settle at, what matters most is the distribution of the coin to spenders instead of investors, not discouraging transactions, and the real use of transactions for spending.

Of course, the quality of the developers is very important and Bitcoin's developers suck. Altcoin developers suck worse or at least they don't have enough development economy-of-scale.

The entire crypto-currency scene is a huge mess of sloppiness, incompetence, ignorance, laziness, and most of all greed.

Name recognition, longevity and first mover advantage.

THIS, first-mover-advantage it is the main advantage BTC has over all other coins

That only applies to the ponzi-bubble phase of Bitcoin. After it crashes to near 0, that won't be a benefit any more (think Napster combined with Bernie Madoff), although it may take down the entire altcoin market too, unless a strong altcoin is already well established by then, which doesn't have the long-term failure mode of Bitcoin.

Actually that failure mode may not be so long-term. Looks to me that the euphoria about transactions scaling up is already starting to hit the wall for customers and merchants. If so, the ponzi-bubble top may be reached when merchants start publicly pronouncing they detest Bitcoin and have dumped it.

Also more and more greater fools are moving in near $1000, so how many of the fools need to be burned by the volatility until negative word-of-mouth overtakes bubble fever.

[Cryddit]

(Mind you I said "using" not "hoarding" - hoarders contribute nothing to the value of the currency - although they may make the price of individual coins artificially higher, they do so by making the number of coins in circulation artificially lower.)

They increase the market cap, which reduces volatility and sends a price signal to everyone else to alert them to its value. Speculation is a very valuable service. However, we don't need to measure hoarding specifically, since it is already reflected in the market cap.

They increase the market capitalization, but they do so without trading, so the market remains very thin and relatively small sales can still make it move a lot, just as though it were a much smaller market capitalization.

It is traders, not hoarders, who increase the effective market capitalization.  It is trading speculation (ie arbitration), not hoarding speculation (ie buy and hold), that provides a service by keeping the markets efficient and reducing market inefficiencies.

[EuSouBitcoin]

bump

[romero121]

The short term growth, The volatile nature, The increased price, Transactions made anonymous, Much reduced transaction charges, Decentralization, which are the factors that make cryptocurrency worth more than another.

[cooldgamer]

3, 4, 5, and 7 seem to be the only points relevant to the value.  For the currency to be worth anything, people need to feel secure that their money isn't going into a black pit when they invest.  The higher the risk of this happening, the less people will get involved and make it worth anything.

As for the rate of coin generation, I think this comes down to the method that they're made, along with the ratio of coins generated:coins already made.  During the beginning when a ton of coins are being pumped out, the value is going to be dropping fast to compensate.  As time goes on and a very small amount is made (like BTC), the coin will be able to keep a stable value and maybe go up.  I personally think POS is better in this regards, as people that are mining them are already invested in making the value go up so there's most likely less pressure to dump for a quick buck.

[Pitchblackroom]

The short term growth, The volatile nature, The increased price, Transactions made anonymous, Much reduced transaction charges, Decentralization, which are the factors that make cryptocurrency worth more than another.

Generally a lot of it is related to the first 2. Then adoption and how much it is being shilled around is very important for an alt coin.

Even though a coin could have a high theoretical cap, it really matters on how many people want to trade the bloody thing.

[aardvark15]

Of the choices you have listed, I would think that the most important are:

4) how many people/businesses accept it as a form of payment
5) total number of users
6) technical aspects of the protocol

I think bitcoin has a huge advantage for being the first successful, most well known, and most accepted crypto currency.  Even if there are technically better coins, it will be hard for any others to catch on like bitcoin especially with literally hundreds of others out there.  How will any other stand out unless they are radically different?

[Fortify]

From an economic standpoint, which factors make one cryptocurrency worth more than another?

1) current number of coins
2) maximum number of coins
3) rate of growth in the supply of coins
4) how many people/businesses accept it as a form of payment
5) total number of users
6) technical aspects of the protocol
7) number of exchanges that allow conversion to other cryptos or fiat currencies

Discuss.

This would probably fall under number 6th and 7th items you listed, or maybe an 8th addition called "rules to the transfer of coins". I saw an auction the other day on this forum, whereby a cryptocurrency was being sold for far less than it's alleged worth. This was because it had some sort of restrictive sales wall, with limits on the amounts sold per day and a sort of reverse auction where only higher price sell offers were allowed. It all looked like a type of scam to inflate the alleged value of the coin.

[The Sceptical Chymist]

1.  Gullibility of suckers.
2.  See #1.