While Bitcoin is undoubtedly the most recognized crypto currency in the world, there are literally thousands of other cryptos in existence.  While we tend to call everything in the crypto space “cryptocurrencies”, this is misleading because the only thing these digital assets have in common is that they have issued tokens that power their own platforms.

In the crypto space, there are four kinds of assets:

  1. Cryptocurrencies: coins such as Bitcoin are intended to compete with fiat currencies
  2. Utility Tokens: tokens offer a right to use a product or service, such as smart contracts
  3. Security Tokens: an investment product that can be equivalent to a traditional security or fractionalized ownership of a real-world business or property.
  4. Non-fungible-tokens or NFTs: these tokens are a unique digital item used to claim ownership of digital assets such as art or a claim.  NFT’s may be “fractionalized” and sold to individual investors, in which case they are security tokens.

Decentralization is the common element behind crypto assets

The driving force of many of these projects is their decentralized nature.  For example, there are projects that allow for completely decentralized video streaming.  If you’ve ever found yourself getting frustrated at YouTube for banning content, just know that there are decentralized platforms being built where token holders across the world, along with their own laptop computers, comprise the network architecture for streaming content.  Any computer that is part of this network, can allow others in their geographic vicinity to use their excess bandwidth.  Sharing bandwidth gets rewarded with the native token of this particular platform.

There’s no need to dethrone Bitcoin to succeed as a crypto asset

The above example is simply one of thousands of projects that have no intention of dethroning Bitcoin as the king of the crypto space.  The video streaming projects that are gaining steam have their sites on YouTube or Hulu.  It perhaps comes as no surprise to discover that there are projects along these lines for music as well, with decentralized offerings taking aim at Pandora and Spotify.  These crypto based music platforms are also striving to connect artists directly with their fans and listeners.  Eliminating the middleman is a consistent theme across the crypto space.

The rise of token platforms: Ethereum, Cardano, and Polkadot

Having gone live in 2015, Ethereum has for several years enjoyed the position of the second largest crypto currency by market cap.  We have consistently stated that Bitcoin and Ethereum are not really competitors.  They serve very different purposes: Ethereum’s purpose is to be the platform upon which organizations across the globe build their applications.  Unlike Bitcoin, Ethereum has several founders, all of whom are very much in the public eye.  Two of those founders have left Ethereum and started their own entities.  Gavin Wood, who served as Ethereum’s first Chief Technology Officer started Polkadot in 2016.  Charles Hoskinson, left Ethereum over disputes centered around venture capital. He started Cardano in 2017.

Both Polkadot and Cardano have market caps just under $40B.  That means Ethereum is roughly five times as big as either of these two currencies.  All three of these platforms/projects/currencies really amount to playgrounds within which developers can build out their own projects.  From a portfolio management standpoint, a bet on Ethereum is really a bet that developers will want to build applications on it in the future.  The same bet applies to Polkadot and Cardano.

To date, Polkadot has been a marketing machine, and developers seem to understand the value proposition within the Polkadot ecosystem.  Cardano’s has been a slow and rather meticulous roll out of new capabilities.  With both founders having been part of Ethereum, they speak rather authoritatively in regards to what their platforms do that Etheruem can’t.

As crypto enters the mainstream, these three competitors might all three find meaningful market share.  Visa recently announced that it would soon begin settling transactions on the Ethereum blockchain.  

Through “Polkastarter,” Polkadot has begun serving as a launchpad for many of the newest, and most well funded projects in crypto.  Cardano was recently listed on Coinbase, and rumors are circulating that they are finalizing partnerships at the nation/state level, mainly in Africa.

While Bitcoin is still the fastest horse in the overall crypto race, we think the Ethereum, Cardano, Polkadot competition is where some of the most important action lies.

With the rise of the Internet in the 90’s, the platforms and protocols upon which projects were built took a back seat to the application layer.  Businesses today are quite familiar with SalesForce, while having no concern for the underlying protocol.  With decentralized blockchains, we seem to be witnessing a dramatic shift, where developers and organizations choose a protocol because of all of the built in functionality that comes with it, like security, or cross chain compatibility.

When you realize that Ethereum, Cardano, and Polkadot are all really competing with Amazon Web Services, you also come to realize that there might be multiple winners in this race.

Categories: Markets

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