- the reliability of a certain coin;
- the possible speculation;
- the future value it can obtain.
So, what does determine the value of a coin? Mainly four factors:
- effective marketing;
- constant development;
- number of exchanges accepting it;
- number of available coins;
With this preface, one thing becomes clear. In this early stage of the crypto-currency world, in order to make a coin go mainstream you need a subject or meme capturing the attention of the masses, effective marketing able to reach every possible customer, production of coins in great quantity. In all this, the average customer is not taking in consideration the value a coin can reach in the long term.
Let’s translate this speech in numbers. Let’s suppose to live a few years in the future, in a stabilized market, where the main virtual coins are already well established.
How many different main coins can you imagine? 100? Possible.
Let’s suppose the value of all the money in circulation will be equal to 12.000 billions USD. Reasonably, the virtual currency will be in worth approx 1% of it, or 120 billion USD. If we consider this value divided in 100 different main virtual coins, on average each coin will have a value of 1.200.000.000. If it is true some coins like Bitcoin will have an higher value, other coins will have a lower value. Conservatively, let’s give to every altcoin, on average, a value of 1.000.000.000 USD.
How is it that our perception of reality can differ from reality itself? Let’s compare two altcoins, both with a cap (with a maximum number of coins):
- Dogecoin: 100.000.000.000
- Namecoin: 21.000.000
If we keep valid the value of 1.000.000.000 $ for each coin, let’s see the value of every single coin:
1 Dogecoin = 1.000.000.000 / 100.000.000.000 = 0,01$ = 1 cent
1 Namecoin = 1.000.000.000 / 21.000.000 = 47 $
All these results do not take in account the real outcome. Nobody knows what is going to happen.
What is the point of this discussion? The perception of reality can mislead us.
If you bought 1.000.000 Dogecoin hoping they will reach 1$, this is just fantasy. Considering a value of 1 cent, the total value would be 10,000 $. What about 1000 Namecoin? If I consider a value of 47$, the total value will be 47,000 $.
What is the suggestion of this reasoning? Buy Namecoin? Not at all.
When we buy a coin we should keep in consideration these factors:
- the marketing behind it;
- the maximum number of coins;
- the security of a coin.
On this last point we have to keep in mind the reaction of the financial market. We are now dealing with ridiculous values of virtual coins. If the total value of these coins will reach 1 billion in three years, it means 100 times the actual value.
It will include the purchase of cars, homes, boats, companies, etc… Would you ever buy a house using a coin with flaws in its protocol? Can you imagine a bank accepting such a coin? If marketing behind a coin can make a big difference, in the long run it will be the solidity of a coin that will really count. That’s why Bitcoin developers are continually working to improve its security.
When you buy a coin ask yourself: How much do you know about the security of this coin? Are there unique features you can mention about it? What is the total number of coins?
Even after careful consideration, you still have no certainty. That’s why you should never invest more of what you can afford to lose. Many coins today are just there to make greedy miners richer: they do not believe in many altcoins they mine, they simply want to “pump and dump” them. Don’t be one of their victims.