“Appcoin” was one of the biggest buzzwords related to bitcoin and cryptocurrency in 2014, and many individuals in the cryptocurrency space view these tokens as an interesting new way to fund development of privacy-conscious, decentralized applications. Having said that, it doesn’t appear as though these application-specific tokens are all they’re cracked up to be. While it’s true that many crowdsales for these sorts of tokens have been successful, it’s unclear if “investors” will see the large gains they desire over the next few years.
Why appcoins aren’t money
For a particular asset to be considered money, people must be willing to hold that asset — not simply buy it and sell it in certain situations. For example, some people view bitcoin as a store of value due to the blockchain-based utility unlocked by the digital commodity. Certain fundamental use cases for bitcoin are what create the idea that it is “gold 2.0.” Most appcoin proponents will say that this same argument can also apply to their tokens.
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The issue that arises when someone attempts to apply the store of value argument to appcoins is that there is no reason to hold an appcoin. By definition, an appcoins use is for a specific purpose. If that appcoin also wanted to become money, then it would have to compete with the other available forms of money currently on the market. This means that the appcoins are competing with bitcoin as money, and it would be a rather difficult task to overcome bitcoin’s network effect. When it comes to competing forms of money, the network effect is a vital part of the overall equation. When it comes to cryptocurrencies competing as money, the network effect is pretty much the whole argument. No appcoins — at least not up to this point — have offered serious advantages over bitcoin that could disrupt the network effect of the world’s first major cryptocurrency. Some will try to say that appcoins are more like stock in an application than money, but that argument also has its flaws.
We can only hope this is the last gasp of the flawed appcoin IPO model. http://t.co/9YERrQ54AI
— Justus Ranvier (@JustusRanvier) March 11, 2015
Anonymous altcoins as an example
Anonymous altcoins are a decent example of the appcoin phenomenon in practice. These sorts of cryptocurrencies have a specific purpose, which is to provide more privacy and anonymity for financial transactions over the Internet. There are plenty of different altcoins that operate in this space, but the most popular privacy-focused cryptocurrency by far is Dash (formerly Darkcoin). The current market cap for Dash is just under $26,000,000, which puts it at roughly 0.75 percent of bitcoin.
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In a recent interview on Liberty.me, ShapeShift CEO Erik Voorhees discussed how often certain altcoins are traded on his platform. He noted that there was a definite correlation between the market cap of an altcoin and how often it is traded on the ShapeShift platform. The one outlier that he did point out (there may have been others) was Dash. Voorhees postulated that this could be due to the cryptocurrency’s use in hiding the original source of one’s bitcoins or altcoins. In other words, Dash users are getting a lot of use out of the “anonymity app”, but not many individuals are still willing to hold the alternative cryptocurrency.
Monero is another privacy-centric cryptocurrency that takes this concept of not holding an appcoin to the next level. There is actually an app, XMR.TO, that allows you to send a bitcoin payment indirectly by way of a Monero payment. In other words, the app helps you make sure that you don’t actually need to hold any monero for a long period of time to gain the usefulness of the app.
Can appcoins be fuel?
There is still the argument that there is nothing wrong with using an appcoin or other crypto-token as fuel for a specific application. The team behind Ethereum has made this point on multiple occasions. There could still be a few issues with this concept if enough liquidity does not enter the appcoin or the blockchain for the appcoin does not gain enough hashing power to become secure. Of course, the security argument goes out the window if proof-of-stake becomes a viable alternative to proof-of-work. Generally speaking, an appcoin that is used as fuel is still unlikely to be a profitable investment over the long term because the entire market cap for the appcoin only needs to be as large as the amount of money going through the system at that specific moment in time (due to the fact that it is not also viewed as money).
There is also the idea of a network coin that could have value, but these are generally different from the sort of appcoins that are mostly available today. They usually involve some sort of price fixing that ties the value of the network coin to the popularity of a specific network, product, or service. Two examples of network coins that could potentially work are LTBCoin and Veritas.
Featured image via epSos.de.
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