Survival of the healthiest: How to create a successful crypto | Opinion

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As an analyst with extensive experience in the cryptocurrency industry, I wholeheartedly agree that the principles of evolution apply to the crypto world just as they do to living organisms. In my years of studying and observing the market, I’ve learned that a ‘healthy’ crypto network is not dissimilar from a thriving ecosystem in nature.

Darwin’s evolution theory implies that organisms thriving in their environment are most likely to persist, as they compete fiercely for essential resources. Applying this concept to cryptocurrencies, one observes a similar struggle amidst a volatile, decentralized landscape where various networks compete. The key survivors are those with the strongest, best-designed ecosystems. To enhance survival chances in the next phase of evolution, developers should concentrate on fostering a robust and healthy foundation for their cryptocurrency network.

What makes a crypto ‘healthy’?

The nature of cryptocurrencies is vastly different from that of living organisms, so the resources that make a crypto ecosystem ‘healthy’ differ from those that make a living organism ‘fit.’

Cryptocurrencies are digital assets found within the web3 environment that aren’t controlled by any central authority. Instead, they depend on numerous users interacting within this network to maintain a robust market value, similar to traditional fiat currencies. Without the community of token holders, cryptocurrencies have no inherent worth. Each cryptocurrency can embody its unique ‘community identity’ through a transactive coin, where its value is influenced by the psychology and behavior of its owners. The worth of a token may also be affected by social events, collective perception, and the availability of supply in the market.

In the digital landscape of web3, all cryptocurrencies compete based on community engagement and user activities. They strive for users’ focus and transaction volume within this shared environment. The characteristics that make a crypto network ‘vibrant’ typically revolve around token holder behavior, with aspects such as token distribution, number of distinct holders, types of transactions, and token circulation being key. A balanced network should have a consistent flow of diverse transactions.

It is not just about having user activity, but the right kind. If one individual lived in a nation-state as its sole citizen with a bank account of $100 million, the GDP per capita of that nation would be the best in the world—yet its chances of survival would be non-existent. Since there is only one holder, there would be no scope for transactions or a variety of holders, rendering it defunct and with no value.

In reality, living entities battle for items such as food and resources, while in the digital realm of web3, cryptocurrency tokens vie for transaction opportunities and user focus.

Because cryptocurrencies depend on blockchain, a public record system that logs all transactions, it’s feasible to trace all transactions among wallets within a particular network and assess factors indicative of a ‘thriving’ network. In essence, we can observe which token networks are growing strong and which ones are declining. Over the long run, as patterns emerge that may signal network collapse, such as manipulation or illegal activities, similar to other investment classes, these trends could elevate the risk associated with a particular token. By analyzing this data, we can evaluate and compare networks, identifying which ones seem most resilient in their struggle for survival.

Bitcoin & Matic: A success story

Bitcoin (BTC) has successfully developed a robust network, with an estimated 106 million individuals worldwide owning this digital asset, making it the most widely owned token globally. Interestingly, Bitcoin accounts for approximately 58% of the total crypto market value, suggesting that among web3 users, Bitcoin is the preferred choice as a wealth storage option. Moreover, not only is it extensively held, but it is also frequently used in transactions. In fact, during the first half of 2024, the Bitcoin blockchain processed over 400,000 transactions daily, demonstrating consistent and high transaction volume. This active transactional activity is mirrored in Bitcoin’s price stability. Despite undergoing several fluctuations, Bitcoin has remained above $50,000 for the past nine months and is currently one of the most stable cryptocurrencies on the market, having recently reached a value of 90,000 USD.

Just like Polygon (MATIC), this network has been well-established. Over 633,588 wallets hold Matic, demonstrating its widespread ownership. It’s also actively traded in varying quantities for various purposes, contributing to its resilience. On average, about 4100 transactions per day occur within the network of Matic throughout 2024. This consistent and substantial transaction volume is mirrored in Matic’s 24-hour trading volume, which typically exceeds 7.76 million USD.

Dogecoin: A rapid unraveling

Despite seeing significant growth in recent years, Dogecoin (DOGE) has struggled to develop a robust and balanced network. While periods of intense user activity have caused temporary price surges, such as the early 2021 rally that saw its price skyrocket by an astonishing 23,000%, these spikes were not sustained. The activity was largely driven by short-term hype rather than long-term, meaningful use of the coin. This was often instigated by tweets from figures like Elon Musk, leading to unusual price spikes.

Dogecoin is seeing another rise following the U.S. election outcome and Elon Musk’s new role in Trump’s Department of Administrative Efficiency. However, these price spikes are not due to lasting or substantial development. Unlike Dogecoin, Bitcoin and Matic have successfully generated a consistent volume of transactions from various wallets. This is evident in the relatively stable growth of Bitcoin and Matic compared to Dogecoin’s volatility. While Dogecoin remains popular, its success is largely driven by hype; much like our ancient dinosaur counterparts, it may eventually disappear.

Focus on the network, not the price

The success of cryptocurrencies and sustainable price increases rests on the health of the web3 network underpinning the token. Rather than focusing on driving the price up for the sake of price, a cryptocurrency developer should, therefore, focus on developing a ‘healthy’ underlying network by harboring sustainable and diverse transactions. This will lay the groundwork for tokens to attract users, beat off competing networks, and ultimately lead tokens to grow in price.

Simon Peters

Simon Peters serves as both CEO and co-founder for Xerberus, a cutting-edge risk assessment platform within the cryptocurrency sector. By leveraging its innovative Wallet Graph™ technology, Xerberus delivers top-tier analysis to track the real-time systemic wellbeing of various crypto assets using their extensive network of investor wallets.

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2024-11-24 14:36