What is the advantage of a market-specific cryptocurrency?

Question

Reading this article, http://nakamotoinstitute.org/mempool/the-coming-demise-of-altcoins/, I wonder why there would be a separate coin for each market, like a coin just for buying bananas, marijuana, disk space or photh-sharing instead of using a general purpose coin for those things?

I'm not asking why coins are technically different; having different hash-functions, mining hardware, proof of work vs. stake, virtual machines, privacy, how the coin is governed, etc.

I am asking why there are coins for each particular purpose. I think it would be better to only use one coin for everything because there would be less middle-man in the exchange from BTN to STORJ and vice versa therefore lowering fees.

Answer 1

Consumers have little need for vendor-specific coins

I am not an economist, but a lot of vendor-specific crypto sounds like Trading Stamps, Coupons, or maybe even Company Scrip. These might be better called "vouchers" or "tokens" than "coins". There are financial incentives for a company to issue such a token:

• It aids the issuer as a barrier to competition in that industry (a Banana-voucher might only be good for purchasing one brand of bananas).
• An ICO can temporarily increase a company's stock price not just because of the lock-in, but because it's trendy.
• Issuers can also dispense currency in amounts that allow them to keep-the-change (Shutterstock and gift cards currently do this). If hot dogs and pony rides are $3 each you can choose sell tickets in lots of $10 and keep the un-redeemed ones as profit.

Consumers may appreciate some market-specific coins.

The Emissions Reductions Currency System might be an example of a market-specific coin being used for good. It might be better classified as Representative Money backed by the right to produce emissions? I wonder if a proof-of-identity blockchain would benefit from identity-specific tokens that have no other value than to indicate who you know and whether you trust their identify?

Maybe something small scale could work to the customer's and company's benefit the way coupons enable people with more time than money to purchase things they couldn't otherwise afford?

We will probably always have multiple cryptocurrencies

Many cryptocurrencies have technical differences. Hash functions have a lifespan, so coins with different hash-functions will break at different times. Coins requiring different mining hardware encourage decentralized production. Proof of work avoids DDoS attacks, but proof of stake may use less energy. Virtual machines running in some blockchains allow processing power to be traded, but for security reasons, some people would rather not have other code running on their machines. Some coins do a better job of ensuring privacy, while others might favor accountability.

The governance of these coins is very important as well. Most of these coins are made by people working together. There are new rules for trust (open-source code, proof of work, proof of stake, etc.) but it still all ultimately relies on people working together.

Some coins may have properties that favor wealth accumulation, like a limited supply. Others may favor spending/exchange and be tied to a government-issued currency.

I think everything in this section benefits the consumer and often the investor as well.

Conclusion

Industry or vendor-specific coins tend to benefit the industry/vendor in the short-term and only occasionally the consumer in the longer-term. Vendors with a sufficient lock on their industries can get away with working for their own benefit, but I'd be more excited about owning their stock during the ICO than I would be about buying the coin (or their stock after the announcement).

There are technical/governance reasons to have multiple coins/blockchains, but I think the most successful coins will be general purpose currencies, not vendor specific ones.

An economist might be able to answer you with a single link that made all of this clear and had a litmus test to tell whether an industry-specific coin is necessary for the consumer, or only to benefit the controller/producer.

Answer 2

Why is there more than one fast-food service? Why is there more than one internet browser? The competitive altcoin economy encourages other coins to surge with better implementations. Bitcoin has very high transaction fees as of early 2018, this is why a fork came off as Bitcoin Cash a few months ago, but Bitcoin Cash is not the only coin fighting for low fees. We have seen RaiBlocks (No fees) and many other altcoins surge recently due to low fees. Some coins are created not only to solve a problem, but to simply be better than the current coin. NAV wants to surpass Monero, by not only being a privacy coin, but also allowing anonymous Dapps and more.

A lot of coins have lucrative companies behind them, the answer to this question is not really different from the one of the question "Why is there more than one company in sector X"? People want to make money, so they will innovate and try to outperform the others with a better product.

Sometimes, companies will issue a token usually from an ICO to raise money on their platform. There's usually little reason for the purpose of their custom token/coin other than raising capital. A normal company would have to attract angel investors which is a lot harder than creating a coin and selling it while cryptocurrency is a hot asset. Doing an ICO also does not require to lose a share in the company. This is why we are seeing a massive influx in new coins.

Answer 3

The author of that article was wrong. It turns out you can create demand for your new altcoin by creating a platform for people to issue tokens. That's what the Ethereum people did. Bitcoin no longer has the same commanding market cap it did in 2014. People want to speculate on ICOs issued on the Ethereum blockchain because such speculation is profitable for them. Ultimately most of these ICOs are scams but so are most kickstarter projects these days. People still put money into those. Seems like there is too much fiat floating around the world economy these days.

So to answer your question the 3 main reasons are a) to enrich the creators of the altcoins b) to provide more options for speculation c) to provide scammers more opportunities to defraud speculators and finally d) to provide a few genuine businesses a capital raising method.

Answer 4

I disagree with the other explanations provided and think they are wrong.

The use case is simple. In cases where the entity cannot issue equity (e.g., open-source projects) issuing a token provides a similar equity-like incentive. The value of the token vs. an alternative compensation scheme (e.g., annual cash salary or cash bonuses driven by performance targets) are basically the same benefits that equity-linked compensation would have.

Bitcoin is a good example of why its a good idea to issue an equity-like financial product for open-source projects. Before bitcoin, if you made an open source project you lived like a peasant because you couldn't monetize your creation (e.g., consider linux / wikipedia / SSL). Satoshi is a billionaire now and rightfully so, because he created something that changed the world. More importantly, he created competition for these protocols because other people wanted to become billionaires too. This desire to become a billionaire through tokens is brand new and only exists because creators of tokens have the ability to own a large portion of their token at the time of creation and thereby enjoy the financial upside of their protocol being used.