Explainer: How to tell if a cryptocurrency is the real thing
With thousands of cryptocurrencies in existence how can you the difference between the good and the bad?
Cryptocurrencies and the underlying blockchain technology are both relatively new.
Following the bursting of the 2017 cryptocurrency bubble (most manifest in Bitcoin) in 2017 the crypto and blockchain sectors endured a lean couple of years.
With interest rates near zero investors have favoured investment options with return potential including stocks and gold as well as crypto. The lower level of regulation compared to other assets helped sentiment too.
It does leave the question of how to tell the difference between the sheep from the goats of cryptocurrencies.
Late last month Stockhead spoke with Alex Harper, the co-founder of Australian crypto exchange Swyftx on this subject.
Crypto skeptics typically point to the run of Initial Coin Offerings (ICOs) back in 2017 and many of them failing or turning out to be “exit scams” as an example the sector is just hype and little action.
But Harper noted the past was a foreign country now.
“ICOs were big in 2017 but there’s not as much hype around them these days as there was back then. And I think there’s also a lot more regulation around them which is good to see,” he said.
“There were a lot of not very well considered projects and in some cases some bad actors involved there.”
But some projects did survive the crypto crash and are thriving today. Harper notes looking at those may provide a template.
“[Ask] what did those projects look like when they were in their infancy and can I see other projects similar to that now in their infancy.
“Are they solving a problem and who exactly is involved in the project and where has that idea come from?”
One example he pointed to was Celcius – an interest earning platform.
“They’ve got good founders behind them, they have experience in other areas and they’re trying to solve a problem in regard to a lending service within the blockchain,” he said.
“And to name an Australian project, Powerledger. Their coin hasn’t returned anywhere near the highs that it got to but they’re an example of a blockchain that is just getting down and building and innovating and not getting too distracted by trying to build hype around everything and solving real world problems.
“I think that essentially is what I’d be looking for. Projects that have good people behind them, solving real problems and are getting down and actually building rather than talking a lot of hype.”
One company that is dipping its toes in the water is fintech stock Novatti (ASX:NOV).
This week it announced it was partnering with Ripple. The deal enables Novatti’s customers to gain access to Ripple’s global financial network, its capabilities and partner financial institutions.
The deal primarily targets people transferring money between Australia and South-East Asia, hoping to make money transfers faster and easier.
Ripple is a cryptocurrency in its own right, but the coin in question is XRP. Ripple is a payments company that owns runs the coin and its own payments network.
Nevertheless having attained a value over US$27 billion, XRP is the world’s third largest digital currency. It’s clearly a different cryptocurrency from early stage ICOs as Novatti CEO Peter Cook noted.
“From our point of view, obviously Ripple’s got a brand name because they’re the third biggest currency,” he told Stockhead.
“But they’ve spent a lot of money building a payments network and so they’ve integrated 300 banks and financial institutions and our aim is to hopefully be their main partner in Australia.”