Why Are There So Many Cryptocurrencies?
The crypto market is a vast space inhabited by millions of users who operate with a seemingly endless variety of assets. As most new users delve into the crypto market and answer for themselves what is crypto, they are astounded by the sheer number of offerings available to them. There are dozens of lists with all kinds of markings like best crypto, new crypto, top crypto and so on. Thousands of projects are vying for the liquidity of users and their attention, striving to become the top crypto coins, each attracting users with anything from elaborate schemes and scams to advanced marketing tactics that aim to convince users of high value offering and that they are the best long term crypto investments.
in fact, as a tip in the league of crypto for beginners, the question of how many crypto coins are there can be answered simply – there are 10,115 different cryptocurrencies listed on the many cryptocurrency exchanges on the market, totaling a whopping $1.44 trillion at the beginning of July, 2021. And that number keeps rising by the day as crypto guides become more elaborate and the types of cryptos multiply. And though most users instantly think of Bitcoin, or sometimes Ethereum, when they make entry into the arena of crypto trading, the fact is that a great many other, smaller, or even lesser known cryptocurrencies, are at times more profitable than the kings of crypto. How many cryptocurrencies exist in the shades as forgotten ones is not even calculable.
But as users start sifting through the masses of offerings, ads and listed assets, and realize what are the cryptocurrencies available to them, the natural question that arises pertains to why there are so many cryptocurrencies in the first place. The reasons for such an abundance of virtual currency lists can be traced to the advent of the cryptocurrency industry itself, which has been rising ever since to offer users anything from banal trading to advanced services capable of matching the mainstays of traditional industries.
Human / Market Factor
The first and most important factor that has led to the increase in the number of blockchain cryptocurrencies is human nature, which was encouraged by entrepreneurship and the search for profit by market demand. The law of supply and demand governs the crypto market like any other, so when Bitcoin made its first major debut in late 2017, people, both new and experienced in the crypto industry, rushed to start buying the new asset to take advantage of its volatility and reap the profits by releasing other cryptocurrencies trying to different types of Bitcoin.
As the amount of liquidity on the market rose and various individuals started accumulating vast amounts of capital along with crypto assets, the natural consequence was the development of supply to match demand. With demand for new assets rising in expectation of profits, the era of ICO, or initial coin offering, was launched and hundreds of ventures started emerging to provide supply.
What all cryptocurrencies sought to grant their users was some form of value, or semblance thereof, and produce some kind of digital asset for some purpose to capitalize on the wave of hype. The period between 2017 and mid-2018 was the period that marked the advent of the majority of cryptocurrencies listed on exchanges. Though many of those on the digital currency list have since vanished from trading or have been closed down, the boom of decentralized finance protocols in the middle of 2020 launched a new wave of development that was spurred by the Covid-19 pandemic.
The pandemic resulted in the depreciation of a large number of national currencies, which, in turn, led to the development of alternative financial products on the decentralized frontier to give users the opportunity to store their savings in digital form and generate passive income. Such demand resulted in the generation of supply in the form of new protocol assets from a variety of new and existing platforms.
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The projects are the main source of all cryptocurrencies existing on the market. In essence, each project is its cryptocurrency and the underlying infrastructure supporting it. Most projects revolve around an industry and strive to compete with other existing projects in the same industry by offering varying degrees of usability and value, striving to become the top cryptocurrencies in the world.
The value of a token or cryptocurrency is largely represented in the profitability that holding or trading of said digital currencies yields. The number of cryptocurrencies and projects that have emerged is in the hundreds since 2017 and they have encompassed a broad range of sectors, each being attributable to protocols, decentralized autonomous organizations, marketplaces, trading platforms, exchanges, or any number of others.
To be able to operate on the blockchain, a token or cryptocurrency is not necessarily needed, but it becomes a carrier or vehicle of value or utility, allowing projects to generate profits through the sale of such assets to users. Each token or cryptocurrency can be equated by example to a premium currency within a video game. The many functions and features of a game can be accessed in its base form, but some, more privileged and valuable ones are accessible only through special currencies. The tokens within decentralized projects act in much the same way, giving access altogether to their inherent functions through their use.
By selling their native of internal currencies to users, projects attract liquidity and hope to increase their capitalization by increasing the use of their product or service offering through the increase of demand. As demand for a certain project’s product or service increases, competitors inevitably arise and launch their own project to occupy a market share.
The same happens when an entrepreneur or group of entrepreneurs identify a market niche that can have blockchain-based applications and launch a project, thus becoming pioneers. The cryptocurrency of such a project is likely to have demand, depending on its applicability. If it gains popularity, competitors will emerge and the cycle of project and cryptocurrency generation will carry on, thus continuing to flood the market with new digital assets.
Another major factor stimulating the growth in the number of cryptocurrencies resides in the limitations of existing blockchains. All blockchains are limited by three main factors – scalability, security, and decentralization. An increase in any of the three factors leads to a sacrifice of the other two. It is impossible to create a blockchain that would ideally and harmonically balance all three, since existing technologies are poorly scalable, susceptible to hacks, and prone to centralization due to the existence of the human factor behind the principles of validation in the form of mining or node operation in the PoW and PoS consensus algorithms, respectively.
The existence of these limitations has been stimulating developers in the industry to create their own blockchains, each offering varying degrees of advantages over others. The limited throughput of the Bitcoin network led to the development of Ethereum, whose limitations, in turn, have led to the development of other blockchains like EOS, TON and others.
Each blockchain, like any other project, requires a stimulating factor for miners or validators to process transactions. The internal coin is that factor, as its volatility related to demand and supply will result in price hikes, or profitability in the long run.
As such, each new blockchain on the market adds another cryptocurrency to the list of existing market assets and tosses its share of liquidity into the general capitalization value.
The many types of cryptocurrencies is another factor contributing to their abundance. In truth, there are only three main types of cryptocurrencies – coins, tokens, and stablecoins.
Coins are the constituent native assets of blockchains like Bitcoin and Ethereum. Coins bear the highest value, since they take more effort to create, or mine. The limited number of coins available and the progressive difficulty of their extraction creates demand for them, as the supply is limited.
Tokens make up 90% of all market assets, as they can be easily released on any blockchain and tailored to match a project being launched on the selected network. Tokens depend entirely on demand in terms of price, but are susceptible to artificial inflation of prices, as was the case in 2018, when traders banded together and engaged in pump and dump schemes. This ease of release of tokens allowed projects to spawn by the hundreds and either succeed or fail. The abundance of types of tokens, such as utility, security, NFT, governance, and others, has also been a contributing factor to their sheer variety.
Stablecoins are not as popular as tokens or coins, since they have a set amount of emissions and are tethered to real-world assets. That makes them more of a niche and application-based asset that has gained a low level of attractiveness as a trading asset. In addition, the regulatory difficulties of releasing a stablecoin and providing collateral backing for them make their popularization difficult.
The usability of cryptocurrencies is directly tied to the variety of sectors and industries. As such, the usability of different cryptocurrencies has been a factor spurring their release to cater to various markets. There are dozens of projects in the DeFi industry, advertising, marketing, marketplace, and other sectors, and each project has its own token.
Benefit is the last and most elusive factor that has contributed to the growing number of tokens. Each project is adamant in its belief that its project yields the most benefits, and is thus convinced of the need to release its asset onto the market. The irony is that hundreds of entrepreneurs think in exactly the same fashion.
There are many cryptocurrencies on the market, because there are many people convinced that their crypto-backed idea is worth a shot at being marketed.