Editor's Note: This article comes fromBabbittEditor's Note: This article comes fromMediumBabbitt

, translated by Wendy; the original text comes from

, author Jimmy Song, reprinted with authorization by Odaily.

Translator's Note: The author of this article is Jimmy Song, a Bitcoin evangelist. In his article, he analyzes the valuation sources of altcoins. He believes that the success of altcoins has nothing to do with factors such as technical features, but with marketing. During a Bitcoin bull market, successful marketing can drive up the price of an altcoin. And because of the emphasis on marketing, there are plenty of scams in the altcoin market, so every altcoin should be considered a scam until it proves itself not to be a scam.

Altcoins are completely different. They all lack one of Bitcoin's major innovations: decentralization. This means that altcoins are fundamentally different from Bitcoin and closer to fiat currencies. Their failures can and have been used by outside parties to influence and even control them. The supply and circulation ratio model does not work here for altcoins because they are centralized. So, what gives altcoins value? Why do altcoins have prices?

In this article, I wish to explore this question. Are altcoins adding valuable new technical features? Do their buyers want to go down the path of decentralization? Why did Litecoin succeed while its very similar "cousin" Fairbrix failed? Why do premined coins like IxCoin fail while Ethereum succeeds? To what should these relative successes and failures be attributed?

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Fantasies about Technological Innovation

Talk to any altcoin holder and they are bound to mention that their coin has the most interesting features. They believe that the coins in their hands will revolutionize certain industries by driving up the value of the token through some complex incentives. Of course, their wish is that, because of some new features, their coin will become the "next Bitcoin", the new Schelling point of global currency.

This is nothing but wishful thinking, as anyone who has ever claimed the Bitcoin throne has said. From Feathercoin to Auroracoin to Steem, there are many coins that offer some theoretical technical advantages but fail to maintain their appeal, let alone dethrone Bitcoin.

The technical features they proposed include faster block generation, other mechanisms besides PoW, changing algorithms, changing monetary policy, increasing block size, promising privacy, application of specific services, solving certain problems in specific industries, etc. .

All of this is wishful thinking at best, as their community is full of demoralized and/or scammed token holders, all hoping that Bitcoin will miraculously abdicate. These "innovations" are often severely lacking in technical value (Turing-complete smart contracts), or even outright scams (Bitconnect), but even the few valuable innovations are hopelessly lost in the quagmire of poorly designed incentive mechanisms, Therefore, problems in the real world cannot be solved.

Since most altcoins are open source, it is very simple to fork and change a few parameters to create a technical clone. If technology or function is the basis of value, then technology cloning must have very important value. But in reality they have no value, so this shows that technical features are not what shape the value of altcoins.

What separates valuable from worthless altcoins is not technological advancement at all, but something else.

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The Litecoin and Fairbrix Story

Valuing altcoins starts with Litecoin and Fairbrix, as these are two very similar coins. They both use the PoW mechanism, have very similar launch dates (2011), and have the same creator: Charlie Lee.

Both coins are based on Tenebrix. Tenebrix is ​​an altcoin launched in 2011. At that time, it used a new PoW algorithm Scrypt, and the block time was faster than Bitcoin. At that time, the community opposed Tenebrix because of the large-scale pre-mining, which directly led to Charlie Lee choosing to fork Tenebrix to create Fairbrix. Like the Zclassic fork of Zcash, Fairbrix is ​​a Tenebrix clone without premine.

Of course, Fairbrix is ​​not much better, which is the beauty of Charlie Lee's strategy. He created another coin, Litecoin, with the same functionality and a better brand. He changed the block time from 5 minutes to 2.5 minutes and fixed some issues to make it more effective marketing. His most forward-thinking idea, he told many over the years, was the one he gave Litecoin a catchy title: the digital silver counterpart to the digital gold Bitcoin.

Many coins born in 2011 did not survive, including IxCoin, SolidCoin, Geistgeld and Litecoin's "brother" Fairbrix and "father" Tenebrix. For some, premining is the deathblow, and many in the community will condemn the mechanism, but as Fairbrix shows, even the absence of premine is no guarantee of altcoin success. What made Litecoin popular was its clever marketing, not its technical features.

So why did these coins appear at the same time? The first bitcoin bubble appeared in mid-2011, rising from less than $1 at the beginning of the year to $30 in July. All of the aforementioned coins emerged shortly after the bubble burst in August. Many are calling it the "Scambrain explosion" of 2011. Given that all of these coins started issuing shortly after the bubble burst, there seems to be at least some correlation between them. We would see similar “Scambrain” explosions in the subsequent bubbles of 2013 and 2017.

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Mastercoin vs. Counterparty vs. Ethereum

Fast forward to 2013 and we can see another group of altcoins emerge. Mastercoin launched that summer, Counterparty came a few months later, and Ethereum pre-sale started in early 2014. All three coins are pursuing the same goal of building a platform for issuing new tokens. Mastercoin may be the first platform to pre-sell tokens before the product is launched. The pre-sale of tokens here is what we call ICO today. In the summer of 2013, shortly after the April 2013 bubble burst, there was also a Mastercoin presale. The token languished in the years leading up to 2017.

What is particularly interesting is that after the Ethereum ICO in 2014, all the new technical capabilities (Solidity language) that were considered to be Ethereum were added to Counterparty. In this regard, Ethereum’s response is that the Counterparty smart contract platform can also be easily completed on Ethereum. Essentially, the characteristics of the two coins are the same.

The reason Ethereum has been more successful than Mastercoin or Counterparty is the unprecedented marketing done for token sales. Not only is the amount of the ICO much higher than before (30,000 BTC), but they packaged the pre-mining as a good thing - as a source of funds to maintain development and marketing. As Vitalik said, he made premine acceptable, which was not acceptable for those coins in 2011.

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(Jimmy: I don't know which Odaily Vitalik is from, but 67% is not a small number on Earth)

The marketing that drove the ETH pre-sale dwarfs any previous coin, and as such, Ethereum was able to succeed in the 2017 bull market despite its many similarities in feature set to Counterparty, which is another Tokens can't do that.

From a technical point of view, Ethereum has many shortcomings, and Ethereum 2.0 plans to abandon the entire infrastructure! From The DAO, to the Parity bug, to missing checksums for ETH addresses, there have been a ton of issues documented. However, all of these issues have been largely ignored by the market. The technical state of Ethereum may seem irrelevant to investors.

In other words, Ethereum was able to overcome all problems with crazy marketing. In a sense, Ethereum is the precedent for all tokens that have no code or investor protection. Their existence demonstrates that even hopelessly insecure systems can thrive with enough marketing. Marketing trumps everything when it comes to altcoins.

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Strange case: Ripple

XRP was the first fully pre-mined token, launched in 2012. Interestingly, the token’s market capitalization hovered below $1 billion until 2017, when it rode the wave of the Bitcoin bull market, reaching a market capitalization of $127 billion at its peak. XRP was not part of the April 2013 or November 2013 bubbles, it burst in the 2017 bubbles.

What has changed? How did an asset that existed for 5 years suddenly become so popular? There seem to be several reasons, one of which is more effective marketing during bull markets, and another is lower prices.

The main marketing point of Ripple has always been the adoption by enterprises and large institutions. It's an excellent marketing story because at the time it was born, no other coin could do it.

Additionally, in 2017 there was an army of XRP on Twitter, desperate to promote the coin. Ripple Labs also sent out a number of press releases that, even if unrelated to XRP, caused the price of the coin to rise. A centralized company seems to help marketing XRP, as it is easier to send out press releases, hold events, etc., resulting in higher exposure.

From a technical point of view, Ripple is very centralized, it uses software calls for upgrades, and cannot resolve differences between different database states. Yet the marketing of Ripple and the XRP army hides this every day. The state of technology and marketing don't seem to need any adjustments.

Since then, other altcoins have taken things a step further, creating or promising to create ecosystems in exchange for fully pre-mined tokens. The tokens are the equivalent of gift cards for stores that have yet to be built, have no products or services, and only vaguely promise to open sometime in the future.

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BCH and BSV vs. other Bitcoin forks

Another altcoin appeared in 2017, offering an airdrop to Bitcoin holders. BCH was the first coin to hard fork, but things didn't stop there. 2017-2018 saw the emergence of Bitcoin Gold, Lightning Bitcoin, Bitcoin Private, and many other underperforming forks — albeit with better technical characteristics. For example, Bitcoin Private inherits Zclassic's shielded transaction (from ZCash's transaction model). Lightning Bitcoin promises a block time of 1 minute. Bitcoin Clean uses less energy and Bitcoin Interest brings staking income to owners.

Why are these coins not as good as BCH? The appeal of BCH is not the technical differences - like bigger blocks or no SegWit - but the marketing prowess of the likes of Roger Ver, Calvin Ayre, and Jihan Wu. Roger Ver used the domain name of bitcoin.com to mislead people into thinking that BCH is Bitcoin, and Wu Jihan once asked customers of Antminer series mining machines to pay with BCH.

"I made Bitcoin what it is today, and I will make BCH do the same. -Roger Ver" Although Roger Ver completely misunderstood his influence on Bitcoin, he was very concerned about the role he played in BCH Characters have correct evaluations. Marketing gives BCH a huge advantage over other forks. Roger Ver invested a lot of money and sponsored many conferences promoting BCH and bitcoin.com in 2018 (such activities are basically rare this year).

Technically, BCH has had its fair share of problems and continues to release questionable features. Note that, like Litecoin, many of Bitcoin's design bugs have not been fixed on BCH, although there has been a lot of opportunity for them to be in the numerous hard forks since August 1, 2017.

Again, none of this seems relevant to BCH holders. Marketing trumps all.

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Why does altcoin marketing work?

Marketing within cryptocurrency circles has a virtuous feedback loop, as people who buy tokens are more inclined to sell other people through word of mouth than the product. The specific incentives are that token holders do a lot of marketing, which is basically free. Altcoin creators euphemistically call these people their "community" who help promote the altcoin at no cost. Hence, the marketing dollars spent on the altcoin paid off enormously.

Altcoins that are not good at marketing tend to perform worse over time, even if they have a strong technical team. This includes coins like Monero, ZCash, Grin, and Decred, all of which have strong cryptographers and programmers on their teams, but are difficult to market effectively. There are also altcoins that have neither good marketing nor a good technical team, and that's even worse.

Marketing is the means used by altcoins. The most valuable coins create demand almost entirely through marketing. In other words, demand is largely artificial. Technological efforts are easily replicated, but capital in the market cannot. This also explains why so many altcoins spend so much money sponsoring conferences, hosting meetups, running airdrops, buying online ads, and making charitable donations. An altcoin's market capitalization often reflects the effectiveness of its marketing efforts.

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Altcoin Trends

The bull market has also given these coins new life with new marketing campaigns. They are all riding the Bitcoin bull market. Even during a bull market, altcoins can still fail if marketing stops.

in conclusion

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in conclusion

What does all this mean? This is great news for traders, because it turns out that the technology of the altcoin does not matter! Traders can trade altcoins based on market perception without having to spend time doing any due diligence on incomprehensible products.

For investors, however, the conclusion should be harsh. Technical capability or application potential has nothing to do with price. The market capitalization of an altcoin can only indicate how well its marketing department is doing, and has nothing to do with factors such as the quality of developers, the reliability of ideas, or even the existence of products. An altcoin's popularity doesn't prove its technical capability, product potential, or returns, and its popularity doesn't mean anything other than marketing effectiveness. The reality bears this out.