Cryptocurrency is used on blockchains for a variety of reasons. As the crypto space grows in users and applications, so does the number of cryptocurrencies. With over 20,000 active tokens right now, nothing is more obvious than the unnecessary amount of different tokens.
Simplicity is necessary for mainstream adoption
One major goal for the blockchain and web3.0 space is to create a functioning, interoperable network where accessing applications and services is simple and quick. The simplicity is immediately erased if users are required to swap their tokens and continuously buy new tokens in order to try a service or one-time use an application, especially if the required token is hard to find on swaps or isn’t listed on major exchanges.
The reason for this is that tokens are built with their blockchain, usually with a unique token ability attached to their blockchain. The real problem is that many cryptocurrencies have no long term use. They are created to draw holders in with the expectation of multiplying their networth as the blockchain project scales.
Realistically, many of these tokens are for project appeal, and in no way is the project value or success actually reflected in their token price.
These are often exchanges, DeFi tokens, or layer 2 applications where all the top cryptocurrencies are still accessible within their project. Be it they try to prop up their native token by offering unsustainable rewards (example: Terra LUNA and UST), or some other way. The reality is that other useful and far more reliable tokens are still accessible on the platform, so there’s no need to use it. With no necessity of use, there’s no reason for the token. Even an original token such as Litecoin – created in 2011, and can only be used as digital cash – is failing to compete with the cryptocurrencies that offer unique utilities with their token.
Where cryptocurrency is necessary
Layer 1 tokens such as ETH work for all Ethereum services, not to mention being the foundation for the majority of tokens created. ETH is also required for major wallets such as Metamask, as well as the currency of choice on the NFT platform OpenSea. On the verge of the Ethereum merge happening in this coming august, applications and users are going to pour into Ethereum’s network.
Similarly, Polkadot and Chainlink are two other layer 1 ecosystems working towards Interoperability, and their tokens are used across their layer 2 applications. Polkadot’s token DOT is required to be used by every blockchain built on or added to its ecosystem.
Monero is another example, where the coin’s contract and blockchain enables token activity to remain 100% anonymous. PancakeSwap offers sustainable rewards and holds the capacity to swap for all major coins. It is also a necessary bridge for moving currencies between binance and Ethereum or other networks, and it is also capable of swapping non-listed tokens.
Despite these areas where cryptocurrencies can act as a useful and necessary tool of transaction (which certainly is required in preserving long-term value), they also falter in some other areas.
Highlighting the overlooked developments in the space
NFTs are developing and evolving. While some cryptocurrencies proclaim their value by acting as a means of governance, NFTs may be more capable and suited for the job of shared governance. NFT distribution can assign direct roles, incentivize duties to retain the role or potentially reward them with exclusive powers, enable unique specifications, and showcase status.
Smart contracts are another rapidly evolving technology in the space. While usually attached to crypto projects, Smart contracts are not tied to cryptocurrency and are already serving various purposes that cryptocurrencies cannot adequately fulfill.