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What Are The Characteristics Of A Good Cryptocurrency?

There are currently over 6000 different types of cryptocurrencies in circulation. For someone who's just getting into cryptocurrency, it can be an overwhelming task to identify the best coins to invest in

Published: Nov 24, 2021 10:49:46 AM IST
Updated: Nov 24, 2021 10:53:58 AM IST

What Are The Characteristics Of A Good Cryptocurrency?

There are currently over 6000 different types of cryptocurrencies in circulation. For someone who’s just getting into cryptocurrency, it can be an overwhelming task to identify the best coins to invest in. But just like human beings, cryptocurrencies also have certain qualities that differentiate the good from the bad.

Remember the (in)famous Squid Game coin? It soared from 1 cent to $2856 per coin in the space of just a week before the scam revealed itself when the developers made off with an apparent $3.38 million, according to a popular tech website.
Here are the top seven characteristics you need to look at when you evaluate cryptocurrencies.

1 – Security  

Your cryptocurrency needs to be chosen with your financial security in mind. The ideal cryptocurrency will have security build into its native design. This means apart from 2-factor authentication and complex passwords, it will also include safety features built into it to prevent itself from getting hacked.

While you don’t need to do a full deep dive into the technical aspects of your cryptocurrency, you do need to do basic research to ensure that it has some amount of in-built security features to avoid itself from being hacked by sophisticated means.

2 – Stability  

Chasing stability in the world of cryptocurrencies can sometimes sound like an oxymoron. After all, A cryptocurrency will only be truly stable if people, organizations, and countries decide to use it and that seems some way off into the future.

That doesn’t mean cryptocurrencies like Ether and Bitcoin aren’t stable. The ideal cryptocurrency finds its stability over time, as the number of transactions performed in that currency grows, which is exactly what has happened with both these cryptos. Choosing cryptocurrencies that follow this model is a good way to invest in them.

3 – Scalability

The scalability of cryptocurrency refers to the number of transactions that can be processed or confirmed per second. Today, we prefer paying online versus depositing a cheque because of the time difference in transaction times.

Blockchains use different methods to settle transactions although the best ones are also the fastest. Look at forums that address this issue and pick cryptocurrencies whose transactions get processed in the shortest timeframe.

4 – Supply

The main problem of regular or fiat currency is that one can print as much of it as is required. Some people have already sounded the alarm about an upcoming debt crisis because of easy money that was printed to support economies during the Covid-19 lockdowns.

Cryptocurrencies, however, can escape this problem of supply. Most, in fact, have a fixed amount of coins that will ever exist. Bitcoin, for example, can have a maximum 21 million coins in existence and no more.

Other, mostly newer, coins also “burn” cryptocurrency tokens by sending them to inaccessible wallets. This limits the total number of the cryptocurrency available and makes it more valuable over time. WazirX recently held its sixth coin burn event where it burned 5,933,333 WRX equivalent to INR 74.8 crore, taking its total tally of burnt coins to 21,786,665 worth over USD $47 million.

Having a cryptocurrency that regularly undertakes such measures to keep a fixed number of coins in circulation is a good indicator of a strong cryptocurrency.

5 – Decentralisation

The whole idea about cryptocurrency is to give power to people instead of a holding organisation. One of the defining features of Bitcoin is that no one knows who created it, inspite of attempts to uncover the identity of Satoshi Nakamoto.

Some cryptocurrencies, on the other hand, try to take away from this decentralised nature of the blockchain to try and manipulate their currency. If you ever come to know the identity of any people or organisation behind a particular cryptocurrency, sell it all off right away. Even though it’s not directly related, always remember how the Squid Game scam played out.

6 – Demand

This one is pretty simple. Pick a cryptocurrency that actually has demand. By demand, we mean that the cryptocurrency is in the news and has the potential to grow over time through word-of-mouth and other means such as media coverage, availability on exchanges such as WazirX etc. The idea is the earlier you invest in a cryptocurrency, the more valuable it gets as others begin discovering it.

7 – Use Case

One important aspect of cryptocurrencies is how to use them the way you might use currency to buy and trade for goods and services. This is one aspect that not many people give a thought to when buying cryptos but if you think about it, having the ability to pick up something worthwhile with your crypto is actually a pretty interesting prospect.

For example, you can pick up NFTs with Ether and open up a whole new world of possibilities for yourself. This is better than simply picking up a crypto and HODLing it under its valuable enough to sell at a good price. Basically, look at cryptos as a means for what it can do for you rather than just as a way of buying and selling at the right price.

Now that you know what qualities to look for whilst picking up a good cryptocurrency, which ones would you add to your portfolio. If you haven’t already, open your crypto account with a trusted exchange like WazirX and get started on your crypto journey today.

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