Survival of the healthiest: Creating a successful crypto

Disclosure: The views and opinions expressed herein are solely those of the author and do not necessarily represent the views and opinions of crypto.news editorial.

Darwin’s theory of evolution suggests that living organisms that are best adapted to their environments are the ones that are most successful at surviving. Organisms compete with each other for the resources necessary to exist in their environment. The same principle can be applied to cryptocurrencies. In a volatile, decentralized world dominated by competition between networks, only the healthiest, best-structured ecosystems can survive. Therefore, developers should focus on developing a ‘healthy’ underlying network for crypto to ensure it has the best chance of surviving the next evolutionary cycle.

What makes a crypto ‘healthy’?

The nature of cryptocurrencies is quite different from that of living organisms; Therefore, the resources that make a crypto ecosystem ‘healthy’ are different from the resources that make a living organism ‘fit’.

Cryptocurrencies are decentralized virtual assets that exist in the web3 space, so they rely on many individual users interacting within this ecosystem to create a healthy store of value. Like fiat currencies, without this social network of token holders, a cryptocurrency asset has no value. Each cryptocurrency can represent its own ‘culture’ through a transactive currency where value is based on the psychology of its owners. This is reflected by the fact that social events, user perception and supply often influence the value of the token.

Since all cryptocurrencies derive value from community and user interactions within the web3 environment, they compete within the same web3 parameters for user attention and transactions. The parameters used to define a ‘healthy’ crypto network relate to token holder activity and include distribution policies, diversity of holders, transaction diversity and token flow, where there should be a sustainable number of distinct transactions.

It’s not just about having user activity, but also the right type. If a person lived as the sole citizen of a nation-state with a $100 million bank account, that nation’s GDP per capita would be the best in the world, but they would have no chance of survival. Since there is only one beneficiary, there will be no scope for transactions or multiple owners, making it void and worthless.

While living organisms in the real world compete for things like food and resources, in the web3 world cryptocurrencies compete for transactions and users’ attention.

Since cryptocurrencies are based on blockchain, an open-source ledger that stores all transactions, it is possible to map all transactions between wallets within an ecosystem and measure the parameters that determine a ‘healthy’ network. In practice, we can see which token ecosystems are developing ‘healthy’ networks and which are slowly starting to disappear. Over time, like other asset classes, any pattern consistent with network malfunction, including manipulation or crime, can increase the risk associated with a token. With this data we can rate and rank ecosystems; so we can determine which ones win the competition for survival.

Bitcoin and Matic: A success story

Bitcoin (BTC) has managed to establish a healthy network. It is estimated that 106 million people worldwide own Bitcoin, making it the most widely held token. Significantly, Bitcoin now represents 58% of the cryptocurrency’s total value, making it overwhelmingly the most popular store of wealth among web3 users. It is not only widely held but also widely traded. More than 400,000 transactions per day regularly occurred on Bitcoin’s blockchain throughout the first half of 2024. This sustainable and high transaction volume is also reflected in Bitcoin’s pricing. Despite experiencing several devaluations, it has been hovering above $50,000 for the past nine months and recently surpassed $90,000, making it one of the most stable cryptocurrencies on the market.

Similarly, Polygon (MATIC) has also established a healthy network. Approximately 633,588 wallets hold Matic, making it a widely held token. It is also widely traded in varying amounts and for a variety of reasons, making it robust. Matic regularly processed over 4,100 transactions per day throughout 2024. This sustainable and high trading volume is also reflected in Matic’s 24-hour trading volume of 7.76 million USD.

Dogecoin: A rapid unraveling

Although Dogecoin (DOGE) has rebounded sharply in recent years, it has failed to establish a ‘healthy’ network. At certain times, there was a large amount of user activity that caused prices to rise momentarily. This includes early 2021, when the Dogecoin price increased by a dramatic 23,000%. However, the number of transactions that caused this price increase was not sustainable. User activity here was driven by short-term excitement and the transactions taking place were not very diverse. The majority of users were engaging with the network for the sole purpose of ‘pumping and dumping’ rather than providing long-term, sustainable benefit. This was mainly fueled by Elon Musk tweeting about the token, creating an abnormal spike in price. This rally demonstrated the tremendous volatility of the token and the lack of an established perception by users that Dogecoin has value based on something larger than a single point of interest. It is currently held by around 4 million people, and although it has relatively high transaction levels, there were around 250,000 daily transactions in October 2024. However, a significant 82% of total circulating Dogecoin is held in wallets of a shockingly small amount, only 535, demonstrating a lack of transaction diversity.

Dogecoin is on a new high thanks to the recent US election results and Elon Musk’s appointment to Trump’s Department of Government Efficiency. However, although there are moments when prices are high, these do not result from sustainable and meaningful growth. Where Dogecoin failed to generate a sustainable number of transactions from various wallets, Bitcoin and Matic succeeded. The evidence is the relatively stable growth of Bitcoin and Matic and the volatility of Dogecoin. Even though DOGE is still going, this is due to the hype; They will become extinct like the dinosaurs that came before us.

Focus on network, not price

The success and sustainable price increases of cryptocurrencies depend on the health of the web3 network supporting the token. Therefore, rather than focusing on increasing the price for the sake of price, a cryptocurrency developer should focus on developing a ‘healthy’ underlying network by hosting sustainable and diverse transactions. This will pave the way for the tokens to attract users, overwhelm rival networks, and ultimately lead to the prices of the tokens increasing.

Simon Peters

Simon Peters is the CEO and co-founder of Xerberus, a cryptocurrency risk rating protocol that delivers industry-leading analysis through Wallet Graph™️ technology. Xerberus is designed to map and monitor the systemic health of a crypto asset in real-time through its investor wallet network.