We haven’t even closed two months in the calendar and it already looks like it Bitcoin (CCC:BTC-USD) will be the greatest story in finance for 2021. While BTC offers many potential long-term opportunities, you cannot help but notice that the original cryptocurrency is a very mature asset. In other words, to double a $ 50,000 fortune it would have to reach $ 100,000 – a tall order. That is why alternative crypto coins are like Speckle (CCC:DOT-USD) have aroused the interest of investors.
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First and foremost, it’s the numbers. On an annual basis, Bitcoin has gained around 67%. That’s a great feat, but it pales in comparison to Polkadot, where the underlying DOT coin is up 255%. Additionally, it is priced around $ 33 at the time of writing. Psychologically, this is far more attractive than the price of BTC of $ 50,000 or even that ether (CCC:ETH-USD) the entry point of the token worth 1,600 USD.
Certainly psychology plays an important role in determining which assets will soar, especially in the current environment. The narrative for polkadot, however, is not entirely narrative. In fact, there is a fundamental reason for DOT – at least when it comes to cryptocurrencies.
A quick rundown of why polkadot is important
Bitcoin was the first cryptocurrency to introduce the concept of blockchain to the world. Its textbook definition is a decentralized public distributed ledger. But what does that mean exactly?
I know I’m going to insult blockchain purists, but the practical explanation is that a blockchain is simply a method of recording records that is available to the public. Conceptually, it’s not dissimilar to a Google Doc that you share with your work colleagues.
But one of the main differences in blockchain is its immutability. Once transactions are locked on the blockchain, there is no going back and they cannot be changed. In addition, the ability to enter data into a standard blockchain system is not limited to a central instance. Rather, data entry requires consensus between nodes or computers that store the blockchain’s transaction history.
Hence, the Bitcoin blockchain enables peer-to-peer financial transactions without the need for a human intermediary. In essence, the blockchain architecture acts as its own trustworthy, immutable, and perfect digital intermediary.
But like other first-to-market technologies, the original blockchain had shortcomings, mainly difficulties in scaling and inefficient protocols. To solve these problems, the Ethereum team created their own blockchain that offers the scope and efficiency that developers crave.
In addition, Ethereum’s unique innovations led to smart contracts. Instead of focusing solely on payments, other business transactions such as real estate transactions or litigation can benefit from digital intermediaries, eliminating the middleman.
But Ethereum also has its problems. Long story short, the platform can become a nuisance for developers creating complex projects. This is how the concept of Polkadot was born. Polkadot is known as the blockchain for blockchains and opens up new efficiencies for developers by allowing several different blockchain systems to work together.
I am not doing justice to the concept. But to make it very simple: Polkadot allows developers to stack multiple blockchains together while maintaining harmonious interoperability, rather than building a single unwieldy, complicated and expensive blockchain project.
Is the utility alone worth $ 30 billion?
Avid supporters of cryptocurrencies will argue that Polkadot, not Ethereum, will be the true Bitcoin alternative. It is possible that Polkadot is the most useful blockchain system available. But is the benefit alone worth $ 30 billion?
Because that’s the market capitalization of the underlying DOT token that raises some interesting questions. After a robust debut, specialist in artificial intelligence and big data Palantir technologies (NYSE:PLTR) currently has a market cap of $ 49 billion, not too far removed from DOT’s valuation.
Is Palantir’s actual business value and utility only worth a 63% premium over Polkadot’s innovation? Maybe it is, maybe not.
Or consider a content delivery network provider Fast (NYSE:FSLY). It serves a critical need, especially during this pandemic, when people are working from home. FSLY has a market cap of just over $ 8.5 billion. Is Polkadot really worth nearly four times Fastly stock?
I believe the main problem with attempting fundamental analysis of cryptocurrencies is that the traditional market doesn’t value platforms as much as what companies do with those platforms to solve real-world problems.
And this is where Polkadot gets sticky – how many blockchain projects do we need? Because it’s one thing to have the technology; it is quite another thing to do with it.
A game of chance and an interesting one at that
Here’s my brutally honest take on polkadot – I think it’s a long term buy.
However, this is not because its blockchain will change the world for blockchain innovations. Because of the open source nature of blockchain technology, someone will always come up with something better.
Rather, the DOT token is pure speculation based on sentiment for the cryptocurrency market. Despite the severe crash of Bitcoin, the token has steadily moved upwards and surprised me personally. With this heavy demand, you’ll likely want to add Polkadot tokens to your digital portfolio, just in case.
At the time of publication, Josh Enomoto was long BTC and ETH.
Josh Enomoto, a former senior business analyst at Sony Electronics, has helped broker key contracts with Fortune Global 500 companies. Over the past several years, he has provided unique, critical insights into the investment markets as well as various other industries including law, construction management, and healthcare.
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