Monday, December 16, 2013

Why Market Capitalization is a bad Metric for Bitcoin

Writen by: Romyen, Prior posts have suggested that the term market capitalization as applied to bitcoin be replaced with monetary base (M0) but that is just a semantical distinction. Market capitalization serves as a poor metric for bitcoin or any other virtual currency for a more fundamental reason, that can be seen by looking at altcoin rankings alongside bitcoin There is a new coin called Next Coin or Nxt which might be a scam like some other altcoins, but that isn't my point. 1 billion coins were pre-minted (mining isn't the correct term because the developer claims that a proof-of-stake algorithm generates new coins) and are being sold of in small quantities to gullible buyers. At the time of writing 1 coin is "worth" $ 0.012 giving a market capitalization of about 12 million dollars. I chose Nxt as an example because it reduces the concept of market capitalization to an absurdity. Bitcoin, like gold, is hoarded more than spent. However, bitcoin differs from gold because it can be cloned or modified in an altcoin, but you can't invent a better precious metal to compete with gold. Bitcoin bases its value upon a protocol rather than physical presence, and the network effect. Bitcoin differs from fiat in that the developer doesn't need to rely on an army and submissive population to enforce the value of his coin. My point is that metrics used to describe fiat or precious metals don't work well for cryptocurrencies. I think that a new set of metrics need to be developed, probably by statistically characterizing the blockchain. I don't have the answer to this problem, and I'm wondering if anyone is working on it.


  1. Only Bitcoin concept and algoritm can be cloned. It is safe and only because it was first it will stay first.
    NXTcoin has bright future from the same reason of being first. And it also can be copied by someone.
    There came also Dogecoin which shows that creators still need to compete, because on free market of currencies things change fast.
    NXT has some advantages over btclike coins but future will show if it is reliable and can bit other. But for sure it isn't another clonecoin. That's 1 step farther.

  2. Silver Gold Bull is your trusted silver & gold dealer. You will be provided with competitive, up-to-minute rates and they will make sure your precious metals arrives to your door discreetly and fully insured.

  3. Did you consider using the best Bitcoin exchange service - YoBit.

  4. YoBit lets you to claim FREE CRYPTO-COINS from over 100 unique crypto-currencies, you complete a captcha one time and claim as many as coins you want from the available offers.

    After you make about 20-30 claims, you complete the captcha and keep claiming.

    You can press CLAIM as many times as 50 times per one captcha.

    The coins will stored in your account, and you can convert them to Bitcoins or Dollars.

  5. eToro is the ultimate forex trading platform for newbie and established traders.

  6. Smart multi-currency mining application & 1-click graphic miner.

    Start mining effectively with your computer or smartphone.

    Squeeze the most profit auto-mining coins with the highest rates.

    Download MINERGATE.

  7. If you're trying to BUY bitcoins online, Paxful is the #1 source for bitcoins as it allows buying bitcoins by 100's of payment methods, such as MoneyGram, Western Union, PayPal, Visa, MasterCard, American Express and they even allow converting your gift cards for bitcoins.

  8. Ever consider automating your free satoshi claims with a BITCOIN FAUCET ROTATOR?