Let’s put all that into context with some examples using BTC & ETH, in this section, we’ll check out & compare their tokenomics.

I’m not from an economic background so this will be a light version of reviewing these two projects by asking the main question from the last post which was:

• How many coins exist?

• How many coins will be added (how & when)?

• Is the supply inflationary (increasing) or deflationary (decreasing)?

• wHaT iS tHe uTiLiTy, which is a very sensible and fair question, for example, can they be used for more than just trading or can they be staked, etc.?

• Is there a real-world use case?

• Who are the whales (who owns the majority of tokens)?

• Is the distribution spread out or concentrated?

I do feel like BTC & ETH are the top contenders here so only right to compare them to the greatest boxers that ever lived… Rocky Balboa & Apollo Creed 🥊

BTC ฿

• There are 19 million coins in supply and a total of 21 million will ever exist (unless the BTC foundation changes anything). In terms of the question of whether BTC is inflationary or deflationary, some people will say it’s inflationary as there are still 2 million more BTC to be mined, however, there is a max supply cap of 21 million, so in essence, it is actually deflationary as the available supply will be less since miners will be obsolete due to no more BTC available to be mined so the only way to acquire more would be to trade.

• In terms of utility, BTC has been described as many things, those include a store of value, an alternative to gold; ie. digital gold, it can be used for fast, cheap and permissionless transactions and in terms of resilience it’s proven over time to be a very strong and secure network.

• Is there a real-world use case?

  • Store of value, some people have referred to BTC as gold.2 or digital gold

  • Hedge on inflation, since there is a limited supply

  • Transactions, fast, cheap & permissionless

• Who are the whales (who owns the majority of tokens)?

• Is the distribution spread out or concentrated?

  • Due to the pseudo-anonymous nature of BTC, it’s difficult to work out how much one entity or person holds, as these can be shared across different wallets.

  • However, according to BitInfoCharts, we can firstly see that some of these large holders are cold wallets for large exchanges like Binance, Bitfinex, Coincheck, Bittrex, ect.

  • We can also see that the top 100 wallets hold around 15% of all BTC.

  • Also we have to take into consideration that larger institutions such as MassMutual, Ruffer Investments, Tesla, GrayScale Bitcoin Trust and Microstrategy to name a few are accumulating more BTC as we speak.

  • We should also assume that other financial institutions are moving into the space such as the large banks who thrive from market manipulation, so as they FUD the space, be sure they’re slowly buying.

ETH Ξ

• There are 121 million ETH in circulation, there is an infinite ∞ amount of ETH available to be added, so there is no max cap. Similar to BTC, at face value, it seems that ETH is inflationary as there is no max supply cap so an infinite amount could be issued. However thanks to EIP-1559, ETH has introduced a burning mechanism (ETH being sent to a wallet that no one has access to, therefore removing it from circulation) the asset becomes deflationary as eventually more ETH will be burnt than is issued once the merge happens in 2050 (a running joke that the merge will forever be in development). Using ultrasound.money you can track the burn, supply growth and issuance and even simulate the issuance (creation/release of new ETH into circulating supply) which as you’ll see ends up being negative so therefore deflationary.

• In terms of utility, there are several for holding the ETH token & using the Ethereum network:

  • Transactions, transactions are permissionless

  • Store of value, with the burning of ETH there is a decreasing supply so you can assume the value would only increase due to scarcity

  • Staking, you can contribute to the network security & earn rewards for that contribution and time

    • This staking causes a strong network effect which gives high security due to the size of the network and also high costs to transact meaning an attack large enough or multiple attacks to the network would be incredibly costly without certainty of success.

  • Build on top of the platform, builders can develop & grow different decentralised applications from DEFI, NFT’s an a bunch of dapps (decentralised apps) & smart contracts

• In terms of real-world use case, here are some:

  • Similar to BTC it’s a store of value, as the supply decreases the scarcity increases so it’s deflationary

  • Transactions, these are permissionless

  • People can access these financial tools across DEFI with a level playing field as a pose to the current financial system which allows rich people and accredited investors to access exclusive money-making opportunities

  • DEFI allows for higher interest rate returns via staking, farming, instant trading and leverage, which obviously has risks but the fact that you can decide for yourself instead of being told yes/no by some obscure person/group is a positive step.

  • Possibilities for people to make an income from gaming without being sponsored by big organisations with p2e (play to earn)

  • Jump into the art world which is usually quite exclusive and seen as very exclusive, now there’s an easier way via NFT’s which also offer opportunities to join membership clubs, investment opportunities, the possibilities are endless.

  • DAO’s, which are decentralised autonomous organisations, as the name states they’re decentralised (or at least they’re meant to be, that in itself is another whole topic), where a group can be created by friends, colleagues or complete strangers with a shared goal/s in mind where people can enter by simply owning x-amount of the DAO’s token, decisions are made via proposals & voting of the members and these can range from rules, roadmap/plans, managing money in the treasury, ect.

• Who are the whales (who owns the majority of tokens)?

• Is the distribution spread out or concentrated?

  • Similar to BTC, due to the pseudo-anonymous nature of crypto, it’s difficult to map out wallets vs. owners.

  • Also similar to BTC, there are large institutions that are accumulating ETH as an asset class to add to their balance sheets.

  • Good to mention that ETH launched with an ICO, meaning that early investors were able to buy a large amount for the price $0.31 per coin, in total around 50 million ETHs were sold at a price raising over $16 million.

  • Vitalik, being the co-founder is the largest ETH whale, currently holding 290k ETH in his wallet, however, compared to the circulating supply of 121 million, it’s around 0.24% of the circulating supply.

  • You can see that the top 100 wallets hold around 39% of all circulating supply, which is a lot, again most are exchanges with a large 10% held by the ETH 2 Deposit Contract, where validators have locked up their funds.

  • Many of the top 100 ETH addresses are exchange & DEFI protocols which include Bitfinex, Okex, FTX, Polkadot Multi-Sig, Arbitrum’s bridge, and Lido.

All that is great, but it comes down to your own situation which includes:

• Financial stability

• Short/medium/long term goals

• Risk appetite

• Exit strategy

So, most of the time these questions of “Should I invest/buy XYZ Token?"The truthful answer is & always will be, it depends…

Do your research, live on & hopefully prosper ✌️

👉 Part 3