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The emergence of Steem and other multi-million dollar altcoins in the market have triggered a massive resurgence of app coins, or crypto assets utilized by decentralized platforms.
Recently, experts including Coinbase co-founder Fred Ehrsam spoke of the importance of app coins and their potential to change the mechanisms of conventional and traditional businesses and operations. However, many members of the cryptocurrency and Bitcoin communities criticize the existence of app coins, questioning their legitimacy and real market values.
The emergence of Steem and other multi-million dollar altcoins in the market have triggered a massive resurgence of app coins, or crypto assets utilized by decentralized platforms as their native forms of payment. Some developers and companies have created business models entirely based on app coins, with operations and governance heavily reliant on the performance of its built-in crypto assets.
Over the past few years, platforms like Storj and Steem have attracted interest from cryptocurrency users and investors due to their unique operations and services based on crypto assets. Steemit for instance, enables users to incentivize content providers and creators with its built-in app coin called Steem, which is now worth around US$165 million.
This feature and ability of app coins which allow businesses to establish their own unique decentralized environments and financial networks have been praised by some experts including Ehrsam.
Ehrsam wrote in a blog post:
“It is projects creating their own economic ecosystems to make the entire thing tick. More precisely, it is about an entirely new business model that is being created and tried for the first time: a decentralized business model.”
In contrary, many members of the cryptocurrency community and industry have called out app coins like Steem for mimicking the models of ponzi schemes that are often built to raise money from investors but provide very little financial benefits to its users.
Tuur Demeester, economist and Editor in Chief at Adamant Research voiced his concern about Steem on social media regarding the app coin’s technicalities and legitimacy.
As I said before, have serious concerns about $STEEM. How is it mined? What's to say there's no hidden "god mode"? pic.twitter.com/OhSZ2PDUIm— Tuur Demeester (@TuurDemeester) August 12, 2016
As I said before, have serious concerns about $STEEM. How is it mined? What's to say there's no hidden "god mode"? pic.twitter.com/OhSZ2PDUIm
Building on Demeester’s concern, an app coin’s value is solely based on the value of the network and the market significance it carries. Steem for instance, has been called out as a scam and a ponzi scheme by many Bitcoin enthusiasts and users, for its unclear technical basis and economic benefits.
One online forum user by the username of cryptohunter wrote:
“First, they did a typical instamine/flashmine/freemine scam (yes scam) where they released no compiled wallets, no instructions to build and incomplete and inaccurate instructions to mine. After the first 12 or so hours of mining, all their miners crashed, exposing that they were mining to 100 different witnesses to hide the fact that they (he) was one entity. The devs wouldn't have been caught except that their mining instructions were wrong, and no one else was mining because, even if they couldn't get the client to build, they entered mining commands that caused them to get no blocks.”
Many technical data-backed claims of Bitcoin experts and researchers raised serious concerns and alerts for app coins like Steem, which have been utilized as a crowdfunding tool for many businesses over the years.
Brian Hoffman, project lead at OpenBazaar and CEO at OB1 also conducted an online survey to explore others’ opinion on app coins. The majority of people stated that app coins are either bad or are not good but deserve to survive.
App coins are...— Brian Hoffman (@brianchoffman) August 13, 2016
App coins are...
Despite the concerns of many experts and cryptocurrency enthusiasts, Kumar Gaurav, Cashaa CEO and co-founder, believes that is fundamentally wrong to accuse all app coins as ponzi schemes.
Gaurav told CoinTelegraph:
“It's wrong to declare that all App coins are Ponzi schemes because the entire cryptosystem is based on such network trust and its value stays until the investors and traders have faith in the network. Using existing coins or creating a new coin could be a design scheme by the platform architect.”
While it is difficult to label and to describe the legitimacy of some app coins, users or investors are advised to thoroughly read through the white paper of the app coin and understand its technical and economical limitations before riding its hype train.
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