How Crypto Ecosystems Grow
If you’ve been researching long enough, you’ve probably heard the term or expression “crypto growth” or “blockchain expansion,” but you may be left with questions about what exactly this means.
Cryptocurrency ecosystems grow as more blocks are added to the blockchain, the community using it grows, and developers add more capabilities or dApps. How a certain ecosystem will grow or expand varies widely depending on its consensus mechanism as well as the setup of the native token. Read on to learn more about how crypto ecosystems grow.
1. Mining
Mining is a term uniquely applied to cryptocurrencies based on the proof-of-work consensus mechanism. While many blockchains have moved away from this costly method of coming to a consensus, some of the most popular blockchains, like Bitcoin, still run on it.
Bitcoin grows every time a new block is “mined,” which is a fancy word that means added to the blockchain. If you know anything about crypto, you know that a block is made up of user transactions. As such, the Bitcoin ecosystem grows with every single transaction.
Of course, Bitcoin has a ceiling, meaning mining will stop eventually. But that’s an explanation for another time.
2. With Community Growth
Community growth is a major form of expansion for cryptocurrency ecosystems, especially those built on the proof-of-stake consensus mechanism like Ethereum. On these ecosystems, transactions are backed by other individuals staking their tokens in a token pool. As such, when more people join and choose to stake their tokens, the blockchain expands.
Community growth doesn’t just help proof-of-stake blockchains grow, as it pretty much can help any blockchain except for those based on proof of history. Think of it this way, even with Bitcoin (proof-of-work) the ecosystem grows when a new person joins and starts making transactions, thus increasing the need for additional mining.
Community growth can be achieved in numerous ways, and the one that will work best for any particular blockchain will depend on the blockchain’s use and reputation. Hackathons, airdrops, conventions, and social media groups are all good ideas for boosting a blockchain community.
Unfortunately, there is a dark side to this community-based growth as it can also prop up scam tokens and other poorly run projects—such as the ill-fated FTX token, which only grew because more and more people began using the platform.
3. With Development
Of course, not all blockchains are created for the same purpose, and many that are designed to perform certain functions grow as the platform is developed further.
Further development typically includes the addition of new capabilities, as well as developments that increase the speed of transactions, drawing more businesses to choose the blockchain for their company. Typically, it is blockchain as a service platforms that benefit most from increased development.
We do have to acknowledge, however, that further development doesn’t always grow an ecosystem. If your cryptocurrency has no followers, it doesn’t matter how much you develop—they won’t come. So, before you sink too much capital into blockchain growth, ensure you take the time to sell your product to current users first.
There is an argument that “if you build something useful, people will come,” but because the competition in the cryptocurrency world is so steep, we urge you not to rely on this as a tactic for meaningful growth.
4. Business Partnerships
Just like in the fiat world, business partnerships can boost cryptocurrency ecosystem growth. In fact, this is why so many stablecoins are currently seeing an increase in use as banks choose them for business opportunities.
That being said, not all blockchains have business partnerships as an option. However, if your cryptocurrency helps with payment processing, supply chain tracking, or is a stablecoin, there is a chance that there are some business partnerships out there for you.
5. Be Reliable
We hate that we have to say this, but so many blockchains launch and expect to immediately have an influx of customers. Then, when they don’t, they find they don’t have the money to hunker down for the long term.
Unreliable blockchains that shutter, are subject to hacks, and those revealed to be scams are far too common, and people approach all crypto purchases with caution. As such, they are unlikely to invest in a project that hasn’t shown itself to be reliable.
As you launch your plan for the growth of your ecosystem, ensure you allow time for people to try your product, think, and return at a later date. This means estimating conservatively and ensuring you have the costs for security, audits, and more set aside for the long term.
We know that no new business wants to hear this, but it’s sadly the truth and a necessary aspect of long-term crypto ecosystem growth.
6. Real-World Use Cases
Although NFTs had their heyday, unfortunately, as the economy tightens, people turn towards investment options that can help them in a real-life emergency when needed. This means it is probably not time to launch your new NFT collection.
Of course, fun NFT collections like Cryptokitties serve a purpose, but it just isn’t one you can plan any growth based of off. These protocols are constantly inventing new NFTs, which, though that is growth of the blockchain, is not guaranteed growth of the ecosystem.
If you have a blockchain that previously didn’t have a real-world use, it’s time to find one. We know that is a tall ask for NFT developers, but, in general, we expect you’ll struggle to sell anything that doesn’t have a real-world use in the long term.
Overall, whether you are the creator of a cryptocurrency ecosystem or simply curious, cryptocurrency ecosystem growth relies heavily on mining, development, community, reliability, partnerships, and real-world use. While we know not all of those are possible for every blockchain, it’s important to sit down and plan what will and will not work for you. Of course, above all else, you need to be ready to bunker down and survive a cryptocurrency winter—because you never know when one may come your way.
