How Ethereum and Bitcoin Compete … and Cooperate
The total amount of wealth in the world is is growing.
And so is the number of stores of wealth. Stores of wealth include real estate, stocks, bonds, patents, and currencies.
In an effort to maximize their future wealth, people are constantly moving wealth from one container to another. This is not a zero-sum game . Some containers decay predictably (cars,) while others have grown in their ability to store wealth (NY real estate, Apple stock, bitcoin.) In addition, transferring wealth from one container to another serves to decrease total wealth. Essentially, containers compete for the wealth of humans.
Within this world of competition there are allegiances of cooperation, in which the wealth of one container increases simply because it is similar to another container that received wealth.
Examples:
- A house that sells for double its asking price causes the wealth of nearby houses to increase.
- A ‘dot com’ that has an ipo for tens of billions causes the value of other dot com’s to increase.
- A peer-to-peer currency that goes up tenfold in value, causes the value of other peer-to-peer currencies to increase.
In the case of bitcoin and ethereum, prices show very rough dependence on the long term (see below), despite having negative correlation over some short terms. Here are the one-year market caps graphs for ethereum:
and bitcoin:
