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One Cryptocurrency To Rule Them All

Why most cryptocurrencies could end up worthless

My current hunch is that there will be One Cryptocurrency To Rule Them All. This means that out of all the cryptocurrencies that exist today, all but a handful will be worthless within 5 years, with just one capturing most of the value. The top cryptocurrency could be worth over $1 trillion, maybe as much as gold at around $6 trillion or $7 trillion. It might be the only cryptocurrency with meaningful value. Alternatively, there might be a few others that are valuable, but far less so than the main cryptocurrency.

Other cryptocurrencies could specialize in different use cases, e.g. a private cryptocurrency on a private blockchain for internal use by banks and financial institutions, like what Ripple is supposed to be. Or they could be cryptocurrencies that try to compete with or substitute for the main one but gain little traction.

Currencies are natural monopolies because the usefulness of a currency increases with the number of people who are using it. A currency used by one person is useless, and a currency used by only a few thousand people is still pretty much useless. New cryptocurrencies will struggle to gain traction against an incumbent used by millions of people.

My current bet is that the One Cryptocurrency To Rule Them All will be Ethereum. Bitcoin is inherently limited by its lack of general programmability (or Turing completeness). It only has one use case whereas Ethereum has potentially unlimited use cases. Bitcoin also has a developer community with weak leadership and infighting between Bitcoin and Bitcoin Cash.

Ripple uses a centralized private blockchain, so it’s not a serious contender for the top spot. Bitcoin Cash and Litecoin have fewer advantages over Bitcoin than Ethereum does, so they are less likely than Ethereum to overtake Bitcoin. Dogecoin is essentially a joke cryptocurrency and it’s among the top 50. That gives you an idea of how low the bar is set.

While the aggregate market value of cryptocurrencies will go up thanks to the one big winner, most individual cryptocurrencies will be a total loss. This is why, by default, I’m skeptical of all ICOs and small cryptocurrencies that attempt to compete directly with Bitcoin and Ethereum. Chances are they won’t make it.

Disclosure: I own Ether.

Edit (Jan. 13, 2018): When I originally wrote this post, I overlooked the fact that some of the 1,400 cryptocurrencies are really special-purpose cryptoassets used in decentralized apps, rather than general-purpose currencies meant for the same range of use cases as fiat currency. One example is Filecoin. Currencies are natural monopolies. However, a huge number of decentralized apps could one day exist on platforms like Ethereum, just as there are a huge number of centralized apps on platforms like iOS and Android. I therefore removed my original reference to the 1,400 cryptocurrencies and their market value.

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