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Bitcoin: Winner Takes Most or Winner Takes All?

Exploring market share capture in cryptocurrencies.

By Misir Mahmudov and Yassine Elmandjra

Part I: The Quest for a Global Money

Before the rise of any universal monetary standards, barter was a common means of direct exchange. Subject to the problem of coincidence of wants, civilization came to understand the impracticability of barter. In an attempt to provide a solution to this impracticality, indirect exchange emerged and was made possible with intermediary goods such as seashells, glass beads, and cattle. Over time, modern technologies (like mass utilization of hydrocarbon fuel energy and importation) considerably advanced manufacturing and transportation, making the world increasingly connected. Exploration and intercontinental trade became more prevalent, and the standard traits of money evolved to accommodate a more global context. This ultimately undermined existing media of exchange, as the lack of absolute scarcity and low costs of production could not provide money guarantees and were exploited by increasingly advanced technologies. Specifically, outside groups learned how to easily reproduce region-specific forms of money. Unaware of the absolute abundance of their money, nations suffered severe wealth dilution. [1]

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Gold / Silver Ratio https://www.goldbroker.com/news/gold-and-silver-correlation-988
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Currencies… Currencies Everywhere.

Today, there exists over 180 currencies across 195 countries. The reason for such an anomaly is simple: there is no free market for currencies. Currency markets have been restricted by governments in order to maintain financial control. There are numerous laws and institutions set up for the exact purpose of inhibiting a free market monetary system. This includes enforced borders, legal tender laws, capital controls, state decrees, seigniorage privileges, local control, local monopolies on violence, debt extinguishing laws, capital gains taxes, implicit bailout guarantees for banks, central banks and dozens of other artificial barriers. This type of legislation forces people around the world to keep using inferior currencies under the threat of direct or indirect violence or repercussions. The centralized nature of the financial system and flows allows governments and institutions to impose these restrictions and greatly limit people’s ability to express their true demand for superior, more competitive currencies. Fiat money’s soundness is now dependent on an authority’s ability to enforce legitimate monetary policy. People living in countries like Venezuela are unable to reliably store their wealth due to hyperinflation induced by irresponsible monetary policy and limited availability of more reliable currencies due to strict capital controls. In addition, as the only form of legal tender, citizens are obliged to pay taxes in and accept the inferior currency in exchange for goods and services. The more competitive currencies, like the dollar, that do make their way into countries like Venezuela, are sold at large premiums as the high demand is not met by the controlled supply. Until recently, citizens of countries like Venezuela had no way to opt out of this system and were forced to adopt easy money.

Enter Bitcoin: The Experiment That Allows Us To Experiment

In 2008, Satoshi Nakamoto proposed Bitcoin, an alternative financial system free from top-down control. Bitcoin, “a system for electronic transactions without relying on trust”, was not created to fit existing governments and financial systems.

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https://medium.com/@danhedl/planting-bitcoin-56bd1459cb23

The Rise of Cryptocurrencies

Cryptocurrencies are first and foremost money. With the exception of a few, ‘crypto-tokens’ are either clearly intended to be money or are intended to be money but are obfuscated by technological jargon. As Bitcoin’s community grew and its prices rose, other cryptocurrencies (often referred to as altcoins) began to hit the market. Many of these cryptocurrencies were built in an attempt to iterate and improve upon Bitcoin’s “fundamental design flaws” and “limited functionality”. In 2018, ten years after Bitcoin’s inception, there are now over 2,000 cryptocurrencies.

Cryptoasset analyst at ARK Invest

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