Cryptocurrency PK Bitcoin, who really should be eliminated

Some people see cottage coins as a once-in-a-lifetime opportunity, “like Bitcoin was a decade ago.”

Cryptocurrency PK Bitcoin, who really should be eliminated

The dominant Bitcoin market cap share still hovers in the 40-45% range, meaning its market cap represents less than half of the total value of all cryptocurrencies, and the discussion of dominance is as controversial as ever.

But this one is perhaps even more relevant than the 2017 bull market, as there is a gradual sense that cottage coins seem set to be different. In some cases, cottage coins and their protocols are seen as superior to bitcoin, and some are even seen as once-in-a-lifetime opportunities, “like bitcoin was a decade ago.”

However, all is not as simple as black and white, and market opinions are divided. In this article, I would like to present some of my thoughts and data that investors, especially day traders or short-term speculators, may want to pay attention to and think about.

The Rise of Cryptocurrency vs Bitcoin
Based on Bitcoin’s disruptive effects and its attractive ROI in the early stages of network adoption, its launch in 2009 spurred the creation of thousands of cottage coins. Each cottage coin was created, without exception, to capture Bitcoin’s market share or create a new niche.

As the market has evolved, the arguments between Bitcoin and these cottage coins have changed. LiteCoin, Dash, BitCash, and DogCoin – all of these are essentially direct copies of the Bitcoin code with a few tweaks to block size, issuance rate, total supply, confirmation time, etc. as an improvement or replacement for the Bitcoin protocol.

The rise of ethereum and smart contract functionality has opened the door to a new world of possibilities. The field has experienced explosive growth around utility tokens, stablecoins, asset tokenization, governance tokens, leveraged tokens, exchange tokens, irreplaceable tokens, and so-called terrier coins.

More importantly, with the emergence of Decentralized Finance (DeFi), we have seen unprecedented financial innovation and democratization of power and access to the otherwise opaque world of cryptocurrency. the DeFi platform allows anyone to exchange tokens, trade, lend or borrow on a peer-to-peer basis. In addition, users are able to pledge funds in an automatically managed liquidity pool and receive interest rates in return of up to 500% (APR) or more.

But it’s not just new tokens and financial instruments that are appearing on the scene. The evolution of cryptocurrencies is also an innovation at the system architecture level, with different public chains using different methods to secure the network and maintain the integrity of transaction records.

Bitcoin is known for its use of the proof-of-work (PoW) consensus algorithm, which requires hardware to perform complex and energy-intensive computational tasks. As the network grows and the difficulty of these calculations increases, miners need to continually upgrade their hardware and find cheaper sources of energy to make a sufficient profit margin to compete.

Other network protocols do not require hardware and rely on mechanisms such as Proof of Stake (PoS), Delegated Proof of Stake (DPoS), Proof of Importance (PoI), Nominated Proof of Stake (NPoS), Byzantine Fault Tolerance (BFT), Tangle, or a combination of these.

The chart below shows the distribution of the use of these protocols among the top 10 cryptocurrencies each year from 2013 to the present. It is clear that the debate is centered between PoW and PoS.

Cryptocurrency PK Bitcoin, who really should be eliminated

In such a changing environment, and with so many different use cases, one might wonder if the growth of these alternatives will eventually lead to Bitcoin eventually becoming redundant.

From Market Dominance to Market Redundancy?
Needless to say, it is true that some would argue that Bitcoin is a primitive blockchain technology that has become obsolete and that newer protocols are now far superior in most respects. Others see Bitcoin as the ultimate store of value, the ultimate reserve currency needed for the eventual settlement of all positions. The former claim to diversify, while the latter insist on discipline, consistency and focus.

In this context, we should remember that Bitcoin is not only followed, but has also had a series of forks, including Hashcash and Bitgold. the main difference between them, and the reason for Bitcoin’s ultimate success, has to do with its truly decentralized nature and complete ex-counterparty risk.

In any centralized setup, users of the currency must rely on trusting a central entity to manage the money supply, ensure proper collateralization, or prevent double spending, and the growth of the asset itself is inherently risky to its own survival – which could be corruption and greed, external pressure, or pure evil.

“In any centralized system, the growth of assets breeds inherent risks to its own existence.”

One thing to note is that as of today, the cryptocurrency space has hardly faced any major stress shocks. If anything, inflationary expectations and reduced purchasing power, as well as the current public health crisis in the world, have provided the perfect breeding ground for all types of unregulated and seemingly lucrative cryptocurrencies to flood the market and attract capital.

But how will these cryptocurrencies respond in the face of regulatory crackdowns, bans or higher-level cyberattacks? What happens if cryptocurrencies are determined to be a threat to national security?

How will it end?
The prospect of bitcoin going to zero is unrealistic.

True, failed and MySpace is no longer what it once was, but both still exist and have brand value. What is likely to happen, however, is that Bitcoin may go relatively dormant given other more lucrative opportunities, or in the absence of the extreme socioeconomic conditions that are considered to be driving Bitcoin adoption. While still operating, its price will cease to be compelling, volatility will diminish, and, except for a few hardened extremists, Satoshi Nakamoto’s vision will be as forgotten as some other wonderful ideas, such as Esperanto.

Such an outcome seems unlikely. Especially if we consider that many cottage projects are driven by the same core principles as Bitcoin. Unless some catastrophe pushes humanity back to the days of barter, there is no reason to believe that interest in digital currencies will decline for at least a few hundred years.

The counterpoint to the idea that Bitcoin will somehow fade into obscurity is the argument Dan Held lays out in his article on the mass demise of cottage coins. The argument is basically that a massive screening – such as a major sovereign-led attack on cryptocurrencies – would wipe out most if not all cryptocurrencies, except for Bitcoin, because there is no single point of failure in the real world. This argument is powerful, but it is contingent on such an event actually occurring.

In addition, Leo Weese, who is actively involved in the expansion of the Lightning Network, shares the idea that the process of convergence of standards could play out even without a severe crackdown. This argument argues that it makes no sense for so many identical protocols and tokens to exist for the same purpose.

In his view, Bitcoin may absorb most of the capital in cryptocurrencies, but protocols such as Ether or other smart contract platforms may retain value and use, but only by virtue of their differentiating features. From this perspective, Bitcoin’s dominance rises with the gradual development of the first and upper layers, such as the Lightning Network, while alternative protocols might be seen as lucrative experimental sites, with some mature features eventually making their way into the dominant network in the form of upgrades or sidechains.

What we need to recognize, however, is that as the dynamics of game theory operate and we continue to see widespread adoption of Bitcoin as a truly decentralized global monetary network with unparalleled security, we may also continue to see more experimentation and innovation in the cottage coin space. If Bitcoin develops into a base layer currency with global reserve status, or at least serves as a fundamental native token for the Internet, much like equity is built on a dollar-based economy, then it makes sense for the cottage coin market to exist to capture business growth opportunities.

That said, the confidence of Bitcoin-only investors in Bitcoin’s viability and its dominance of the cryptocurrency market is not an empty one. While Bitcoin has been undefeated so far as the number one mover and the number one cryptocurrency by market cap, only a few early cottage coins can perform well over a longer period of time.

This table shows the ranking of the top 10 cryptocurrencies over the last 8 years, as well as the current ranking. This table should also help people rationalize the current market expectations for the promise of new projects.

Cryptocurrency PK Bitcoin, who really should be eliminated

While the main areas still need more attention, we can see that the top 4 cryptocurrencies are categorized as follows.

Global reserve assets (BTC)
Smart contract platform tokens (ETH)

Stable Coin (USDT)

Platform coins (BNB)

The other tokens in the top 10 and arguably each of them are vying in some way for any one or more of these major issues, including the layer 2 solutions that ultimately serve the layer 1 protocol.

The Future of Integration
For many in this space, who represent over 50% of the cryptocurrency market cap, it seems premature to abide by the biggest strategy regarding Bitcoin. It is fair to say that as Bitcoin continues the course of its history, it is surrounded by exciting dogcoins, high-performance super-protocols, and compelling artwork. Even seasoned pure bitcoin investors may be tempted to speculate on these projects as a way to accumulate more bitcoins.

Ultimately, however, the survival of cryptocurrencies will depend on continued differentiation against the natural forces of market consolidation.

Boiling down to a single shared unit is a likely outcome for a global reserve asset, and for such a network, security and integrity are more important than speed or even cost/energy efficiency. Commemorative coins and charismatic community leaders may capture the imagination of the crowd for a while, but a strong HODLing culture will inevitably gravitate toward a single scarce asset that continues to stand the test of time.

For payments, stablecoins may have a long-term role, perhaps in the form of a central bank digital currency.

For smart contract platforms, the most important thing is interoperability – which is another way of saying a platform for all platforms and, by pure logic, will eventually be the only platform.

Platform coins are probably one of the few types of tokens that are likely to be around for quite some time, especially if they take the form of equity.

As long as the first layer of protocols requires such solutions, the second layer of protocols can thrive.

In short, if most of us agree that endless printing of money is unsustainable, then we can certainly agree that endless issuance of new coins is also unsustainable.

For those diversified investors with long-term exposure to crypto assets beyond Bitcoin, now would be a good time to identify thematic clusters for consolidation as there are over 10,000 cryptocurrencies to choose from. What are the great themes in cryptocurrencies, the major areas of innovation, and where are we seeing real points of contention and long-term growth?

Major screening events may not be on the horizon, but growth is always unbreakable. It’s practically inevitable.

Posted by:CoinYuppie,Reprinted with attribution to:
Coinyuppie is an open information publishing platform, all information provided is not related to the views and positions of coinyuppie, and does not constitute any investment and financial advice. Users are expected to carefully screen and prevent risks.

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