Let me be the first to say that Bitcoin was and is a true ground breaker, a great coin, and deserves a lot of credit for popularizing both cryptocurrency and the concept of the blockchain. Although I am generally optimistic about Bitcoin, I have learned of a term called "Bitcoin Maximalism" which takes this optimism to a new level. Maximalism differs from simply supporting Bitcoin in that it believes that Bitcoin will provide everything that investors want in a cryptocurrency and eventually become a monopoly cryptocurrency (Frankenfield, 2018). Although I do believe Bitcoin will continue to play a dominant role, I believe that the crypto landscape will continue to support a variety of coins that each fulfill different purposes.
Arguments in Favor Of Maximalism
I don't want to casually dismiss the Maximalist position because it does have some sound logic and economic theory behind it. As the first cryptocurrency, Bitcoin has what is known as a "First Mover Advantage." In business, the first company to launch a new product has time to gain market share and build a loyal following without facing competition from competitors (Pearson, n.d.). As the most well-known cryptocurrency, Bitcoin also has the advantage of a "Network Effect." Basically, the network effect means that something becomes more valuable as more people use it. Think about email or cellular phones. If you are the only one with a mobile phone, it is not very useful for calling people. If 10 of your friends have a mobile, it becomes a bit more useful, but if 90% of the world has a mobile, then having a mobile phone becomes almost a necessity.
The same applies to cryptos and money. If you are the only one that holds a certain crypto, then it is worthless as a form of money because you can not exchange it for anything. If 10 of your friends hold that crypto, you can at least trade among yourselves, and if 90% of the world holds that crypto, then you can use it to trade with almost anyone you meet. As the most popular crypto, Bitcoin has a huge advantage because it is accepted by more people than any other crypto.
Arguments Against Maximalism
Despite this, I believe that there will always be a variety of cryptocurrencies operating along of Bitcoin or maybe even replacing Bitcoin someday. While it is true that being a "first mover" can help a business (or currency) gain a following, it is not a guarantee of success. Gillette was a first mover in the safety razor business, and eToys was a first mover to sell children's toys online (Lanzolla, 2014). Although both companies were first movers in their respective industries, their success could not have been more different. Gillette is now a household name, but eToys became bankrupt within four years of launching (Whitefoot, 2017). While being first can certainly help, other factors such as timing, the state of the economy, customer attitudes, and competitors all play a role as well. Applied to cryptos, we could say that transaction time, privacy concerns, and network fees also play a role.
In some cases, NOT being a first mover can also be advantageous. New coins can take advantage of advances in technology and cryptology that were not available when earlier projects were created. Consider the evolution from proof of work (Bitcoin) to proof of stake (Ethereum) to delegated proof of stake (EOS). I'm not necessarily saying that DPoS is better than PoW, but I am saying that the designers of EOS could at least look back at the first movers and learn what worked well and what did not. "Standing on the shoulders of giants" is a phrase that means that new successes are build upon past successes. Bitcoin was and is a huge success, and future coins will be able to learn from Bitcoin to continually change and improve.
I do think that Bitcoin's strong network effect will help it be successful, but it will not necessarily lead to a monopoly. If we think of traditional money, we see that there have usually been different forms of money that are in circulation at the same time. Before the United States gained its independence, the colonists used a variety of English, Spanish, Portuguese, and French currency. Even though the Spanish Dollar was the most trusted and most well-known coin, that did not stop the colonists from using other money (or even making their own). Even decades after the U.S. gained its independence and the power to create its own currency, it continued to produce both gold and silver coins at the same time.
Why did the U.S. not just make a decision and choose silver or just gold? There were a variety of political and economic reasons for this choice, but one reason is that gold and silver both had different uses. Gold was more valuable and useful for making large payments, while silver could be divided into smaller quantities and used for making change or smaller payments. For even smaller amounts, copper pennies were used. The point here is that different types of traditional money had different uses and different strengths and weaknesses but were still used alongside each other. I believe that the future of cryptocurrency will be similar. Even today, we see that different cryptos are designed to fulfill a specific purpose. Bitcoin may be the dominant cryptocurrency at the moment, but it can be slow. Transaction times can range from a few minutes to several hours depending on network congestion (Buchko, 2018). This may be fine for some uses, but someone who needs to complete a fast transaction may want to take advantage of Nano's transaction time of .27 seconds. A user wanting to make a private transaction might want to use Monero, and someone sending remittances abroad might choose to use Stellar Lumens.
As crypto use increases and becomes more mature, I do believe we will see a smaller number of competing coins. There are a lot of reasons why Bitcoin will probably remain one of these top coins well into the future, but I don't think it will ever become a monopoly coin that replaces all other cryptos. Throughout history, there have always been various forms of money that have each served a different purpose, and I believe crypto will follow the same path as well.
Buchko, S. (2018, August 9). How long do Bitcoin transactions take? Retrieved from https://coincentral.com/how-long-do-bitcoin-transfers-take/
Frankenfield, J. (2019, July 7). Bitcoin maximalism. Retrieved from https://www.investopedia.com/terms/b/bitcoin-maximalism.asp
Lanzolla, F. S. G. (2014, August 1). The half-truth of first-mover advantage. Retrieved from https://hbr.org/2005/04/the-half-truth-of-first-mover-advantage
Pearson. (n.d.). First-mover advantage. Retrieved from http://www.pearsoned.co.uk/Bookshop/article.asp?item=312
Whitefoot, J. (2017, March 22). Companies that died and survived the Dotcom Bubble. Retrieved from https://www.lombardiletter.com/companies-that-died-and-survived-the-dotcom-bubble/9106/
Title: Aleksi Räisä