The paradox of alt coin currencies

[84AJ]

Bitcoin is valuable because of its scarcity. The limited number of coins and the fact that it is controlled by software and agreement of the miners, unable to be manipulated by any government is what makes Bitcoin valuable. Trust in this is what drives Bitcoins value and growth.

However, recently there has been a lot of growth in competing crypto currencies, with people looking to invest in a cheaper option with more growth potential, to the point that the price of Bitcoin has been affected. This ammounts to uncontrolled inflation of the total number of crypto currencies undermining the scarcity and undermining the entire premise that gives crypto currencies value. As the number of crypto currencies approaches infinity the value of all currencies approaches zero.

The only moat is acceptance of one currency and not others, but with the establishment of exchanges this is defeated. It would be like using amex or visa or MasterCard, but the number of currencies is not limited by the system like the number of payment systems because the conversion can be completed by the user prior to the transaction. I see no real moat to stopping uncontrolled inflation by an ever increasing  ecosystem of crypto currencies.

There will always be an incentive to create a new currency every few years so that those new to the market can be an early adopter, rather than push up the price of an existing currency and make those who came before richer. Cryptos will become a payment system like paypal and not a store of wealth. Value will be stored in fiat currency and converted at point of transaction.

Therefore the growth in alternate crypto currencies paradoxically dooms all to worthlessness.

[Ix]

It doesn't doom "all" to worthlessness, it just dooms the ones that think that the idiotic notion of "scarcity" matters.

[84AJ]

Economics 101 says it does. Thats why the difficulty needs to increase as the hash rate increases

[generalizethis]

The talent pool of devs is the limitation. I want the best available, the most secure network, and if it does something different, even better. Very few coins have anything new to offer and are copy/pasting code from more developed coins--they are always playing catch-up. Innovation is limited and the talent tends to pool to those projects that are unique or doing something new or better.

[84AJ]

It dosent take a genius to copy paste and promote to the next generation who dont want to drive up the price of existing coins,
 ad infinite. As new coins grow they offer better returns and the existing ones suffer inflation.

[1kings]

Investors would always seek good opportunities, either in the short term or in the long term. Any coin that offers this would draw funds. BTC is going out of reach for small funds holders.

[howardhoward]

The paradox will remain - altcoins keep growing in value even if microscopically - because there's always going to be someone new entering it. Also as more people enter, the chances that people lose access to coins increases, thus recycling the value into the remaining.

[84AJ]

Only if the rate of money coming in is greater than the number of coins. There is a finite number of people and an infinite possible number of coins. When people realise this they will exit driving a crash

[lumeire]

Bitcoin is valuable because of its scarcity. The limited number of coins and the fact that it is controlled by software and agreement of the miners, unable to be manipulated by any government is what makes Bitcoin valuable. Trust in this is what drives Bitcoins value and growth.

Actually it's the Blockchain tech that makes BTCBTCBTC valuable, and all the possibilities that can be developed from it.

It doesn't doom "all" to worthlessness, it just dooms the ones that think that the idiotic notion of "scarcity" matters.

This notion actually makes BTCBTCBTC and most of the alts more of a speculator's tool than something with true value.

[84AJ]

The blockchain tech is useful but not interently valuable. If it was changed so that anyone could add as many coins to the network as they liked the value of the coins would be nothing.

[generalizethis]

It dosent take a genius to copy paste and promote to the next generation who dont want to drive up the price of existing coins,
 ad infinite. As new coins grow they offer better returns and the existing ones suffer inflation.

My point is that those coins will be run by non-geniuses. I'm not betting on morons just because they may luck out on the pump and dump circuit. If anything, more coins means big names continue gaining ground as they at least have brand recognition, much like blue chip stocks.

[Ix]

Economics 101 says it does. Thats why the difficulty needs to increase as the hash rate increases

A non sequitur to be sure. You pointed out yourself that digital currencies are essentially infinite, so what scarcity is there? None. (modern) Money is not a tangible resource, it is only a medium of exchange. Scarce resources will find their price on a supply and demand curve. Money sharing the same "scarce" property distorts the ability to find a price. There simply needs to be enough money - a stable or targeted supply.

[84AJ]

Thats my point of the paradox. They undermine the premise.

The supply of modern money is controlled by central banks to control the rate of inflation to promote investment and prevent hording.

[generalizethis]

Thats my point of the paradox. They undermine the premise.

The supply of modern money is controlled by central banks to control the rate of inflation to promote investment and prevent hording.

Your point hasn't materalized since 2008 and the earliest, most cloned coin is still the largest market cap, so you are probably missing the obvious.

[84AJ]

Because Bitcoin has the name and was growing fastest. The others were insignificant and likely to be fizzle out. But now they are starting to affect the price of Bitcoin. It is this increasing competition that brings into play the paradox making all crypto curriencies an unsafe investment driving people to pull their wealth out. Their growth is a threat to their growth.

[Ix]

Thats my point of the paradox. They undermine the premise.

The supply of modern money is controlled by central banks to control the rate of inflation to promote investment and prevent hording.

What premise? That a pyramid-like distribution is the only way to have a successful cryptocurrency?
It can't be that bitcoin is valuable because it is scarce, because that is certainly not true. Scarcity does not make something valuable, only demand does.

[84AJ]

Limited supply AND strong demand

[generalizethis]

Because Bitcoin has the name and was growing fastest. The others were insignificant and likely to be fizzle out. But now they are starting to affect the price of Bitcoin. It is this increasing competition that brings into play the paradox making all crypto curriencies an unsafe investment driving people to pull their wealth out. Their growth is a threat to their growth.

We are already seeing what? Bitcoin didn't drop from 90% of the total market value until POS and ETH arrived, which are innovations, not clones.

I'll believe your paradox is valid when I see it--my hunch is that Bitcoin will be replaced atop the leaderboard by disruptive innovation.

[shandi albert]

Yes, it is natural that this item is increasingly scarce and more expensive. This is economic logic alone,Bitcoin price spikes by more than 1,300 percent make many investors begin to consider Bitcoin for their investment.

[rezurect]

While you have a point, there are also altcoins who do bring something else to the table, things that bitcoin isn't able to do. At least not yet.

[Ix]

Limited supply AND strong demand

Your qualifications are meaningless arbitrary.

[BitcoinHodler]

it is something like penny stocks! but an easier version.
you can always create a tiny shot and call it a company and sell shares. people will buy it and pump an dump it because it is a small market and it has extremely high risk but out of all those shares there is may only be one Apple or Microsoft,... coming out.

and everyone already knows it. and at some point it becomes pretty obvious no matter how much make up they put on their projects, it will still stink when they produce something with lots of faults.
and if someday someone creates something good, it will grow on its own like how bitcoin does and wouldn't need lies, exaggeration and lots of spamvertisement to get it done.

[84AJ]

I believe they are innovations and better. Bitcoin is the myspace of cryptos but picking the facebook over the G plus is more difficult.

POS and ETH are likely to be disrupted too by the next best thing. This makes it possible / likely that their future value will decrease. Tbis fact makes investing less inviting.

[/quote]

We are already seeing what? Bitcoin didn't drop from 90% of the total market value until POS and ETH arrived, which are innovations, not clones.

I'll believe your paradox is valid when I see it--my hunch is that Bitcoin will be replaced atop the leaderboard by disruptive innovation.
[/quote]

[alyssa85]

It's a free market. As soon as bitcoin started having problems in 2013, the alt market exploded.

You can try to force bitcoin to be the "One True Coin" by ensuring it's not on the exchanges etc - but you can only succeed if you have a Soviet style system where they ban everything else. In a free market, if people want an alt, and your exchange has banned it, they'll just go to another exchange, or start an exchange themselves to list their alt.

I get why some bitcoiners are alarmed about how many alts there are. But people are buying them because they offer stuff bitcoin doesn't.

[Bob-Bit]

I dunno. There might be 5 billion people in the world, but there's only one Ozzy Osbourne. It doesn't matter if China's population increases by another 2 billion people, there will still only be one Ozzy Osbourne. There could be impersonators, but everyone knows which one is the real Ozzy. He's the real deal. The only one. Can't be copied, only imitated, and you know what they say, imitation is the most sincere form of flattery. Ozzy is Bitcoin. You can have Ronnie James Dio, and he's a great singer, but he's not Ozzy. If you want Ozzy, you pay a scalper for a sold out ticket. Premium price. No deals.

[Diggity94]

My point is that those coins will be run by non-geniuses. I'm not betting on morons just because they may luck out on the pump and dump circuit. If anything, more coins means big names continue gaining ground as they at least have brand recognition, much like blue chip stocks.

THIS

[d5000]

Bitcoin is valuable because of its scarcity. The limited number of coins and the fact that it is controlled by software and agreement of the miners, unable to be manipulated by any government is what makes Bitcoin valuable. Trust in this is what drives Bitcoins value and growth.

[...]the growth in alternate crypto currencies paradoxically dooms all to worthlessness.

Think a bit different about it: A cryptocoin can be viewed as a "share" of the ecosystem surrounding it.

For example, one Bitcoin is a share (1/21000000) of the value generated by all merchants and service providers that accept them, and also, to a lesser extent, "believers" and "HODLERs" - those that simply accept the coin to be a store of value. (Hodlers may not generate real goods or services, but they are essential for marketing).

The consequence of that "cryptocurrencies-are-ecosystems" model is: If there is no ecosystem, then there is no real value. Most altcoins do not really have an ecosystem. They only are used for speculation. They may be "valuable" in terms of price sometimes, but only a few ones really have people behind them that are willing to "back" the coin if it faces problems. So most get pumped, dumped and disappear. They don't affect "scarcity" of other cryptocurrencies.

The real scarcity is the scarcity of coins that are able to build an ecosystem around them.

[84AJ]

Bitcoin is valuable because of its scarcity. The limited number of coins and the fact that it is controlled by software and agreement of the miners, unable to be manipulated by any government is what makes Bitcoin valuable. Trust in this is what drives Bitcoins value and growth.

[...]the growth in alternate crypto currencies paradoxically dooms all to worthlessness.

Think a bit different about it: A cryptocoin can be viewed as a "share" of the ecosystem surrounding it.

For example, one Bitcoin is a share (1/21000000) of the value generated by all merchants and service providers that accept them, and also, to a lesser extent, "believers" and "HODLERs" - those that simply accept the coin to be a store of value. (Hodlers may not generate real goods or services, but they are essential for marketing).

The consequence of that "cryptocurrencies-are-ecosystems" model is: If there is no ecosystem, then there is no real value. Most altcoins do not really have an ecosystem. They only are used for speculation. They may be "valuable" in terms of price sometimes, but only a few ones really have people behind them that are willing to "back" the coin if it faces problems. So most get pumped, dumped and disappear. They don't affect "scarcity" of other cryptocurrencies.

The real scarcity is the scarcity of coins that are able to build an ecosystem around them.

Yeah exactly. However, the bitcoin share of 1/21000000th is dilluted when other coins 'plug in' via an exchange. The bitcoin is now 1/(21000000+others)

When the total value of the others was low the effect on the value of a bitcoin was negligable. The total size of the ecosystem attached to Bitcoin was growing so was its value.  Now that there is considerable interest starting to generate for investment in other coins the 'other' is starting to have a dillution effect. Once investors realise this they will realise it is not as safe a store of wealth as they previously thought, prompting them to withdraw from crypto currency and the value to crash.

Cryptos will still go on as a transaction option but not as strong as an investment option.

I admit that there is a bit of a moat provided by transaction fees and the ability of smart people to develop a viable user base. That is a lot less secure than the limited number of coins.

The developer talent is scarce now and holding back the rate of new coins but as cryptos become more established this will grow.

[84AJ]

It's a free market. As soon as bitcoin started having problems in 2013, the alt market exploded.

You can try to force bitcoin to be the "One True Coin" by ensuring it's not on the exchanges etc - but you can only succeed if you have a Soviet style system where they ban everything else. In a free market, if people want an alt, and your exchange has banned it, they'll just go to another exchange, or start an exchange themselves to list their alt.

I get why some bitcoiners are alarmed about how many alts there are. But people are buying them because they offer stuff bitcoin doesn't.

Im not trying to force Bitcoin to be the one true coin. Im just commenting on the effect of speculative investors undermining the value of what they are investing in  because if the future value could go down even if altcoin market grows then no coins are as good of an investment and their value should fall as people figure this out

[d5000]

Yeah exactly. However, the bitcoin share of 1/21000000th is dilluted when other coins 'plug in' via an exchange. The bitcoin is now 1/(21000000+others)

I don't think that another coin can "plug in" that easy if it hasn't built an ecosystem, too. ETH and BCH are good examples, with slightly different characteristics. They are able to attract significant money - in the case of ETH because of the smart contract/ICO ecosystem, and in the case of BCH, because they attracted the "big blocker" part of the Bitcoin community (and that's a pretty big fraction, about 25%-30%, I estimate) and the enterprises that are affiliated to it (Coinbase, Bitpay ...).

Other coins can "plug in" for short-term speculation, that's true. But they would never take significant investments away from Bitcoin and the "ecosystem-cryptos".

And I also don't think that it would take away investment from the "crypto economy" as a whole. The only exception: if a cryptocurrency overheats, like Bitcoin did in the past months. Then there will be lots of disappointed investors that will get out. But that happens with every asset that overheats, and has nothing to do with "dilution" by altcoins.

Cryptos will still go on as a transaction option but not as strong as an investment option.

More usage as a transaction tool would be good for value ... because if it's used for transactions, then it has a connection to the "real economy" and would be more stable. What would be harmed is only the get-rich-quick fraction.