The paradox of alt coin currencies

[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.

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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.
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[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.