As more money flows into cryptocurrency, I think we'll see several high-profile altcoins collapse.
The principles behind this are:
- Cryptocurrency, in a mature state, is a winner-take-all game.
- Bitcoin is a clear leader, and will remain so unless a radical innovation propels an altcoin ahead.
- Bitcoin was 100x better than any pre-existing cryptocurrency. No currently-existing cryptocurrency is even 10x better than Bitcoin.
The corollary of these principles is that altcoins must promise significant improvements over Bitcoin to remain relevant. This usually takes the form of ambitious "technical roadmaps" or industry adoption initiatives. It can't just be incrementally better.
Altcoins can't just be incrementally better than Bitcoin to succeed.
As time goes on and Bitcoin infrastructure matures and absorbs lessons from other cryptocurrencies, it will become harder for an altcoin to catch up. Because of its lead, Bitcoin can afford to develop things over time in a technically robust way. People scoffed at the Lightning Network's slow roll out, as soon as it went live, the network grew virally because of pre-existing infrastructure. There's a virtuous cycle in Bitcoin improvements that doesn't exist in other altcoins. With regards to Lightning Network; Scalability used to be a differentiating factor, but now its a commodity because Bitcoin has it.
The same thing will happen to privacy sooner than later. There's critical momentum behind Bitcoin achieving high-level privacy, and this in turn destroyed the value of Zcash, Dash, Pivx and to a lesser extent, Monero (out of the four, Monero has the deepest privacy promises that Bitcoin hasn't delivered on – yet).
All of this puts an immense time pressure on altcoins to innovate radically over the improvements Bitcoin offers, and in a way that builds a moat around the type of applications that can be built around the respective technical advancement.
There is an immense pressure for altcoins to innovate radically over the improvements that Bitcoin offers.
Practically, this translates into altcoins promising massive improvements and industry partnerships. The people who want more conservative roadmaps are marginalized (this is totally logical). Some examples of altcoins walking way off the beaten path in an effort to do this:
- IOTA: uses a ternary number system
- Zcash: first widespread use-case of zk-SNARKs. This resulted in a significant bug that discredited the currency. Scarily, Zcash is a zombie currency; its default state is irrelevant unless it evolves even more, beyond using experimental zk-SNARKs.
- Tezos: self-amending Ledger, code written in OCaml. Despite being governed on-chain, legal battles have marred their experimental technology.
- Bitcoin Cash forks: massive block sizes. If anyone used it at capacity, regular users could never verify the blockchain and would have to utilize trusted nodes.
- Ethereum: turing-complete smart contracts. They only survived the DAO hack because of extreme centralization.
In large distributed systems, liberal risk-taking comes at a steep cost. Failure is just a bug away. That's why I predict as some altcoins gain momentum, seeing adoption due to the risks they took, their networks will be stress-tested and bugs will emerge.
As bugs emerge and are exploited, or just simply cause the network to fail, two scenarios can play out. Things fall apart, or, stakeholders coordinate forks. The DAO was an example of where stakeholders coordinated a fork. This came at a massive cost though; Ethereum is a zombie currency; I say zombie because its default state is that without a stakeholder coordinated upgrade, it will fade into obscurity. The entire ecosystem is waiting to reach the hyper-ambitious "Serenity" release.
This is why my hunch is that several high-profile altcoins will collapse, sooner than later.