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Why There Are So Many Cryptocurrencies

Why There Are So Many Cryptocurrencies
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By    |   Monday, 06 May 2019 01:31 PM

The United Nations recognizes 180 currencies as legal tender. Those dollars, pounds, francs, kwanzas, kunas, lempiras, and ouguiyas are used by 7.5 billion people across 195 countries. It’s not clear how many people use cryptocurrencies, but one reasonable estimate has put the number of Bitcoin users at around 25 million worldwide.

Bitcoin is by far the most popular cryptocurrency. It makes up more than half the value of the entire cryptocurrency market and anyone who owns any other digital coin is likely to own Bitcoin too. But that first cryptocoin is certainly not alone. In fact, CoinMarketCap lists no fewer than 2,140 different cryptocurrencies, from Litecoin and Ethereum to Birds and Halloween Coin.

National currencies are tied to national economies. They’re meant to be used within national borders so it’s not surprising that there are almost as many different types of coins and notes as there are countries. But cryptocurrencies are meant to be borderless. Their market is the entire world. It doesn’t matter whether the buyer is in Burkina Faso and the seller is in Senegal, each party can trade using the same digital coin.

A successful Bitcoin would always have brought some competition. A different version of a blockchain-based token might offer bigger blocks, faster transaction times or a better mining chance. But 195 countries can make do with fewer than 200 fiat coins, why does one world need there more than 2,000 digital coins?

The answer is that that those cryptcurrencies aren’t competing directly with Bitcoin. In fact, many of them aren’t currencies at all.

Satoshi Nakamoto’s invention was always meant to be a form of legal tender. It was intended to ease global trade by offering a single currency that could be used across the Web. Because the coin wasn’t managed by a national bank, it would be free of the temptation to manipulate exchange rates. With a pre-set release rate, it couldn’t be devalued by quantitative easing. It would be open, transparent, and fast and cheap to use.

Some of the other cryptocurrencies now circulating do step into that space. Bitcoin Cash is a direct competitor to Bitcoin. Litecoin was meant to be silver to Bitcoin’s gold. But many of the other digital currencies were created for much smaller markets. Ethereum was meant to be used to fuel the production of other tokens. Those tokens were intended to be used within closed systems in the same way that a casino’s chips can only be used within that casino.

Jaguar Land Rover, for example, is said to be planning to give its customers digital tokens in return for data about local driving conditions. Those IOTA tokens could be redeemed for coffee or used to pay road tolls, parking fees or for electric charging. They couldn’t be used by a buyer in Burkina Faso to purchase clothes online from a seller in Senegal, but they would help Jaguar Land Rover to build more useful products. ShareTokens are used to keep track of items as they move around in the sharing economy.

These coins aren’t currencies. They’re tokens that help to make products more useful. The more successful the product, the more valuable the token will be.

One way to think of the huge numbers of cryptocurrencies traded on exchanges then isn’t as coins bought and sold on world markets but as shares traded on a stock exchange. Some of those shares will turn out to be more successful than others. A few might make a fortune. Some will fade away as the business fails. The potential for each can be measured in the skill of the management board and the quality of the product.

And like shares, the reason that there are so many cryptocurrencies is that there’s so much opportunity and so many people trying to make the most of them.

Joel Comm is New York Times best-selling author, blockchain enthusiast, professional keynote speaker, social media marketing strategist, live video expert, technologist, brand influencer, futurist and eternal 12-year old. His latest project is as co-host of The Bad Crypto Podcast, a top cryptocurrency show making the future of digital payments easy to understand.

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One way to think of the huge numbers of cryptocurrencies traded on exchanges then isn’t as coins bought and sold on world markets but as shares traded on a stock exchange. Some of those shares will turn out to be more successful than others.
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Monday, 06 May 2019 01:31 PM
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