Cryptocurrencies and their underlying technology Blockchain is widely known as one of the most innovative technologies of the 21st century. Starting out from an obscure and highly criticized background, the technology has inadvertently become a force to be reckoned with today. Many people see cryptocurrency as a solution to the problem of devaluation – a major issue conventional fiat currencies face on a daily basis. The idea of having a single globally acceptable decentralized currency appealed to a lot of people. However, the current situation of things in the crypto space is far from this expectation. Cryptocurrencies in the world today beat total fiat currencies available at approximately 36 cryptos to 1 fiat.
The question then remains that; Why are there so many cryptocurrencies?
Before discussing this crucial question, let's first and foremost find out the history of cryptocurrencies.
History of Cryptocurrencies
Many people attribute the first cryptocurrency ever made to the anonymous founder of Bitcoin Satoshi Nakamoto when he first published Bitcoin White Paper in 2008. However, the theoretical aspect of cryptocurrencies dates as far back as the early 1980s. I prefer to call them the “Pre-bitcoin era“. The theoretical aspect of cryptocurrencies was first proposed as solutions to what was termed the drawbacks of traditional fiat money. The theories were designed using both mathematical and computer-based principles.
The first practicalization of cryptocurrency was carried out by American Cryptographer David Chaum. He developed an algorithm that currently serves as the foundation of web-based encryption as we know it today. The algorithm made it possible for the information to be stored in a secure and immutable manner. At that time money transferred in this manner was known as “blinded money.”
The late 1980s, with the help of a few supporters, Chaum moved to the Netherlands where he founded DigiCash. However, unlike modern-day crypto, DigiCash was not decentralized. Simply put, it was still quite similar to central banks. With this as a major issue and the Netherland central bank crying foul, DigiCash closed shop in the '90s.
Apart from DigiCash, several other virtual currencies sprung up around the same time.
Wei Dai published a white paper for b-money. The whitepaper contained several of the features championed by modern-day cryptos like decentralization and anonymity. Unfortunately, b-money never made it to the market.
Nick Szabo, an associate of Chaum also designed and deployed crypto known as Bit Gold. The crypto also employed blockchain tech as its underlying technology. The crypto enjoyed adoption for a while, but it is also currently no longer in use. Others include Russia's WebMoney and e-gold in the United States.
Despite the several attempts to create cryptocurrencies in the “pre-bitcoin era”, Bitcoin is currently viewed as the first-ever modern cryptocurrency. This is because it combines several important features like decentralization, anonymity, scarcity, immutable record-keeping, etc. Many schools of thought view it as the one true crypto with many dubbing it as the “King Crypto”.
Bitcoin as previously stated was first described in a white paper published in 2008 by Satoshi Nakamoto. The crypto was then first launched in 2009, with several other alternatives like Litecoin the following suit in 2010. In 2012, Bitcoin attracted the attention of several institutional-based clients like WordPress, Microsoft, Expedia, and a dozen others. In 2017, Bitcoin became even more popular when its price climbed to almost $20,000.
Governments worldwide currently assert a huge influence on people's funds, resulting in issues like devaluation amongst several others. Many crypto enthusiasts view the crypto space as the key to transferring power from the government back to the average person.
Why is there more than one Cryptocurrency?
Since Bitcoin is still the most recognized crypto available today, why are there so many cryptocurrencies, with many more springing up on a daily basis? Do we need more cryptocurrencies? Can Bitcoin not adequately meet the financial needs of global populations etc? These and many more questions will be answered in this article.
First off, Why are there so many cryptocurrencies? Or simply put Why is there more than one cryptocurrency? To start with, cryptocurrencies worldwide are designed to provide solutions to specific issues in specific niches. Bitcoin, for example, was designed to aid smooth, fast, and easy peer-to-peer (P2P) transactions. The crypto also serves as a major store of value and a form of investment.
Ethereum, on the other hand, is designed to facilitate the creation and deployment of smart contracts. Many cryptocurrencies like Dash and Electroneum is focused on helping the unbanked. Some other crypto like Enjin Coin helps to power a particular virtual ecosystem while Elastos goal is to power the new internet. Another major reason that provides an answer to the question; why are there so many cryptocurrencies is that cryptos are built on blockchain technology.
Currently, more use cases of blockchain are being invented on a daily basis. From the health sector to voting, finance, logistics, mining, supply chain, etc. With every new use case, a new blockchain and subsequently new crypto is formed. No single blockchain can fully capture all the potentials embedded in this innovative tech. Hence the need for several blockchains and their cryptocurrencies to be focused on a particle niche.
How many Cryptocurrencies are there?
According to CoinMarketCap (CMC), there are exactly 6,510 cryptocurrencies as of August 19, 2020. This is quite a huge figure with new cryptos joining this list on a daily basis. Below is a list of the top 10 cryptocurrencies according to market cap available today.
- Bitcoin (BTC) – $218.85 billion
- Ethereum (ETH)- $46.56 billion
- Ripple (XRP) – $13.07 billion
- Tether (USDT) – $10.01 billion
- Chainlink (LINK) – $5.61 billion
- Bitcoin Cash (BCH) – $5.41 billion
- Litecoin (LTC) – $4.08 billion
- Bitcoin SV (BSV) – $3.83 billion
- Cardano (ADA) – $3.4 billion
- Binance Coin (BNB) – $3.3 billion
Advantages and Disadvantages
- Faster transaction time- By completely eliminating the need for middlemen, transactions can now be carried out in real-time with crypto. This is also made possible due to blockchain technology.
- Lower transaction costs – Transferring funds using crypto helps to drastically reduce cost as compared to conventional cross-border fiat transfers.
- Privacy – Alongside the above advantages, cryptocurrencies provide users with the ability to carry out confidential transactions.
Other important advantages include, Users are the sole controllers of their funds. Crypto transactions are also immutable, secure, decentralized, inflation-proof, etc.
While cryptocurrencies have a lot of advantages, they still suffer from several innate issues.
- Scalability issues
- Cybersecurity and theft risks
- Hostile regulatory conditions
Next Big Cryptocurrency
The crypto space is currently saturated with a lot of potentially successful cryptocurrencies. So, labeling one as the next big cryptocurrency isn't something that should be done with levity. Bitcoin currently stands as the top crypto available today, with all other cryptocurrencies generally referred to as alternative coins “altcoins”.
Crypto with the potential to become the next big cryptocurrency has to have several important features in place. Sadly most of the cryptocurrencies available today fall short of one or more of these criteria.
A major issue facing most crypto and blockchain platforms is scalability. The next big crypto should be able to boast of near-infinite scalability. That is, effectively carrying out about several millions of transactions in just one second.
To ensure decentralization, voting power should be distributed to nothing less than 10,000 to 100,000 voters. To achieve this, the crypto cannot make use of the Proof-of-Work (PoW) consensus mechanism. This is because PoW requires pool centralization. They also must not make use of Proof-of-Stake (PoS) or the delegated Proof-of-stake (dPoS) consensus mechanism.
3. Fast transaction speeds
I'm talking about having transactions confirmed in no more than 3 secs.
4. Permissionless and trustless
The next big crypto is one that will be both trustless and permissionless. That is, there is no form of centralization or third party control on the blockchain.
In addition, a potentially successful cryptocurrency will also require low energy, little or no charges at all, amongst several other features.
For now, Ethereum seems to be on the right track. Cardano (ADA) also has great potential to become the next big crypto, especially with its much-anticipated Shelley upgrade.
Though off to a rocky start, cryptocurrencies worldwide (Bitcoin and Altcoins) are here to stay. While the idea of having single universal crypto has been expressed several times, the possibility of that ever happening is quite slim. Imagine having only one bank servicing the financial needs of everyone on earth or one cab operating service (Uber) doing the same globally. That is a near-impossible feat. To provide top-notch services, it is advisable that service providers locate and service a particular niche.
We also expect more cryptocurrencies in the near future. This is because as more use cases are formed, designed, and thought out, more blockchains will be developed and more cryptocurrencies birthed. Hence, the answer to the question, why are there so many cryptocurrencies? While Bitcoin remains the first go-to crypto, we look forward to a time when an altcoin will dominate the crypto space.