Cryptocurrencies have boomed in recent years, as new promoters have followed the trail blazed by Bitcoin since its launch in 2009. When asked how many there are today, many people would add up Bitcoin, Ethereum, Ripple, Litecoin, Tron, Stella, EOS, NEO and Ada, assume a few others are out there, and conclude that there are perhaps a dozen in circulation.
Not even close. Earlier this year, financial information service investing.com reported an astonishing 1,658 cryptocurrencies in existence around the world.
True, most of them will lack the weight and acceptability as a payment medium enjoyed by Bitcoin and the other major players, but it remains an extraordinarily high figure. A bizarre science-fiction scenario seems to beckon in which everyone issues their own currency, all trading against each other at fluctuating exchange rates.
“Real-world” cash in return for cyber-money
That seems unlikely, and, as we shall see, there are signs that the cyber-money industry is starting to experience a bout of consolidation.
First, how did we get to the stage that there are more than nine times as many cryptocurrencies than there are “real” ones (180 at the last count)? The simple answer is that the blockchain technology that underpins cryptocurrency is relatively accessible, making the prospect for many people of launching their own version distinctly inviting.
But most cryptocurrencies are not backed by anything. The promoters are getting “real-world” cash in return for a denomination they themselves have created.
In March, the investment advice service The Motley Fool put the apparently overwhelming number of cryptocurrencies into perspective. “The total cryptocurrency market capitalisation is just under $369 billion as of this writing, which implies that the average cryptocurrency is worth about $222 million.”
Outright acquisitions may be next
In other words, the median market capitalisation is only $925,000, “meaning half are worth more and half are worth less”.
Rather than take fright at the apparently anarchic proliferation of cryptocurrencies, it may be more useful to draw a lesson from history. In the early days of the automobile, would-be car-makers sprang up everywhere, some extremely small, some destined for greater things.
In Britain, for example, George Singer, a bicycle-maker, started producing cars in 1901. At about the same time, Herbert Austin started building cars in his spare time while working for a maker of sheep-shearing equipment. William Morris, another bicycle-maker, laid the ground for what would be a car-making empire.
Through mergers, takeovers and closures, this infant auto-industry became a force in the land and reshaped the British economy.
But many believe the next step is for outright acquisitions of one cryptocurrency by another. True, there are technical obstacles, in that many blockchain systems are, in a sense, unique to their promoters. However, these obstacles ought not to prove insurmountable.
A word of warning, though. Do not necessarily expect today’s giants, such as Bitcoin and Ethereum, to be the giants of tomorrow.
Neither of the once-mighty Austin or Morris marques survives today, having been bought-out through a number of mergers and takeovers. Singer was bought by Rootes Group, also no longer with us, the name itself disappeared in 1970.
Technological change is a long game, and it is hard, if not impossible, to predict the eventual winners.