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As traders, our goal is to identify potentially profitable situations in the markets. This involves recognizing chart patterns, playing certain types of news events, and understanding the fundamental dynamics behind price movements. When it comes to cryptocurrencies, it is important to think ahead and imagine what the cryptocurrency landscape will look like five years from now.
Currently, many investors are making significant returns on so-called “crapcoins.” But the question is, will these profits still exist in a year? Will Bitcoin remain the king of cryptocurrencies, or will there be a multitude of cryptocurrencies coexisting harmoniously? While no one can predict the future of cryptocurrency technology with certainty, there are some ideas worth considering before making your next investment or trade. These ideas are based on my current understanding, personal experience, and research on the cryptocurrency markets.
It is crucial to stay informed and keep an eye on the big picture in the cryptocurrency world, as things change quickly. By doing so, we can anticipate changes before the general public. One such big picture idea is the potential for dramatic consolidation in the cryptocurrency markets. In this article, I will explore how this consolidation might occur and the factors that could contribute to it.
Bridging the Gap Between Fiat and Digital Currency
Fiat currency, or traditional money, has been digitally transmitted through systems like Fedwire, PayPal, and ACH for some time now. However, despite being digital, there are still numerous restrictions on when and where you can send fiat currency. For example, if you try to send money from the US to someone in Nigeria using PayPal, you may encounter difficulties.
The promise of Bitcoin and other cryptocurrencies is to enable anyone to send money to anyone else, regardless of location, nationality, or bank affiliation. However, the proliferation of different cryptocurrencies poses a challenge. To transact with someone who accepts a different cryptocurrency, you would need to exchange the currency you own for the currency your counterparty wants to be paid in.
For instance, let’s say you own $1,200 worth of DASH, but you want to purchase a pair of pants from a website that only accepts Ripple. On most exchanges, you would need to exchange your DASH for Bitcoin or Ethereum first, and then trade Bitcoin or Ethereum for Ripple. This process of multiple transactions can make your pants significantly more expensive.
The Need for Seamless Currency Exchanges
This is where solutions like Interledger come into play. Interledger is a protocol that aims to make the exchange of digital and fiat currencies completely transparent for the parties involved. Recently, I attended an Interledger Meetup in San Francisco and realized the necessity and imminent availability of such a solution. Interledger already has a working prototype, and similar projects are likely in progress.
Attending the Interledger Meetup was not only informative but also enjoyable, especially since they served wine. It underscored the potential for rapid consolidation of cryptocurrencies once a solution like Interledger becomes accessible. As I will explain, this consolidation could lead to most individuals in the general public holding only 2-3 primary currencies for real-life transactions.
Why Consolidation is Likely to Occur
Consolidation in the cryptocurrency markets is likely to happen due to several factors. One of the primary drivers is the need for seamless currency exchanges. As mentioned earlier, Interledger and similar solutions aim to make currency exchanges more efficient and transparent. This will result in a significant decrease in the value of coins tied to very specific services, such as Sia, Storj, and Civic.
Additionally, coins with high transaction costs and slow transaction speeds may also lose value quickly once solutions like Interledger are implemented. Bitcoin, for example, fails as a real-world currency due to its limitations and shortcomings. Few people have actually tried to buy something with Bitcoin, but those who have know that the process can be cumbersome and costly.
The shortcomings of Bitcoin and other cryptocurrencies make the emergence of an Interledger-like solution even more significant. These solutions will likely rely on a select few currencies to keep transaction costs low. Customers will prefer to hold these currencies to minimize costs when transacting through the network and with other individuals. Therefore, the coins that will likely emerge as winners are those with fast transaction times and low transaction costs.
The Potential Winners in the Cryptocurrency Market
While the ultimate winners in the cryptocurrency market are yet to be determined, there are some coins that have a higher probability of success based on their transaction speeds and costs. Bitcoin, despite its current limitations, could potentially become a winner if the Lightning Network can deliver a solid product. Other coins that have the potential to emerge as winners include those with similar attributes, such as fast transaction times and low costs.
In conclusion, the cryptocurrency market is likely to experience significant consolidation in the coming years. Solutions like Interledger have the potential to bridge the gap between fiat and digital currency, making currency exchanges seamless and efficient. Coins tied to specific services, as well as those with high transaction costs and slow speeds, may lose value quickly once these solutions are implemented. The winners in the cryptocurrency market will be the coins that fulfill the promises of cheap and fast monetary transactions to anyone in the world.
So, when considering your next investment or trade, it is important to keep in mind the potential for consolidation and focus on cryptocurrencies that offer fast transaction times and low costs. While the future of the cryptocurrency market is uncertain, staying informed and understanding the big picture can help us anticipate changes and make informed decisions.
Which cryptocurrencies do you think will emerge as the ultimate winners in the cryptocurrency consolidation?
