Bitcoin predominates overheen other digital currencies today, but the gegevens suggests its market share will druppel significantly te the next few years.
- by Emerging Technology from the arXiv
- May 29, 2018
When it comes to the future of money, there is a growing overeenstemming that cryptocurrencies are set to play a major role. One cryptocurrency, te particular, has entered the public lexicon spil the go-to digital asset: Bitcoin.
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But the cryptocurrency market is significantly more ingewikkeld than the public lexicon might suggest. And while there have bot slew of studies examining the role and future of Bitcoin, there have bot few that explore the broader cryptocurrency market and how it is evolving.
Today that switches thanks to the work of Abeer ElBahrawy at City University ter London and a few pals who have examined the cryptocurrency market spil a entire and say that it is significantly more elaborate and mature than many had thought. The evolution of this market even bears a remarkable similarity to the evolution of ecosystems te many other areas, providing some insight into the way the cryptocurrency market might switch ter the future.
Very first some background. The big challenge with digital currency is to prevent unauthorized copying. Cryptocurrencies use two mechanisms to prevent this. The very first is to publish every transaction ter a public record and to store numerous copies of this ledger online ter a way that permits them all to be automatically compared and updated. This prevents dual spendingвЂ”using the same bitcoin to buy two different things.
The 2nd mechanism is to protect the ledger cryptographically. Every update collects together a range of fresh transactions and adds them to the existing ledger. But to do this, the earlier version of the ledger is very first frozen and encrypted.
The fresh version of the ledgerвЂ”called a blockвЂ”includes the encrypted copy of the earlier ledger. Anybody can use this encrypted gegevens to generate a number that can be used to check the veracity of the block. However, it is enormously hard to generate this number computationally ter an attempt to spel the system. It is this featureвЂ”that the blocks are effortless to check but enormously hard to copyвЂ”that secures the system.
Of course, spil the ledger resumes to be updated, fresh blocks vereiste be created, piggybacking on the old ones and creating an unbroken chain of blocks. Hence, the term blockchain technology.
Bitcoin is by far the most famous of thesis cryptocurrencies. It is also among the oldest, having very first emerged ter 2009. But it is by no means the only cryptocurrency. So an interesting question is how the cryptocurrency market is evolving.
To find out, ElBahrawy and co analyzed the behavior of 1,500 cryptocurrencies that have emerged since 2013 and say that some 600 of them are actively traded today. They say this market has recently entered a period of exponential growth and is presently worth $54 billion. (By comparison, the total amount of money ter the world is about $60 trillion.)
But while this cryptocurrency market is growing rapidly, ElBahrawy and co demonstrate that certain aspects of it are stable. For example, the number of active cryptocurrencies has remained about the same since 2013 spil has the market share distribution, which goes after a well-known power law.
The team also shows how this distribution can be reproduced using a standard proefje of evolution te which they buttplug te figures for the rate at which currencies emerge and diegene away.
This power law distribution occurs ter a broad range of systems. For example, the same law describes the size of religions, of languages and even of wars (by number of deaths). Te none of thesis systems is there are any favored religion or language or war. But all things being equal, they all form this type of distribution.
The fact that size distribution of cryptocurrencies goes after the same law is significant. It implies that spil far spil the market is worried, all currencies are essentially the same. вЂњThe gezond with the gegevens shows that there is no detectable population-level overeenstemming on what is the вЂbestвЂ™ currency or that different currencies are advantageous for different uses,вЂќ say ElBahrawy and co.
Whether that is true is up for debate. Various critics have pointed out a number of technical limitations associated with Bitcoin, and this has inspired a fresh generation of cryptocurrencies, such spil Ethereum. Whether this will influence the market remains to be seen.
While this exponential growth is ongoing, BitcoinвЂ™s market share is falling. The top five fattest currenciesвЂ”Ethereum, Ripple, Litecoin, Dash, and MoneroвЂ”now account for 20 procent of the market. And the trend for Bitcoin is clear. вЂњThis would predict Bitcoin market share to fluctuate around 50 procent by 2025,вЂќ say the team.
Another factor te the market is that cryptocurrencies arenвЂ™t used only spil currency. Bitcoin is also widely used for speculation and can also be used for nonmonetary uses such spil timestamping.
For many of thesis applications there is a clear benefit to having a single currency that everyone agrees on. вЂњWhile the use of cryptocurrencies spil speculative assets should promote diversification, their adoption spil payment method (i.e., the conventional use of a collective medium of payment) should incentivize a winner-take-all staatsbestel,вЂќ say Bickell and co.
But practice with other ecosystems suggest that this is by no means certain to toebijten. For example, a single rekentuig operating system has never bot able to outcompete all others, regardless of the ruthlessness of its deployment. Neither has any human language or religion or style wiped out all others.
ThatвЂ™s not to say it canвЂ™t toebijten. But unless there is significant outward manipulation of this market, the likelihood is that there will be significant diversity te the cryptocurrency market for the foreseeable future.
Ref: arxiv.org/six pack/1705.05334: Bitcoin Is Not Alone: Quantifying and Modelling the Long-Term Dynamics of the Cryptocurrency Market
Hear more about Bitcoin from the experts at the Business of Blockchain on April 23, 2018 te Cambridge.