In cryptocurrencies, is it winner takes all?

By boris, June 20, 2017

The original thesis for cryptocurrencies was that it would be a winner-takes-all game due to the strong network effects around mining. And Bitcoin’s first few years seemed to prove this thesis true. Its share of the total market cap for cryptocurrencies was as high as 90% and was still holding at 80% at the beginning of 2017.

However, Ethereum has gained so much value since the beginning of the year that it’s looking quite possible that it could soon replace bitcoin as the largest and best capitalized blockchain out there.

Will Ethereum end up being the winner and lock up the market? It’s too early to tell, but I think there’s a good chance we will end up with a few blockchains that each have their own strengths and attributes, including these four elements: scalability, safety, decentralization, anonymity.


We need a solution that can run an increasing amount of transactions through the blockchains while keeping confirmation time and costs per transaction low. Ethereum has a clear advantage over Bitcoin in this respect. As usage of Bitcoin has recently increased, so have confirmation times and costs.


Security is often a trade-off to scalability. The more secure a blockchain, the longer the transaction confirmation times and the higher the costs. Bitcoin is recognized as having an advantage over Ethereum in this respect.


How decentralized is a blockchain and what’s the likelihood that certain stakeholders can take over the majority? With Bitcoin, there’s the risk (even if it’s just a hypothetical one) that if a single entity can contribute to the majority of network’s mining hashrate, they could have full control of the network and manipulate the public ledger (the 51% attack).


How anonymous are the participants on a blockchain? This is the use case that Zcash is built around: Zcash payments are published on a public blockchain, but the sender, recipient, and transaction amount may remain private.

It will be interesting to watch how all of this will play out over time. Which elements will turn out to be more important than others for determining the success of blockchains? How will different blockchains work together to complement each other’s strengths and weaknesses? Will some blockchains copy the most successful elements of others (e.g. Ethereum copying zero knowledge proofs from Zcash). And, what new elements will emerge over time? We are eagerly watching.


Thanks to Dan Romero from Coinbase and Ben Roberts from Citizen Hex for reviewing earlier drafts of this post.

  • Armen Gulesserian

    Cryptocurrencies have applications beyond digital cash. In the case of Etherium, its purpose is to power blockchain-based smart contracts. In the case of STEEM, they are using blockchain to create a system where digital content creators are rewarded by content curators.

    The actual cryptocurrencies can be commoditized, but it’s finding successful applications where the true value resides. It’s difficult to know if the rise of ETH is due to a hype in cryptocurrencies or a vibrant ecosystem that is creating and powering smart contracts.

    Bitcoins successful application is digital cash. It will be interesting to see if additional applications (i.e. copyright, smart contracts) of blockchain can give cryptocurrencies value beyond a speculative commodity. If this holds true, there might be various winners in the cryptocurrency world.

  • George

    Bitcoin et al seem Alice in Wonderland stuff. A lot of cost
    and effort as you say to create – and what for? Just to enable payments to be made
    electronically. Of course there is a market – for anyone trying to hide a transaction
    – and speculators induced to jump into a frenzied bubble. How big is the former,
    how risky and traceable? And history tells us what happens to the latter. They invariably

    And perhaps cryptocurrencies are not the solution after all.
    The wrong path is being taken.

    Articles from credible people like you that treat Bitcoin
    etc. with cred only increases speculation. Perhaps you could write a story
    covering all the negatives of jumping through the looking glass rather than merely
    looking deep into it.

  • I personally have never used cryto-currencies, but have been following them for some time now because of their potential to change the tide in a dramatic on how we buy and sell things in the future. I’m not sure when the mainstream public will accept digital currency as “normal,” but when and if it does it almost certain that regulation will follow. I used to work for the Federal Reserve and I have seen firsthand how monetary policy keeps economies from falling apart. Without some sort of inflation/deflation safety mechanism integrated into the digital currency monetary system, I have a hard time trying to figure out whether or not it will be widely accepted. But, I continue to watch it closely because it is gaining momentum very quickly.

  • bwertz

    Agreed, we still need to see way more real-life applications.

  • bwertz

    I think cryptocurrencies have a much bigger potential than what you see today 9which is clearly limited to store of value, speculation, etc.) – but with the emergence of new technology platforms usually come financial bubbles and it is pretty evident that we are approaching one with the frenzy around ICO (see my post here: But that doesn’t take away from the long-term potential of this technology (!

  • bwertz

    Albert Wenger from USV has a great post on this topic:

  • Thanks. Albert’s article makes a lot of sense.

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