As for how this struggle for dominance will pan out, analysts offered varying points of view.
While the vast majority of digital currency projects might fail, market observers provided a consensus that this won’t produce a winner-take-all scenario.
“Between cryptocoins, corporate coins & state coins, we’re probably not going to end up with 100+ widely used digital currencies,” said Jacob Eliosoff, a cryptocurrency fund manager.
“Network effects will matter & there will probably be only a few winners,” he emphasized.
Marouane Garcon, managing director of crypto-to-crypto derivatives platform Amulet, offered a similar point of view.
“There won’t be a single currency because of too many political differences in the world, but just like fiat currencies some will be stronger in value than others.”
Yocom-Piatt predicted that many digital currencies people think of as being a store of value (SOV), for example bitcoin and decred, will survive.
Benefits Of Competition
At the same time, while many cryptocurrencies may die out, this outcome will certainly have its benefits, he claimed.
“Instead of a large amount of capital and attention spread across many currencies, we will increasingly see that same capital and attention spread across a smaller number of SOVs, leading to a corresponding increase in their value.”
Further, Yocom-Piatt noted that more traditional cryptocurrencies like bitcoin have characteristics that may help them come out on top.
Many prefer cryptocurrencies due to their ability to provide their users with privacy.
Monero and Zcash, for example, have made substantial progress on this front.
Central bank digital currencies, however, “are simply not incentivized to deliver substantive privacy,” noted Yocom-Piatt.
Eliosoff also spoke to this, emphasizing that China is working on a digital currency that will enable “monitoring & state control.”
Obviously enough, privacy is only one of the benefits provided by digital currencies, as these innovative creations offer many others.
While some digital assets “value privacy,” others emphasize transparency, Greenspan emphasized.
“Some are built to scale and some are built for security,” he added.
“Each has it’s pros and cons according to the needs and values of the developers.”
If the vast majority of cryptocurrency projects die out, it could help provide some clarity, by showing which benefits are of greatest value to the market.
While CBDCs may not be as popular as their more traditional counterparts within the crypto community, these government-issued digital assets certainly have potential.
By issuing digital assets that are cryptographically secured, governments might be able to completely eliminate counterfeiting.
Further, by issuing a CBDC, a government could potentially trace every single transaction made using the digital asset.
Between these two benefits, digital currencies issued by central banks could eliminate a great deal “of illegal activity,” noted Garcon.
Past that, CBDCs could potentially assist governments with both “Tax Collection and Money Laundering prevention,” noted Garlam Won, head of marketing for blockchain startup Harmony.
By harnessing CBDCs, governments could “accurately assess the health of the economy and [obtain a] detailed view into which sectors might require more funding and support.”
Armed with this information, governments might use tax dollars more efficiently, he noted.