Bitcoin has a price exceeding $0 despite there currently existing cryptocurrencies that are strictly better in every way
I’ve seen people often express an impression that the “best” cryptocurrency should win. Well, I want to point out a particular way that one cryptocurrency could be better or worse than others that is often overlooked: the percent of potential early adopters who already hold it.
Every new cyrptocurrency faces the drawback that all of its most likely potential users are already financially invested in the success of the incumbents. It’s like standard network effects, except where all the users of existing networks are also shareholders of them.
To get people to switch you have to not only get them to pay the normal switching costs of moving from one platform to another, but also the transactions costs of buying and selling assets.
(I also think there’s another layer, where because people don’t want other people to switch away from their crypto of choice, they develop a sort of tribal emotional bias in its favor. I think this is where the phenomenon of bitcoin maximalists comes from. It’s like the opposite of the virtue of lightness.)
I agree, in that a very small improvement on a cryptocurrency shouldn’t actually result in it outcompeting everything else. The thing is that Bitcoin has at this point been completely pummeled by other cryptocurrencies like Ethereum or stablecoins in terms of usefulness, to the point where it seems clear to me that Bitcoin mostly exists and will continue to exist only for speculative purposes.
(Also: The opposite of the virtue of lightness usually goes by the name of conservatism bias in the cognitive science literature.)
I agree, in that a very small improvement on a cryptocurrency shouldn’t actually result in it becoming
I disagree that only very small improvements will have a tough time against incumbents. On the other hand, I do agree that Ethereum and stablecoins offer pretty significant improvements.
it seems clear to me that Bitcoin mostly exists and will continue to exist only for speculative purposes
This is perhaps fair. But another way of saying it might be that Bitcoin has captured the digital gold niche. And other coins will capture other cryptocurrency use cases. Notably, ETH and stablecoins aren’t really better than BTC as digital gold (a fungible digital asset of fixed supply).
I love this comment, but one nitpick:
I’ve seen people often express an impression that the “best” cryptocurrency should win. Well, I want to point out a particular way that one cryptocurrency could be better or worse than others that is often overlooked: the percent of potential early adopters who already hold it.
Every new cyrptocurrency faces the drawback that all of its most likely potential users are already financially invested in the success of the incumbents. It’s like standard network effects, except where all the users of existing networks are also shareholders of them.
To get people to switch you have to not only get them to pay the normal switching costs of moving from one platform to another, but also the transactions costs of buying and selling assets.
(I also think there’s another layer, where because people don’t want other people to switch away from their crypto of choice, they develop a sort of tribal emotional bias in its favor. I think this is where the phenomenon of bitcoin maximalists comes from. It’s like the opposite of the virtue of lightness.)
I agree, in that a very small improvement on a cryptocurrency shouldn’t actually result in it outcompeting everything else. The thing is that Bitcoin has at this point been completely pummeled by other cryptocurrencies like Ethereum or stablecoins in terms of usefulness, to the point where it seems clear to me that Bitcoin mostly exists and will continue to exist only for speculative purposes.
(Also: The opposite of the virtue of lightness usually goes by the name of conservatism bias in the cognitive science literature.)
I disagree that only very small improvements will have a tough time against incumbents. On the other hand, I do agree that Ethereum and stablecoins offer pretty significant improvements.
This is perhaps fair. But another way of saying it might be that Bitcoin has captured the digital gold niche. And other coins will capture other cryptocurrency use cases. Notably, ETH and stablecoins aren’t really better than BTC as digital gold (a fungible digital asset of fixed supply).