Power Law and Diversity in Cryptocurrency Markets

[Bloomie]

Below is a short article from the MIT Technology Review analyzing patterns in the growth and distribution of alternative cryptocurrencies. The article is written for a layman but is useful to speculators as well as people who call themselves "maximalists" of any one currency.

The bottom line is that the market share distribution of cryptocurrencies observed in the last few years suggests a well-established power law dictating a lack of population preference for the "best" cryptocurrency. The team concludes that absent external market manipulation, the cryptocurrency market will continue to see significant diversity, with Bitcoin's role diminishing over time.

MIT Technology Review - The Cryptocurrency Market Is Growing Exponentially

 

[lunar]

CTRL-F Gresham's law - not found.

Seems like a significant oversight?

 

[Kidneystone]

Lunar, I googled Gresham's law but I fail to understand how this applies to cryptocurrencies. Care to explain?

 

[lunar]

Gresham's law states 'bad money will drive out good'. Or objectively, in a closed system, if you have two fixed and identical currencies, with only one significantly different monetary property, that property will decide which currency is held, until winners takes all. eg inflation rate, or fungibility.

I the world post invention of cryptocurrencies, Gresham's law has become more important than ever, because the switching costs are very small and not significantly affected by national borders. Good money is saved and bad money spent, will work on all these currencies until the price of the bad money collapses.

I'm not saying Gresham's law is the only factor; as the power law distribution, works for systems that value belief, such as religion or language, but I think it will heavily skew the curve for cryptocurrencies, closer to a winner takes all distribution.

 

[Kidneystone]

Actually the law states "bad money drives out good", but maybe you made a typo there.

I think the differences between the available cryptocurrencies are minor compared to the differences between cryptocurrency and Fiat currency. Therefore Grisham's law seems to be working on a much bigger scale between the latter.

 

[lunar]

Right, my bad. Corrected post above, but the point remains. The Idea that with two competing monies, people will keep the one that has better long term value, and spend the other. This trend drives the price of the held currency (good) up and lowers the price of the spent (bad) one.

Obviously this has many metrics now eg Storjcoin or Counterparty. Generally they are all far superior to fiat, so the effect is working on many different levels.

There is also the factor of asymmetric information to consider. It's hard to put a precise value on something if you don't know what it does. Try walking up to a person that has never heard of bitcoin and selling them one for say $500, I bet they'd never trade with you, even though it would be a great deal. This is because they don't see the value you or I see.

We are in the era of great flux, the jury is still out on which is good money and which is bad, but I firmly believe "there will only be one'
(caveat. significant one)