Since the Big Bang of Initial Coin Offerings (ICOs) back in 2017, an explosion of crypto tokens has taken over our world. Every day, hundreds of them are created worldwide by developers promising fortunes to would-be investors. It usually ends poorly.
I recently came across an animation from Elementus that shows the ICO boom that occurred from 2014 to 2017. It helps to visualize this sudden ICO explosion. By the end of 2013, there were 50 different cryptocurrencies. Presently (2022), there are 20,268 total cryptocurrencies.
The abundance of cryptocurrency is overwhelming at first glance and often stirs my mind with many questions. Why are there so many? Is having so many cryptocurrencies a good thing? Are there any downsides? Which ones offer services and actual value? And while choices can be a good thing – having too much of anything can have drawbacks.
We can compare the cryptocurrency market to a grocery store. Inside some of the biggest grocery chains, you can come across an aisle with similar kinds of cereal and brands. Each offers its price point and value proposition for the shopper’s appetite. Purchasing specialists will determine which cereal will make it onto their shelves based on their acceptance criteria (e.g., taste tests and quality checks).
There are similarities when you compare this to crypto exchanges like Coinbase. Most have rigorous listing processes to ensure they can offer their customers well-established cryptocurrencies. They even help new cryptocurrencies with potential by preparing marketing and educational content for them on their platforms. It is like having your cryptocurrency at the front of the aisle and somebody giving away free samples.
While Bitcoin is globally recognized and accepted, it is fair to say that many blockchains and crypto projects would prefer to have a different cryptocurrency. Altcoins, which are often referred to as all cryptocurrencies other than Bitcoin – make sense for them to have their own. Most altcoins are designed and released by developers with different visions or use cases for their cryptocurrency. Some altcoins use other consensus mechanisms to validate transactions and offer decentralized services. Ethereum is second only to Bitcoin in market capitalization among cryptocurrencies, demonstrating the need to have its cryptocurrency pay for work supporting the blockchain’s services (e.g., smart contracts).
However, there are downsides to having thousands of different altcoins. The desire to continually create new cryptocurrencies arguably leads to further fragmentation in the industry. A project’s insistence that only their native cryptocurrency will be accepted can add costs for customers, too, because they will need to make conversions from better-known cryptos — and pay trading fees along the way.
Could you imagine a world where Amazon shoppers could only purchase goods with Amazon cryptocurrency? We refer to this as a walled garden on the internet – an environment that controls the user’s access to network-based content and services. Walled gardens are becoming the status quo in the crypto industry.
Are there too many cryptocurrencies?
Having several thousand cryptocurrencies is not a bad thing. However, the role each plays in the advancement of society is what matters. There are those whose only objective is to provide hope to individuals that it will become the next Bitcoin. If that is the driving force behind most of them, then I am convinced many will fade away. We may ultimately have just a handful that will lead us into the next significant evolution of the internet.