A shakeout is coming to the roughly 19,000 cryptocurrencies battling for a piece of the blockchain pie, according to industry insiders like Ripple CEO Brad Garlinghouse.
On June 3, the head of the cryptocurrency-based, cross-border payments firm told CNBC that he expects that only “scores” will survive, saying “there’s a question about whether or not we need 19,000 new currencies today. In the fiat world, there’s maybe 180 currencies.”
This may not be the best analogy — fiat currencies are vital to the nation that prints them and only come in one flavor — but when you pull back and look beyond the speculation that has fueled the cryptocurrency boom of 2021, there’s a simple and very obvious truth: Not nearly that many are needed.
Exclude a few purpose-built tools like non-fungible tokens (NFTs), which are a way to preserve and transfer media ranging from artwork to shares of tokenized building, and you’ll find that the value that crypto speculation is, in theory, based upon is utility.
So the question becomes, how many transaction channels do you need?
What Is It Good For?
A cryptocurrency’s purpose, after all, is to facilitate a transaction. It is the payment coin usable on a specific blockchain, and its core value comes from the idea that there is, by design, a limited supply that will grow in value as more people use the blockchain to make transactions.
This can be a flat-out retail payment — like sending bitcoin to a merchant to buy a can of Coke, or spending Ethereum’s ether on a marketplace to buy an NFT portrait of a pink-furred ape — or locking Algorand’s ALGO tokens into a self-executing smart contract that is trusted by the seller because the payment is locked into the contract when written, cannot be canceled and pays out only to a specified digital wallet when specified conditions are met.
Read more: DeFi Series: What Is a Smart Contract?
Others support specific, closed marketplaces. The decentralized finance (DeFi) oracle platform Chainlink’s LINK token is used to buy information from the data feed of a trusted source — for example, a weather report upon which a farm insurance firm relies to pay out crop freeze damage without sending an adjuster. While the metaverse Decentraland requires all in-world payments to be made with its MANA token.
See more: Smart Contracts Get Weather-Savvy With AccuWeather on the Blockchain
An arguable exception is dollar-backed stablecoins like USDC and USDT, whose value comes from the fiat asset backing them.
“We’re at the stage where basically there are far too many blockchains out there, too many tokens,” Bertrand Perez, CEO of the Web3 Foundation, told CNBC recently. “And that’s confusing users.”
It’s also bringing them risks, he said, comparing crypto’s current state with “the beginning of the internet. you were having lots of dotcom companies and lots of them were scams, and were not bringing any value.”
All of that was eventually cleared away, he said. “And now we have very useful and legit companies.”
Picking the Winners
Another question to consider is, why do you care if you’re not speculating?
The simple answer is, that if you’re using a blockchain to build a company or to offer a product or service, you want to choose one that isn’t going away. By some estimates, more than 2,400 coins have failed, holding virtually no value and not available on any reputable exchanges
“Generally, the projects that you see surviving the best are the ones that have huge, really loyal followings and the ones that have really important use cases … [or] can’t just be replaced by a competitor,” Sam Bankman-Fried, CEO of the FTX exchange and the richest person in crypto, said in an interview late last year.
“I think the ones that seem more hype-driven often crash the hardest,” he added. “But when you look at projects that either have a lot of real adoption, or the potential for a lot of real adoption, those are the projects that loyalists are going to be backing even during bear markets.”
Another person comparing the crypto market of 2022 to the dot-com bubble recently was Scott Minerd, chief investment officer of asset management firm Guggenheim.
“I don’t think we’ve seen the dominant player in crypto yet,” Minerd told CNBC in May, adding “I don’t think we have had the right prototype yet for crypto.”
“If we were sitting here in the internet bubble, we would be talking about how Yahoo and America Online were the great winners,” he said. “Everything else, we couldn’t tell you if Amazon or Pets.com was going to be the winner.”
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