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Some technologies continue to exist even if their creators set them aside in favor of something else. A stone wheel remains a stone wheel, regardless of whether you use it. A printing press in a museum still operates precisely as designed, even though it’s been bucked in favor of digital printers. And combustion engines will still run on gasoline, even when the day comes that no one cares to use one anymore.
But this kind of staying power is not the case with the technology that underpins cryptocurrency: blockchain. If people stop caring about a given cryptocurrency, the blockchain that runs it will eventually die out.
How is this possible?
First, let’s review what a blockchain is and how it works. Despite its futuristic-sounding name, it’s actually a simple thing: a digital ledger maintained by a special kind of computer. Traditionally, a ledger is a piece of paper on which changes of ownership are recorded by hand. An ancient ledger might read that I have one sheep and you have three sheep. If either of us buys or sells a sheep, the ledger is updated accordingly. It tracks our account balances, so to speak.
As opposed to sheep, a blockchain records changes in ownership of its “base token.” A blockchain’s base token is also called its “cryptocurrency.” The Bitcoin network’s base token is a bitcoin, the Ethereum network’s base token is an Ether, and the Dash network’s base token is a Dash.
The people who run the specialized computers that execute account balance updates on the blockchain are called “miners.” If they own a competitive number of computers as compared to other miners in the network, they’re likely to win the right of entering an update to the blockchain. Making this update results in the creation of new base tokens — and the miner gets to keep them as his “pay.”
It’s these people who will make or break the future of cryptocurrency technology.
From the giant warehouses of mining computers in China to the little flash drive miner sticking out of your friend’s laptop, all mining efforts are focused on one thing and one thing only: turning a profit. For this reason, miners program their machines to only contribute effort to the cryptocurrency they estimate will bring the most profit — the network with the least mining competition and the highest payout. This is where human emotion begins to play a part.
Because none of us can predict the future, we’re left to make decisions based on how we feel. For example, no American can know for certain that a dollar will be worth anything tomorrow, but we feel pretty confident that it will be, so we choose to work in exchange for dollars today. If every dollar-holder in the world decided to sell all their dollars for something else tomorrow, however, the infrastructure that runs the dollar — that is, the partnership between the Federal Reserve and U.S. Government — would die.
So it is with a blockchain. Whereas all dollar-holders cast an implicit vote in favor of the humans running the U.S. Government and the Federal Reserve, the holders of any cryptocurrency similarly cast a “yes” vote to the humans who make up that network’s infrastructure – its miners.
A dollar collapse tomorrow is exceedingly unlikely due to the gargantuan demand for dollars at this time. The same cannot be said for each of the more than 1,000 (yes, more than 1,000) cryptocurrencies that can be bought and sold using online exchanges today. Some of these cryptocurrencies have a mere five, six or seven-digit market capitalization, which could feasibly be wiped out tomorrow by a mere whiff of bad news — the creation of a bad feeling. And still, other cryptocurrencies have fewer than 20 miners, meaning that on a bad day, the said blockchain is less than 20 peoples’ feelings away from extinction. Does that seem far-fetched? Here’s a list of hundreds of dead blockchains.
Some have called the advent of cryptocurrency the “Wild West” of money, and they would be correct. And like the Wild West, crypto country is rife with two things: opportunity and risk. It is unreasonable to believe that over 1,000 cryptocurrencies will survive in the long-term. Why? Because miners will eventually begin to coalesce around just the most profitable blockchains – the networks whose base tokens they feel will either retain their value or increase. In other words, miners will eventually want to be paid in the base tokens that shed the title of “cryptocurrency” and organically take on the more familiar one of “money.”
Cryptocurrency technology — that is, blockchain technology — may or may not win out in the long run. But, if there’s one thing society cannot function without, it’s money. Across the world, human emotion appears to be moving in favor of the transparency offered by blockchains. If this trend continues, it is almost certain that at least one cryptocurrency will see phenomenal adoption in the years to come. Which one will it be? The answer to that question is still far from settled. This Wild West has only just been discovered, and everyone’s still trying to work out how they feel about it.
Guest post by Amanda B. Johnson of Dash