Which Cryptos will dominate the market

The Cryptocurrency space is still very experimental and in the early stages of its development and usage. Things are changing quickly. Application fit is still up in the air. Price discovery is still going full tilt. Even Bitcoin, the only mature chain, is still in the very early stages of becoming humanity’s money.

There will be winners and losers in the crypto world. It’s hard to predict the future when the present is fluctuating so much. But we can make predictions about the general shape of the future of crypto. In terms of what will end up dominating the crypto space in the future: it’s going to be money, applications, and property (digital ownership). These are the three pillars of crypto:

So when trying to figure out the eventually overall shape of crypto, by which I mean which blockchains will end up controlling the market, there are three primary likely long-term outcomes.

Outcome 1: Bitcoin and Ethereum

Bitcoin remains the dominant crypto and the only ‘money’ coin of crypto. At the same time, Ethereum ends up fending off all the rising smart contract platforms and retains its dominant status in the crypto application space. Ethereum remains the clear #2 crypto with nothing else even close. Basically, nothing changes in the structure at the very top of the market from how it’s been the past few years.

Ethereum’s dominance in the smart contract world would be akin to Google’s dominance (in Search or Chrome). Sure, people use other search engines or browsers, but since Google started to dominate those two applications, nothing else has ever come close. The main question is whether or not, with Layer 2 solutions and the Eth2 upgrade, Ethereum alone could even handle the future usage of blockchain applications as the space grows exponentially.

Outcome 2: Bitcoin and multi-chain smart contract world

Bitcoin remains the dominant crypto and the only money coin of crypto, while the smart contract world develops into a multi-chain future.

Ethereum may or may not continue to be the largest crypto application platform, but likely several others will also have dominant stakes in this space. If this happens, then a natively interoperable blockchain will likely take a prominent role in the crypto ecosystem. Probably Polkadot, maybe Cosmos, perhaps both, or others.

There could be numerous successful smart contract platforms that all help handle the massive load of future users. Eventually, crypto applications built on each of these networks end up linking up with these interoperable chains under the hood to provide a seamless experience no matter what token or network you or anybody else is using.

This would mean the war for smart contract dominance that has started this year would fade away as the usage becomes too great for any single chain to handle and interoperability takes a prime place in this world. It would take an entire community of platforms linked together to handle the enormous future usage of blockchain applications.

In this scenario, the market will have decided that paying higher fees to stay on one winning chain is not worth it when the load can be spread over many networks, and interoperability-focused blockchains can be used to connect them all.

Outcome 3: Bitcoin alone

The only truly decentralized and globally secure blockchain — the one that is already starting to become a standard of money in the world outside the blockchain space — is the only crypto needed. In this scenario, Bitcoin eventually takes over the smart contract application space and ends up being not just the first cryptocurrency but the last cryptocurrency relevant to the world.

With Bitcoin’s far superior security and decentralization compared to every other crypto, as well as far greater market capitalization, ownership, and acceptance, it isn’t too hard to see its network effects allowing it to eventually consume all the smaller and far less robust crypto networks.

This, of course, requires Bitcoin to become a platform capable of doing a diverse range of smart contracts. Ethereum has risen to prominence precisely because Bitcoin can’t handle that sort of application development currently. But the start of Bitcoin being able to do this is happening in November with the Taproot upgrade.

Bitcoin transactions will eventually start mainly taking place on its Layer 2 scaling solution — the Lightning Network. This decentralized network built on top of Bitcoin could allow far more transactions than even all the smart contract networks put together can natively handle. Between Taproot and future upgrades of the Bitcoin protocol, plus the Lightning Network, Bitcoin could compete and take over the application space from the purpose-built blockchains.

The reality of the network effect is that it often leads to a winner take all scenario. Cryptocurrencies are, after all, networks. If there is going to be a single winner in the crypto world, it is very obviously Bitcoin.

The main question here would be what sort of networks will be built on top of Bitcoin and whether people will want to use them over the purpose-built blockchains. Will Lightning just handle transactions, or will applications be developed on it? Or will other networks built on Bitcoin allow things like DeFi and NFTs to flourish? Time will tell.

Presumably, if more networks besides Lightning need to be built on Bitcoin, then the actual user-facing applications would be built agnostically of these networks. In this way, applications would have the ability to interact with all of them under the hood seamlessly, much in the way interoperable blockchains allow for in a multi-chain world. From what I understand, applications should be able to be built on Lightning (or Bitcoin itself, but it’d be less efficient) after the Taproot upgrade, but NFTs would need another type of network purpose-built for that.

Conclusion

The crypto space is still experimental and evolving. The only two things we can say for sure are that Bitcoin is becoming money for the world, and the smart contract space is becoming the digital services space of the future.

There are three most likely scenarios for how this plays out. Bitcoin and Ethereum each continue to dominate their respective halves of the crypto space. Or the smart contract space becomes multi-chain, and there are numerous winners with interoperable-focused blockchains likely providing the glue for them all to work seamlessly together. Or the nature of network effects and Bitcoin’s status as money for the outside world, along with future Bitcoin upgrades, allow it to take over everything and we are eventually living in the one-chain world of Bitcoin.

Honestly, it could play out in either of these scenarios. It’s impossible to know right now.

I think the next two years will be very telling for the smart contract platform space. Ethereum upgrades to Eth2 next year, and we will see the newcomers ramp up their application networks. By 2024 I think we’ll know whether Ethereum will continue to dominate the other platforms or if the smart contract space will be multi-chain.

It’ll take longer to see if the one-chain-to-rule-them-all scenario is starting to play out. Bitcoin will likely take a few years to get much of a network of applications running on it. But by the end of this decade, I think we’ll either see Bitcoin eating into the smart contract platform space, or we’ll see that users have preferred to stick with the custom-built application platforms, and Bitcoin just remains the future of money for the world.