Alright altcoiners; you asked for it...
As much as I welcome the enthusiasm and youth movement that Dogecoin and many other altcoins bring to the greater cryptocurrency movement, it distresses me to see people sinking a considerable part of their savings into these short-term boons, and some of them with the expectation of a long-term "win" of their favorite coin in terms of market cap or adoption.
Sadly these people have either been conned, or are deluding themselves massively, despite all the evidence they could ever ask for on this subject already out there on popular blogs and forums, discussed at great length by other cryptocurrency enthusiasts.
The reasons that no altcoin can overtake bitcoin, ever, are massive. Let's take a second to understand how bitcoin took off in the first place, and then we can come back to why it's different for altcoins...
Bitcoin's success fundametally relies on three pillars of support. Although they work to grow each other synergistically, it takes all three legs of the stool to hold up the seat of bitcoin. These three legs are:
Now that you see the three pillars of support, keep in mind that it took all three of them doing well for bitcoin to grow... There were many times when you could see on graphs that one or the other pillar would stall out, and when another pillar caught up to it did they all three grow together. The anaology of a 3-legged stool is truly underrated.
With altcoins, especially Dogecoin, we see awesome user adoption, and perhaps a good start on Miner adoption. But the two aren't in synch at all and there is none of the Merchant adoption that is desperately needed to make Doge a 'legit' coin one day.
Litecoin appears to be an exception because of the early start it got, and there actually was a small amount of merchant adoption, perhaps 5% of bitcoin's. Make no mistake; that 5% is not a growing number, it is very likely declining and will make its' way down to 1% or less as bitcoin's big push this year takes it mainstream. A huge help with that effort was the argument "Litecoin is silver to bitcoin's gold." That popular salespitch gave lots of people a mental framework to understand litecoin and more readily accept it... In a way it's true; since cryptocurrencies are a whole asset class unto themselves, the #1 and #2 assets in the class would make a natural comparrison for Gold and silver, the top two most popular assets in the precious metals class.
However that's as far as the analogy goes; whereas silver has many uses for society that it is better suited for than gold; litecoin does nothing at all better than bitcoin does, save the irrelevant confirmation speed difference. Confirmation times being a minute or so faster than bitcoin's already-days-faster than the normal (Visa network) times is silly... No one needed that, not even POS merchants who still see a bitcoin transaction go through instantly. (That is called propagation, not confirmation. Propagation happens at the same speed for all coins & gateway networks, which can't be improved on in software.)
The point is here that litecoin had nothing useful to offer as competition to bitcoin. Dogecoin certainly does not. And people who say that other coins that do prime-number searching or protein-folding calculations are completely missing the point of all that hashing; Security.... So giving up security to add some other functionality to an altcoin will instantly disqualify it from competing with bitcoin. Yes, a cancer-curing coin simply cannot catch on if it removes all that hashing that bitcoin does. Why adopt a coin that is less secure than the one you've got?
If someone dreams up a way to add a true improvement to another coin that doesn't take away from bitcoin's level of security, then the bitcoin Devs can always copy that code and add it to bitcoin. Therefore bitcoin is Borg; all other good features can be assimilated.
What this means is that there will always be a single blockchain that people can trust. Always. The incentive structure Satoshi created assures that miners will always find it more profitable to put the most hashing power into the biggest coin. No altcoin is ever going to catch up to it naturally because of the this and the network effect on each of those three pillars.
Doge will spike and sink, maybe not all the way this year but certainly more than half when bitcoin's growth explodes. Over time it will fade into obscurity as new coins come and go and then altcoins themselves are the joke, finding niche uses in clubs and organizations that use them more for voting rights or shares of ownership/membership than they do currency. This will happen because it is the nature of mankind to seek out and stick to the best currency available to them.
That will always be the one with the most secured blockchain and most merchants accepting it. The sooner you accept this fact, the sooner you will start making wise investment decisions.
As much as I welcome the enthusiasm and youth movement that Dogecoin and many other altcoins bring to the greater cryptocurrency movement, it distresses me to see people sinking a considerable part of their savings into these short-term boons, and some of them with the expectation of a long-term "win" of their favorite coin in terms of market cap or adoption.
Sadly these people have either been conned, or are deluding themselves massively, despite all the evidence they could ever ask for on this subject already out there on popular blogs and forums, discussed at great length by other cryptocurrency enthusiasts.
The reasons that no altcoin can overtake bitcoin, ever, are massive. Let's take a second to understand how bitcoin took off in the first place, and then we can come back to why it's different for altcoins...
Bitcoin's success fundametally relies on three pillars of support. Although they work to grow each other synergistically, it takes all three legs of the stool to hold up the seat of bitcoin. These three legs are:
1. User adoption - The obvious metric for bitcoin's growth is easily judged in transaction volume, wallet downloads, new applications built, bitcoin dev activity, and a number of other signs that can be measured. Many of them are charted here.
The price of a coin can be a channel of information for this metric, but more important is that coins' volatility. We've watched the 30-day volatility of bitcoin drop from 40% to 13% this year so far, while all the active altcoins are still in the multiple 100s. Afterall, as long as a coin has any worth at all, it can still be used to transfer that value somewhere and therefore fulfil its' intended purpose... But the lower the volatility, the more mentally acceptable that coin is for users to adapt to.
2. Merchant growth - The less obvious but more important metric for bitcoins growth is how many Merchants are starting to accept it. Since a currency isn't useful if no merchant accepts it, obviously this number must keep growing, faster and faster, until pretty much all merchants accept it in order for a coin to be "money" someday. This metric is harder to get your hands on but the main merchant payment systems like Bitpay, blockchain.com, BIPS and Coinbase have stated a total of somewhere around 60,000 merchants using their systems right now, growing by the thousands every single day.
Another way to measure merchant growth is by the size of the largest company that starts accepting that coin... TigerDirect, Overstock, & Zynga all just signed up with bitpay this last week, which brings truckloads of public visibility to bitcoin. Then there is the number of new industries accepting that coin too, which says a lot about which markets it can grow within.
3. Miner Hash rate growth - The most underrated metric of judging growth is via the system's defensive strength. Both users and merchants build faith on a coin based on believing that it will still hold their value tomorrow. More miners means more defensive strength. Bitcoin has 21 Petahashes securing it up right now, which is somewhere in the neighboorhood of a few million times the amount of power of all other altcoins put together!
In fact, if you stole every known supercomputer on the planet, from every university and government lab from all nations everywhere, & hooked them together to mine bitcoin; you still wouldn't get a petahash out of them all, which is under 1/20th of what you would need to attempt a 51% on a single block of the bitcoin blockchain.
Faith: Inspired.
In comparrison, most altcoins, including dogecoin, could easily have some blocks 51%'d by miners in competing coins, even leaving bitcoin miners out of it entirely. So clearly, no faith in the strength of the currency can be made here. This is why merchants wont be likely to accept it, which is why users don't need it, which is why it's not mined, etc., in a circle forever.
The price of a coin can be a channel of information for this metric, but more important is that coins' volatility. We've watched the 30-day volatility of bitcoin drop from 40% to 13% this year so far, while all the active altcoins are still in the multiple 100s. Afterall, as long as a coin has any worth at all, it can still be used to transfer that value somewhere and therefore fulfil its' intended purpose... But the lower the volatility, the more mentally acceptable that coin is for users to adapt to.
2. Merchant growth - The less obvious but more important metric for bitcoins growth is how many Merchants are starting to accept it. Since a currency isn't useful if no merchant accepts it, obviously this number must keep growing, faster and faster, until pretty much all merchants accept it in order for a coin to be "money" someday. This metric is harder to get your hands on but the main merchant payment systems like Bitpay, blockchain.com, BIPS and Coinbase have stated a total of somewhere around 60,000 merchants using their systems right now, growing by the thousands every single day.
Another way to measure merchant growth is by the size of the largest company that starts accepting that coin... TigerDirect, Overstock, & Zynga all just signed up with bitpay this last week, which brings truckloads of public visibility to bitcoin. Then there is the number of new industries accepting that coin too, which says a lot about which markets it can grow within.
3. Miner Hash rate growth - The most underrated metric of judging growth is via the system's defensive strength. Both users and merchants build faith on a coin based on believing that it will still hold their value tomorrow. More miners means more defensive strength. Bitcoin has 21 Petahashes securing it up right now, which is somewhere in the neighboorhood of a few million times the amount of power of all other altcoins put together!
In fact, if you stole every known supercomputer on the planet, from every university and government lab from all nations everywhere, & hooked them together to mine bitcoin; you still wouldn't get a petahash out of them all, which is under 1/20th of what you would need to attempt a 51% on a single block of the bitcoin blockchain.
Faith: Inspired.
In comparrison, most altcoins, including dogecoin, could easily have some blocks 51%'d by miners in competing coins, even leaving bitcoin miners out of it entirely. So clearly, no faith in the strength of the currency can be made here. This is why merchants wont be likely to accept it, which is why users don't need it, which is why it's not mined, etc., in a circle forever.
Now that you see the three pillars of support, keep in mind that it took all three of them doing well for bitcoin to grow... There were many times when you could see on graphs that one or the other pillar would stall out, and when another pillar caught up to it did they all three grow together. The anaology of a 3-legged stool is truly underrated.
With altcoins, especially Dogecoin, we see awesome user adoption, and perhaps a good start on Miner adoption. But the two aren't in synch at all and there is none of the Merchant adoption that is desperately needed to make Doge a 'legit' coin one day.
Litecoin appears to be an exception because of the early start it got, and there actually was a small amount of merchant adoption, perhaps 5% of bitcoin's. Make no mistake; that 5% is not a growing number, it is very likely declining and will make its' way down to 1% or less as bitcoin's big push this year takes it mainstream. A huge help with that effort was the argument "Litecoin is silver to bitcoin's gold." That popular salespitch gave lots of people a mental framework to understand litecoin and more readily accept it... In a way it's true; since cryptocurrencies are a whole asset class unto themselves, the #1 and #2 assets in the class would make a natural comparrison for Gold and silver, the top two most popular assets in the precious metals class.
However that's as far as the analogy goes; whereas silver has many uses for society that it is better suited for than gold; litecoin does nothing at all better than bitcoin does, save the irrelevant confirmation speed difference. Confirmation times being a minute or so faster than bitcoin's already-days-faster than the normal (Visa network) times is silly... No one needed that, not even POS merchants who still see a bitcoin transaction go through instantly. (That is called propagation, not confirmation. Propagation happens at the same speed for all coins & gateway networks, which can't be improved on in software.)
The point is here that litecoin had nothing useful to offer as competition to bitcoin. Dogecoin certainly does not. And people who say that other coins that do prime-number searching or protein-folding calculations are completely missing the point of all that hashing; Security.... So giving up security to add some other functionality to an altcoin will instantly disqualify it from competing with bitcoin. Yes, a cancer-curing coin simply cannot catch on if it removes all that hashing that bitcoin does. Why adopt a coin that is less secure than the one you've got?
If someone dreams up a way to add a true improvement to another coin that doesn't take away from bitcoin's level of security, then the bitcoin Devs can always copy that code and add it to bitcoin. Therefore bitcoin is Borg; all other good features can be assimilated.
What this means is that there will always be a single blockchain that people can trust. Always. The incentive structure Satoshi created assures that miners will always find it more profitable to put the most hashing power into the biggest coin. No altcoin is ever going to catch up to it naturally because of the this and the network effect on each of those three pillars.
Doge will spike and sink, maybe not all the way this year but certainly more than half when bitcoin's growth explodes. Over time it will fade into obscurity as new coins come and go and then altcoins themselves are the joke, finding niche uses in clubs and organizations that use them more for voting rights or shares of ownership/membership than they do currency. This will happen because it is the nature of mankind to seek out and stick to the best currency available to them.
That will always be the one with the most secured blockchain and most merchants accepting it. The sooner you accept this fact, the sooner you will start making wise investment decisions.
