There are now at least ten serious privacy coins around, and over the course of 2017, they began to attract major attention. Does that mean investors will always have to choose between a bunch of these coins? Or, will one of these coins ultimately emerge as the winner, with the other fading into obscurity? It’s an important question because it affects the way investors should approach privacy coins.
If only one coin will ultimately survive, investors need to back the coin with the strongest “brand value”. If there is space for more than one, investors can back those they deem best in terms of privacy attributes and network efficiency. But, if we reach a point where one or two coins attract all the new demand, there will be little reason to hold the others.
For the sake of simplicity, we could reduce the argument down to two coins: Monero, a giant amongst privacy coins and ZenCash, a smaller rival with a strong following. The question is, do they both survive in the long term, or is this a case of winner-takes-all? This is not a comparison of the two coins, but a hypothetical argument. The developer community seems to prefer Monero, with some claiming it’s the only true privacy coin. But for the sake of this argument, let’s say that technically ZenCash actually has slightly better privacy attributes and a slightly more efficient network.
On the other hand, Monero is much bigger and currently has better brand value. Ultimately, adoption probably counts more than anything else. If you take a look at a handful of crypto gaming sites, besides Bitcoin and Ethereum, you will find the privacy-focused monero pops up most often as an accepted currency to use when playing for real money. That means ZenCash has a long way to go to convince investors that it’s the coin that will survive.
Before cryptocurrencies existed, the ultimate safe haven was gold. There are other precious metals that one could argue would be a better choice as a safe haven asset, but gold won that battle for reasons that are now irrelevant. There are reasons that silver may be a better choice, and there are reasons that platinum may be a better choice. But that’s all irrelevant because the battle is over, and everyone accepts that gold is the ultimate safe haven – as a result, gold has more buying power than the alternatives.
Let’s say that for whatever reason, ZenCash is your favorite privacy coin. But you also notice that Monero is accepted by more vendors and that more new money flows into it. Are you really going to keep backing ZenCash? The fact that it may have faster transaction times or better privacy attributes doesn’t mean it will definitely displace Monero. It really comes down to which coin attracts new demand. And if all this is going through your mind, it’s also going through the minds of other holders too.
If the underdog’s supporters can slowly convince the market that it’s the best option, it can gain ground on the more established Monero. But at some point, that momentum will begin to stall. If it can reach a tipping point where holders begin to abandon Monero before it stalls, then it may win the battle. But if it stalls before that point, it would lose the battle.
On the other hand, maybe we will reach a point of equilibrium where demand ebbs and flows between the two – or in the real world between five to ten privacy coins. But for that to happen, the community would need to really view all these coins as pretty much equivalent. It seems unlikely, but then no one really knows where these things will end up.
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