A new analysis treats bitcoins and other cryptocurrencies as species in an evolutionary model—and finds bitcoin has no selective advantage. Christopher Intagliata reports.
There are now more than 16 million bitcoins in circulation, with a total market cap of 130 billion dollars—more than the market value of Netflix, Priceline or Starbucks. Just going by numbers, bitcoin is the one coin to rule them all.
But if you consider the spectrum of 600 actively traded cryptocoins as a financial ecosystem…you can take an evolutionary approach, and ask: which is the 'fittest' of the coins?
Or, in other words: "Every cryptocurrency, bitcoin, ethereum, there are many…are a different species." Andrea Baronchelli, a network scientist at City, University of London.
He and his team used evolutionary models to approximate the real-world behavior of cryptocurrencies. Each week of currency trading was treated as a new generation of progeny. Reporting their results in the journal Royal Society Open Science, they found that a so-called 'neutral' model of evolution best explained coin behavior…meaning no coin had a selective advantage. [Abeer ElBahrawy et al., Evolutionary dynamics of the cryptocurrency market]
Which implies that: "Investors choose which cryptocurrencies to invest in only proportional to the cryptocurrency's market share, and nothing else. So they are not apparently considering other fundamentals like the underlying technology or the purpose for which a certain cryptocurrency has been designed for. They are just sampling the market, sampling each cryptocurrency proportional to its market share."
And only when investors begin to value coins for a particular attribute—such as their convenience or their intrinsic technological advantages—will the market start to actively pick winners.
[The above text is a transcript of this podcast.]