Bitcoin has triggered a race to become the first global currency - one that is accepted by merchants in every country. The prize for the winner is a value measured in the tens of trillions of dollars.
So who's in the race? Who's not running. Who may be the next to join? Below is a snapshot of where we stand today.
There are currently only a handful of large contenders. Bitcoin of course has a nice lead. People worldwide like its history and absence of national or corporate ties. Bitcoin's Achilles' heel may be its lack of an organized marketing effort and budget. Network effects may be enough for bitcoin to win, but we are a long way from the finish and there are many potential competitors who could spend a lot to catch up.
Litecoin and Bitcoin Cash are in the race, but they are reliant on users valuing transaction speed over tradition. It is not clear that speed is important in the currency itself - dollar bills, for example, are slow to move. Payment network speed is important, but all of the currencies will eventually have demand deposits that can be transferred on the fastest payment networks, so it is questionable that speed at the base currency level alone is a winning strategy.
Dash is an interesting competitor with its unique governance model. They are actively seeking merchant adoption and have a formal treasury mechanism to provide marketing support. But they may be trying to do too much by competing as both a currency and a payments network. All of the new blockchain-based currencies have one foot in both areas, but it may be necessary to choose a side to be successful - time will tell.
Note that each of these large competitors is based on the original bitcoin blockchain.
Any digital asset can be a global currency, so it is hard to say that anyone is completely out of the running. However, we believe that it is critical that the currency issuer and/or community has a clear intention for the currency to become widely adopted by merchants. This is not the case with most digital assets.
Ethereum, for example, makes a point of saying on its website that ether is not a currency: "Ether is to be treated as 'crypto-fuel', a token whose purpose is to pay for computation, and is not intended to be used as or considered a currency, asset, share or anything else." Likewise, Ripple, Iota and other transactional platforms seem to be positioning their currencies primarily as native tokens only. This could be a wise decision to avoid spreading marketing resources to thin. However, it is important to note that transactional platforms have a much lower potential value than a global currency - compare Visa's market cap of $250 billion to the euro's M2 of roughly $12 trillion.
There are many digital assets like Monero and Zcash that may be appealing to many savers as a store of value because of better anonymity or other features, but they are not in the running as a global currency. They are competing for digital gold status, meaning a fixed-supply store of value that is not necessarily usable as a means of exchange. It will be interesting to see if the market needs both a non-fiat global currency and a pure digital gold product. For savers who don't need ultra-anonymity or other specialized features, the global currency may be a better store of value.
Also not in the running are the various types of utility tokens, ownership tokens and pegged tokens. These currencies are all playing important roles in the tokenization of finance, but they are focused on functions other than widespread merchant adoption.
This is the trillion dollar question. It could be anyone. It does not require capital, as bitcoin has proven. All it takes is widespread acceptance by merchants and savers.
The key is acceptance. For a new currency to challenge bitcoin it needs a competitive advantage in merchant adoption. Such an advantage could come through sponsorship by three groups:
Merchants: Global merchants could guarantee adoption, possibly with exclusive perks.
Governments: National governments could require adoption by merchants in their jurisdiction, or at least promote the currency's use in the tax code and other relevant regulations.
Non-Profits: The currency could be issued in a way that benefits global public projects.
In each case, these sponsors would participate in the design and issuance of the currency, but would then step back to allow the currency to be as decentralized as bitcoin. A large part of the initial and ongoing issuance proceeds would be set aside for marketing.
Imagine Amazon, Canada, and The Red Cross joining together to issue a currency identical to bitcoin with certain updates based on broad market consensus. The group could sell a $1 billion initial issuance and use the proceeds for marketing and development. This would certainly give bitcoin a challenge.
In addition to strategic sponsors, product design could create a competitive advantage relative to bitcoin, but many have tried without success. We think the most promising path as far a product design is a multi-form-factor approach in which holders can operate in specialized local blockchains with 1:1 conversion globally. This would allow for differentiation of features and product flexibility while promoting scale.
Among all the areas of finance that are being transformed by tokenization, the race for the global currency is the most exciting in terms of potential global impact and value creation.
Follow the Currency Report for updates on our view of where the race stands and the watch for new entrants.
If you know of a global currency project that we should add to our watch list, please let us know. Thanks.
About The Currency Report: The Currency Report promotes the adoption of a decentralized common global currency. We provide advisory services to new currency designers and investors, including our fund, the Global Currency Fund. Read the Guide to New Currency Valuation and Design, sign up for our blogs or, for accredited investors, inquire about our fund. For more information contact Shane Hadden at firstname.lastname@example.org.