Highlander pun aside, will one cryptocurrency vastly dominate the rest in the future? Will it be a handful? Will each government come up with their own cryptocurrency?
closed as primarily opinion-based by RLH, Stephen Gornick, cdecker, dchapes, D.H. - bitcoin.se Nov 6 '13 at 17:27
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I wish I could find the post in which he stated it, but there's an assertion called Garzik's Theory which states (paraphrased) that
All forks of Bitcoin in any form -- Litecoin, etc. -- will eventually be merged back into Bitcoin if their parameter modifications prove superior to those of Bitcoin itself.
This is because all Bitcoin derivatives must be open source. It's legally possible to port enhancements back to Bitcoin. If Litecoin's quicker block time proves more desirable than Bitcoin's, then Bitcoin can modify its parameters accordingly. This can happen with anything else, and other currencies are free to change parameters at any time. Getting users to accept those changes is a challenge that software alone cannot address!
This does not mean that there would be some kind of automated exchange, e.g. a currency adoption feature in which one sends all of their Litecoins to some black hole address and receives Bitcoins out of nowhere in return.
The reason Bitcoin has value is because it is resistant to censorship (e.g., prohibiting transactions related to illicit purchases) and corruption (e.g., an authoritative source changing the rules). It does this thanks to the innovation known as proof-of-work.
But this proof-of-work means Bitcoin is vulnerable to attack from a party or cartel with more than 50% of the hashing capacity. The cost to perform the attack is enormous, and there is no economic incentive to do so — thus the likelihood that will occur is significantly discounted.
Litecoin also is a proof-of-work based crypto currency. The primary difference between Bitcoin and Litecoin is the algorithm used for the proof-of-work (Bitcoin uses SHA256, and Litecoin uses Scrypt) and the amount of hashing capacity needed to be successful with a 51% attack.
With an arsenal of maybe ten thousand GPUs and a distributed denial-of-service (DDoS) attack against the LItecoin pools, a 51% attack against Litecoin is likely to technically be a success. But such an attack isn’t performed to prove a point, it is performed to gain a profit. And whether there is the potential to profit from a Litecoin 51% attack depends on a few factors. Exchanges that don’t require identity would be the targets. This means the attacker won’t be double spending litecoins against the exchanges like Mt. Gox, Kraken, etc., but instead Vircurex, Cryptsy, etc, Today there likely isn’t the possibility to suddenly convert several million dollars worth of litecoins into bitcoins and then withdraw those bitcoins. Those exchanges simply don’t have that level of liquidity. So today there is no economic incentive to perform a 51% attack against Litecoin. But if an attacker were to perform a 51% attack, Litecoin is a lot more vulnerable than Bitcoin – due to the inability to acquire 2,300 Th/s of SHA256 hashing capacity, nonetheless the cost — something that would cost, using equipment prices offered today, over ten million dollars.
That doesn’t mean Litecoin or some other alt can’t reach a similar level as Bitcoin as far as there being no economic incentive for a 51% attack. And if an alt were to reach that level, Litecoin would probably be it. But Litecoin is vulnerable for a period of time until it gets there. And that’s why, other than the first-mover-advantage that Bitcoin has, that an alt is not simply a lesser-valued coin than Bitcoin. They simply have differences and the market recognizes these differences and that shows up in the price.
Now if wanting to choose between a Feathercoin and Litecoin, for instance, and the risk of a 51% is even more pronounced. And that’s why a Feathercoin, for example, has had (and likely will continue to have) successful 51% attacks performed against it. So we probably don’t need to worry about a thousand alts, each being considered suitable alternatives to Bitcoin.
The wildcard is the potential that a proof-of-stake based alt coin, which doesn’t have mining based on proof-of-work, would be an acceptable solution. But a proof-of-stake coin essentially changes the risk from an attacker acquiring hashing capacity to an attacker acquiring a sufficient quantity of coins themselves. Again, — such an attack brings no economic benefit, at least not today. But the market seems to agree that proof-of-work architecture is the right approach for a decentralized digital currency.
And of all proof-of-work based digital currencies, bitcoin's protection from a 51% today trumps all others. And that’s enough to prefer Bitcoin over the alternatives. At least, that’s the case today.