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Survival of the Fittest: Cryptocurrency Evolution

Darwin’s theory of evolution suggests that organisms best adjusted to their environment are most successful at surviving. Similarly, in the competitive world of cryptocurrencies, only the most robust and well-structured ecosystems thrive. Developers should focus on creating a ‘healthy’ underlying network for their crypto assets to ensure they endure future evolutionary cycles.

What Makes a Cryptocurrency ‘Healthy’?

Unlike living organisms, cryptocurrencies are decentralized virtual assets existing in the web3 space. Their value depends on the interaction of numerous individual users within this ecosystem. Without a strong social network of token holders, a cryptocurrency has no value. The value of each cryptocurrency is rooted in the psychology of its holders, influenced by social events, user perception, and supply.

Cryptocurrencies compete for user attention and transactions within the same web3 parameters. A ‘healthy’ crypto network is defined by token holder activity, including principles of distribution, variety of holders, variety of transactions, and token flow. A sustainable number of diverse transactions is crucial for maintaining value.

It’s not just about user activity, but the right kind of activity. For instance, a nation with a single citizen holding $100 million would have a high GDP per capita but no real chance of survival due to the lack of transactions and variety of holders.

Since cryptocurrencies rely on blockchain technology, an open-source ledger storing all transactions, it’s possible to map and measure the health of transactions within an ecosystem. By analyzing this data, we can determine which ecosystems are thriving and which are at risk of becoming extinct.

Bitcoin & Matic: Examples of Healthy Networks

Bitcoin has successfully built a healthy network. An estimated 106 million people globally own Bitcoin, making it the most widely held token. Bitcoin represents 58% of the total crypto market value, indicating its popularity as a store of wealth. Throughout the first half of 2024, Bitcoin’s blockchain consistently recorded over 400,000 transactions daily. This high transaction volume has contributed to Bitcoin’s stability, with prices remaining above $50,000 for the past nine months and recently surpassing $90,000.

Similarly, Polygon (Matic) has developed a robust network. Approximately 633,588 wallets hold Matic, showing its wide acceptance. Matic is also widely transacted, with over 4,100 daily transactions throughout 2024. This high transaction volume is reflected in Matic’s 24-hour trading volume, which stands at 7.76 million USD.

Dogecoin: Struggling for Sustainability

Dogecoin has seen rapid growth but failed to establish a ‘healthy’ network. At times, user activity has driven up prices significantly, such as in early 2021 when Dogecoin’s price increased by 23,000%. However, these spikes were not sustainable, driven mainly by short-term hype and a lack of diverse transactions. Most users interacted with the network purely for speculative purposes rather than long-term utility.

Despite being held by around 4 million people and experiencing high transaction levels (about 250,000 daily transactions in October 2024), 82% of Dogecoin’s total circulating supply is held by only 535 wallets. This concentration indicates a lack of transaction variety and sustainability.

Dogecoin’s recent surge, influenced by the US election results and Elon Musk’s appointment to Trump’s Department of Government Efficiency, highlights its volatility. Unlike Bitcoin and Matic, Dogecoin’s growth is not driven by sustained and meaningful activity. It remains at risk of becoming extinct due to its reliance on hype rather than a robust network.

Focus on Network Health, Not Just Price

The success of cryptocurrencies and sustainable price increases depend on the health of the underlying web3 network. Developers should prioritize building a ‘healthy’ network with sustainable and diverse transactions rather than focusing solely on price increases. This foundation will attract users, outperform competing networks, and ultimately lead to price growth.

“The success of cryptocurrencies lies in the health of their underlying networks, not just in their market prices.”

Simon Peters is the CEO and co-founder of Xerberus, a cryptocurrency risk rating protocol offering industry-leading analysis through its Wallet Graph™️ technology. Xerberus maps and monitors the systemic health of crypto assets in real-time through its investor wallet network.

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