This series, will explore how winner-takes-most or winner-takes-all applies to the cryptocurrency market. In Part I, we will discuss the evolution of monetary systems, including cryptocurrencies, with a focus on the limitations of previous forms of money. In Part II, we will explain why the clear winner, likely bitcoin, should capture most, if not all, market share in the cryptocurrency space. In Part III, we will analyze what share of the global monetary base cryptocurrencies could capture.

Part 1:  Cryptocurrencies and the Evolution of Monetary Systems

The Quest for a Global Money

Before the rise of monetary standards, barter was the common means of exchange. Hostage to “the coincidence of wants,” civilization learned how impractical and inefficient barter was. As a result, indirect exchange emerged with intermediary goods such as seashells, glass beads, and cattle as the facilitators. Over time, new technologies like the steam engine, the internal combustion engine, telephone, and electricity rapidly advanced manufacturing and transportation, which stimulated trade and necessitated money that was more global in scope.  Scarce and yet cheap to produce, existing mediums of exchange did not offer reliable guarantees of purchasing power, especially as foreigners learned how to reproduce region-specific forms of money which diluted and undermined the wealth of unsuspecting jurisdictions and nations.1

As the limitations of these early forms of money began to manifest, new forms emerged that served as much better stores of value and mediums of exchange, thanks to their scarcity, durability, portability, fungibility, verifiability, divisibility, and established history. Through a process of natural selection, these monies competed with each other for dominance and, in the nineteenth century, gold evolved as the global monetary standard.

Following gold, other commodity monies took shape. Silver was particularly popular because transactions costs, including friction, were much lower than those for gold in day-to-day trade. Silver’s lower value per unit weight facilitated smaller transactions better than did gold.2 For centuries, the gold-to-silver ratio ranged between 12 and 15 and evolved into the bimetallic standard.

The bimetallic standard was temporary, a stopgap measure until information systems and technology enabled paper money backed by gold. When trade of any value could take place with paper money in terms of gold, silver lost its standing in the monetary system and, as shown in the chart below, the gold-to-silver ratio soared from 15 to 70. In other words, silver lost nearly 75% of its value in terms of gold.

With time, gold’s limitations as a global money began to surface. Because of its bulk and high value per unit weight, gold was vulnerable to the human intervention associated with centralization. Because each transaction required gold bars as well as scales and measures, jurisdictions began to standardize units by minting -coining – gold coins which devolved into ‘coin clipping’, debasing the currency and destroying purchasing power.

In time, goldsmiths became “custodians” of precious metals and introduced promissory notes (IOUs), paper money used in exchange for goods and services. The goldsmiths learned that they could lend out more notes than the gold in their vaults would support because redemptions did not take place simultaneously. Enabling the precursor to the fractional reserve banking systems in place today, goldsmiths formed bank-like entities, issued notes well in excess of their vaulted metal, and generated massive profits.

Given silver’s fall from monetary grace and the proliferation of bank notes, governments evolved toward the Gold Standard during the eighteenth and nineteenth centuries, formalizing it in 1900. To adhere to the Gold Standard, a country linked its money supply directly to the value of its gold reserves, capping its ability to inflate it.

In the twentieth century, however, countries began testing the limits of their fractional reserve banking systems, throwing into question the viability of the Gold Standard as a governor on monetary policy. The US centralized gold reserves, sometimes confiscating privately held gold,3 and lost all discipline as it printed money in excess of its underlying reserves, until President Richard Nixon cancelled the convertibility of the dollar into gold and abandoned the Gold Exchange Standard in 1971. With the link between gold and paper money severed, monetary authorities had the freedom to issue fiat currencies backed by nothing but promises. Below is a chart of the US monetary base expansion relative to the value of US gold reserves.

Currencies… Currencies Everywhere.

Today, more than 180 currencies span across 195 countries, highlighting the absence of a free market. Governments have restricted currency markets to maintain financial control, with laws and institutions inhibiting free market monetary systems. Among the restrictions are borders, legal tender laws, capital controls, state decrees, seigniorage privileges, local control, local monopolies on violence, debt extinguishing laws, capital gains taxes, implicit bailout guarantees for banks, central banks and dozens of other artificial barriers that defend inferior currencies. Citizens of countries like Venezuela are unable to protect their wealth from the hyperinflation caused by irresponsible monetary policies and capital controls. They also have to accept the inferior currency in exchange for goods and services, as more stable currencies like the dollar sell at significant premiums. Until recently, they have had no way to opt out of this system.

In a 1984 interview, Friedrich Hayek famously said: “I don’t believe we shall ever have a good money again before we take the thing out of the hands of government. We can’t take it violently out of the hands of government, all we can do is by some sly roundabout way introduce something that they can’t stop.” And, in Free Market Monetary Systemhe noted that “the monopoly of government of issuing money has not only deprived us of good money but has also deprived us of the only process by which we can find out what would be good money. We do not even quite know what exact qualities we want … because we have never been allowed to experiment with it. We have never been given a chance to find out what the best kind of money would be.”

Enter Bitcoin: The Experiment That Allows Experimentation

In 2008, Satoshi Nakamoto proposed Bitcoin, a financial system free from top-down control. Bitcoin, “a system for electronic transactions without relying on trust”, was not created to fit into existing government and financial systems.

Bitcoin is the experiment that allows experimentation. Unlike any other money, bitcoin is borderless, permissionless, censorship-resistant, and verifiable. In other words, bitcoin could be the “sly roundabout way” that bypasses prohibitive mechanisms and legacy financial institutions that restrict access to money. Often called digital gold, bitcoin is scarce and unforgeable. Given its digital nature, bitcoin is divisible, portable and unseizable and, unlike gold, able to withstand threats of centralization.

Introduced by Vijay Boyapati and augmented by Dan Held, the table below assesses bitcoin, gold, and fiat as they attempt to play the various roles of money.

The Rise of Cryptocurrencies

Cryptocurrencies are money. With the exception of a few, ‘crypto-tokens’ are either money or money obfuscated by technological jargon. As bitcoin evolved and appreciated, other cryptocurrencies – or altcoins – flooded the market, many of them iterating upon its “fundamental design flaws” and “limited functionality”.  Ten years after bitcoin’s inception, for better or worse, 2,000 cryptocurrencieshave joined the movement.

Contrary to the nationalized market for money which dominated the twentieth century, cryptocurrencies exist in a competitive market. Given their open source roots, they are subject to open and inexpensive experimentation. As Jörg Guido Hülsmann highlights in the Ethics of Money Production“The only way to find out the natural money of society is to let people freely associate and choose the best means of exchange out of the available alternatives.”

In the last century, gold gave the markets a glimpse of winner-take-most, if not all, as a store of value, a model perhaps for cryptocurrencies. The question this time is how permanent a phenomenon it will be.

In Part II, we will explore the validity of a winner-takes-all narrative. By defining market size as the monetary premium of all cryptocurrencies, we hope to shed light on the merits of such a narrative.

  1.  Rai stones in Yap and glass beads in West Africa. 
  2. Using gold was impractical for daily purchases as it required measuring and dividing it into small quantities. 
  3. In 1933, Roosevelt’s Executive Order 6102 forbade the hoarding of gold coin and bullion. 

Originally published on

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Fred Pye

Frederick T. Pye


Frederick T. Pye is the Chairman, Chief Executive Officer and Director of 3iQ Corp. He is also the Chairman and Director of 3iQ Digital Holdings Inc. Mr. Pye is recognized for creating and promoting creative and unique investment products for the investment industry.

Mr. Pye has managed private client portfolios with Landry Investment Management and various other investment dealers. Prior to this Mr. Pye was Founder, President & Chief Executive Officer of Argentum Management and Research Corporation, a company dedicated to managing and distributing quantitative investment portfolios including the first long-short mutual fund in Canada.

He was also Senior Vice-President and National Sales Manager of Fidelity Investments Canada and an integral part of the team that saw assets rise from $80 million to over $7.5 billion in assets under management during his tenure. He also held various positions with Guardian Trust Company, which listed the first Gold, Silver and Platinum Certificates on the Montreal Exchange.

Mr. Pye obtained a Masters in Business Administration from Concordia University.