Bitcoin was started in 2009 as open-source software for the secure, anonymous trading of purely digital "currency" called Bitcoins. By late 2013, the price of a Bitcoin in US dollars had gone from basically zero to around 1200 dollars. Many assumed that Bitcoin would become the world currency and replace all existing currencies, given the rate of growth. Unfortunately for the hopefuls, Bitcoins have somewhat stabilized at around $600.
However, since the software was open-source, everyone and his brother copied, pasted, changed and renamed their own "cryptocurrencies" that were functionally identica to Bitcoin. At the time of this writing there were 192 different currencies being traded and tracked, and no doubt hundreds or thousands more hadn't yet seen the light of day.
At some point during this article, you've got to go to coinmarketcap.com and see what I'm talking about. The website is a roster of all the major cryptocurrencies, tracking growth, volume and market cap for each one.
So what is the value of a Bitcoin when there are hundreds of billions of functionally identical "coins" floating around by different names? As time goes on they will all be equally acceptable and exchangeable, as Namecoins or Dogecoins can be traded for Litecoins or Bitcoins.
I predicted during the boom times in November of 2013 that Bitcoin would maintain an early adopters advantage, but ultimately the value of all cryptocurrencies would approach zero as there was no limit to how many could be produced.
An emerging pattern on coinmarketcap.com is the reduction in relative importance of Bitcoin in terms of trading volumes. Yes, Bitcoin is still king, but it only represents 57 percent of total trading value, down from 100% when they were the only kid on the block. Where does this end? What if Bitcoin only represents 2-3% of trading volume? What would happen to the price? What would happen to the price of other coins?
Ultimately, equilibrium will be reached. But, what is equilibrium? Presumably if there is no advantage between "coins", all coins will be worth the same. But what does a "coin" mean if they can be divided into infinitely tiny parts and there are an infinite number of coins? Isn't zero the only rational valuation of something with an infinite supply?
As much as everyone likes the convenience of cryptocurrencies, and as much as people have invested in them, it seems impossible to believe that the entire technology, given its raging success so far, could collapse into nothingness. But, many other currencies all over the world, despite the protests of everyone holding them, have gone to zero because of exploding supply. Certainly, one cryptocurrency multiplying into 192 in a few years qualifies as an increase in supply.