The current state of affairs
Currently, we have a lot of different cryptocurrencies cropping up. Those could be roughly divided into a few categories:
- Copycoins - currencies that copy Bitcoin and tweak only a handful of features that don't alter how the coin behaves. Those would include Litecoin, Dogecoin, or Quarkcoin.
- Asset coins - copycoins that issue and distribute real world assets through a copycoin system, for example Coinaaa or PayCoin.
- Innovation coins - currencies that innovate with the Bitcoin technology and take the technology in new directions. Those would include Dash (formerly Darkcoin) or Namecoin.
- Token coins for Crypto 2.0 networks - coins tied to a Crypto 2.0 network and used as a native currency for various purposes. Those would include Ethereum, Ripple or BitShares.
With the development in the crypto space, a good amount of those standalone currency networks are already becoming obsolete. The Crypto 2.0 networks are making the copycoins and the asset coins less and less desirable to use - Namecoin can be reimplemented easily as an Ethereum script and any asset coin can be easily issued on Ripple for example.
However, there are a lot of people opposing the use of those network due to the proprietary tokens needed to run the system. However, if the concept Sidechains delivers on its promises, that issue could be solved in the near future.
Sidechains - an important piece of the puzzle
The premise of Sidechains is to allow anyone to move bitcoins out of the Bitcoin network into a separate network and vice versa. This would mean that we could easily move value between cryptocurrency networks without relying on centralized exchanges, proprietary tokens specific to those networks or multi-party voting pools.
If this goal would be achieved, it would mean that any Crypto 2.0 network could be in theory reimplemented to use bitcoin-pegged tokens as its native currency, tapping into the huge Bitcoin market cap and relatively more stable value. In other words, we could have Bitcoin-powered Ethereum, Ripple, BitShares, etc., and those would in turn make a lot of other coins obsolete in the process.
The great extinction event - who will survive?
In the crypto world, it is sometimes hard to predict which projects will survive and which will die. It seems that a lot of projects are driven by their community (such as Dogecoin), speculation (as outlined very well in The Story of Bob Surplus), or the development team behind it (Ethereum). Moreover, software never dies - if there will be at least one person running a client for CoiledCoin in 50 years, it can't really be called dead.
That being said, there are definitely some networks that will remain largely unaffected even if and when the Sidechains will take off. Those would include the blockchains that take a lot of technical expertise to develop and maintain, such as Ethereum or Ripple. They are unlikely to be dislodged from their position because they have or would have by that time a big development team improving the technology raising the barrier to entry for any newcomers.
The same could be said for more "established" cryptocurrencies, such as Litecoin. Their long history will let them remain pretty much in the same position they are today - as something to trade and speculate on.
With the possible advent of Sidechains, we might see a great cryptocurrency extinction event that will drive to replace obsolete cryptocurrencies with new technology. We are likely to see some more innovative projects, such as the many Crypto 2.0 networks, reimplemented as sidechains to augment what is currently possible on the Bitcoin network.