Why Bitcoin Is and Will Always Be the Primary Cryptocurrency?
The last few months must have grated on your nerves quite heavily if you are a newcomer to crypto trading. We have seen many things, from sharp rises to dramatic failures. Price fluctuations often give thrills so there is no surprise one can easily lose sight of where they are investing their hard-earned money. All coins are staying on almost the same track, so what is the difference? How to tell one coin from another? And what is more important, how investor must learn, what’s the coin’s long-term value?
This article is to tell you, what sets Bitcoin apart and why Bitcoin is a system yet unmatchable despite numerous clones.
Let us have a look at the history of Bitcoin to realize its true value. The idea is enticing, that latest ICO or another altcoin is something to “improve” Bitcoin and eliminate all its flaws so that the first cryptocurrency becomes history due to lacking unique functionality. Indeed, almost every altcoin, ICO or hardfork hold itself as a fundamental pioneer. However all of them miss the point that the crucial innovation has already come.
Decentralized and limited digital system is a true innovation and Bitcoin was and is the first coin like that, as the article will tell later. All other the so-called “innovations” like faster transactions, shifts to proof-of-…, another signature algorithm, different transaction ordering and privacy even are in fact tiny variations of huge innovation called Bitcoin.
Note that alternatives to Bitcoin have been rising since 2011 yet none became good enough to match it as far as price, security or popularity matters are concerned. Created in 2011 IxCoin was a clone to Bitcoin with high rewards for blocks and premining (sending huge number of newly mined coins to the creators). Tenebrix was an altcoin of 2011 either that tried to add GPU resistance while having immense premining volume. Solidcoin in its turn had faster blocks and premining. The only coins to weather those years are Namecoin and Litecoin without any premining.
ICO are nothing new as well.
Mastercoin held ICO in 2013 with – guess what? – premining and raised over 5,000 BTC. As a result, the coin had to get rebranded into Omni as the environment was completely inactive. Factom had ICO in 2015 and attracted over 2000 BTC, but had to increase extra financing as they were out of funds.
In other words, all these new “challenging” tokens used to come to its sad demise quite quickly and were in fact of small benefit.
Altcoins and ICO have tried various features with most of them having been useless or unaccepted. So why Bitcoin takes pride of place in this environment? What makes it stand out against all other coins? Just two points: network effect and decentralization.
While Bitcoin has the vastest network, other coins just try to catch up with it. Let’s take the following example for you to comprehend: Bitcoin is a common week of seven days, while each of new altcoins is a variation to it (Let’s make four-day weeks! Let’s have 18-hour days! Let’s rename days of the week!) No need to say, all these “innovations” are insignificant and often denied by the market players. This is caused by the Bitcoin’s network effect expanding so its users get adapted to the network standards attracting more and more people.
With the network growing we can see subtle, hardly visible benefits in each standard point. Something that may seem ineffective at first glance, may prove to bear secondary and tertiary effects of high profit. A car cannot fly or sail as is was optimized for use on hard soil. Lack of extra functions makes the car more useful, easier while parking, cheaper to maintain, etc.
On top of it, the standards have withstood the test of time and proved to be stable. For instance, you’re not likely to be the first one to fly the hybrid of car and plane if you don’t know how safe it is. Something that exists for many years in a row has already proven its reliability. As a result, Bitcoin has demonstrated its security in the course of time, the only thing that can test it.
Indeed, twisting truth of most of these features is getting obvious as time goes on. Thus, Turing-completeness of Ethereum makes the whole platform vulnerable. On the contrary, that’s exactly why Bitcoin’s smart-contract language, Script, avoided Turing-completeness. Common solution in the centralized coin management is elimination of such vulnerabilities with more authoritarian approach (bailouts, hardforks, etc.). To put it in other way, the network effect together with time and centralization make altcoins frangible while Bitcoin has the largest network, which means its usability growing just due to numerous users.
Another basic feature of Bitcoin none of the rest of altcoins has is decentralization. The term means that Bitcoin hasn’t got any point of failure. Any other coin has got its initiator or company that established it and they produce the bulk of impact on it.
For instance, a hardfork that is forced upon users (BCH) is indicative of rather centralized coin.
Centralized coins have the wind of changing the situation in response to the market trends. Centralization is undoubtedly a good thing for business as centralized business can react to the market demand quicker and change its products for higher income.
Centralization is toxic for a coin. First, one of the main features to store of value is its stability. Store of value has to have its qualities remaining unchanged or improving with the course of time. A change which disrupts its qualities like sudden supply increase, drop in acceptability, security alterations makes a coin less usable as store of wealth.
Second, currency centralization tends to change rules with subsequent devastating effects. Indeed, 20th century’s economy is a story of central banks destroying fiat currency as store of value. That is why average fiat currency exists for 27 years despite support of powerful entities like governments and almost universal use across the country as exchange means. Its features, sensitivity and usability just not that important for its viability as specification and invariability.
Every cryptocurrency and ICO except for Bitcoin is centralized. For ICO that point is clear. A team that holds ICO and created a token is a centralized party. They have issued a coin and thus can change token use, its structure or issue some extra tokens. They may also refuse accepting specific tokens as payment.
Altcoins have got the same problem. Usually the founder is actually a “dictator” to the coin and can do just the same that government can. Taxes (for development, storage, etc.), inflation, user dividing (DAO, proof-of-… etc.) are often under creator’s control. As altcoin holder you must be sure both current and all future coin leaders will not lay tax or simply confiscate your coins. In other words, altcoins and ICO are in essence no far cry from fiat, as you don’t possess unlimited power over your funds.
The problem is especially acute for the major competitor to Bitcoin, Ethereum. The latter one is centralized in any way. Still Ethereum has at least 5 hardforks and users had to update their software. Now there are rumors spread about new tax for storage. Centralized control was first demonstrated at the initial stages with huge premining.
Bitcoin is something different. One of the strokes of genius for Satoshi was to just disappear. In the early days of Bitcoin Satoshi had many developmental issues in check. When he vanished all market players got equal voting right. Every update is voluntary (i.e. softfork) and does not make anybody to do something to keep their bitcoins. To put it other way, there is no chance for failure. Bitcoin has got a system with lots of access points and open source that may continue functioning even if the whole developer team stops working. With Bitcoin you’ve got a full-fledged control over you Bitcoins.
That’s good as there is no some central power to drop the value of your coins. This means Bitcoin is in fact restricted, it won’t change without consensus and thus a reliable store of value.
Having glanced at the market one can ask a reasonable question: there are so many altcoins and they start grabbing a share of market cap of the first cryptocurrency. Isn’t it a fall of Bitcoin?
First, market cap is a greatly manipulated index.
Second, markets tend to be quite chaotic and use to calm down with the course of time.
Due to the network effect and decentralized nature Bitcoin differs from all its rivals. This does not mean, however, there can be nothing to beat it. A statement like that would sound a bit too optimistic for Bitcoin.
But further study of crypto market history makes it clear, Bitcoin is in the lead and the fact is hard to argue. What is needed to outrank Bitcoin? Apparently, innovation, just as fundamental, as Bitcoin itself. Or a fatal mistake to make it insecure. A fine adjustment of some variables won’t be enough for another coin to keep up the pace. Adding some significant function like privacy is insufficient as the network effect has already established a Bitcoin-specific environment.
Decentralization is not an easy task, so all altcoins still cannot grasp the idea where to go here. We can hardly imagine coin initiators who would like to decentralize them as they are driven by emotional, economic and social factors to retain control over their projects.
Unlike altcoins, Bitcoin has established a brand new technological category which resulted into the network effect. It will always stand out as, when compared to centralized coins, it is managed by vivid and invariable market rather than a human being or a corporation.