Pros and Cons of having Bitcoin as King of Cryptocurrencies
In this post I want to talk about the role of Bitcoin in the cryptocurrency space -whether or not it deserves the crypto king title and how beneficial or harmful this is or may be in the future.
First of all, let’s remind ourselves why Bitcoin is the dominant cryptocurrency:
It is the earliest successful implementation of blockchain technology and has the first mover advantage
It is the most time-tested and secure(at least by hash rate) blockchain application
It is a gateway to other cryptoassets/cryptocurrencies and by far the most recognizable crypto brand all over the world
It is supported by more exchanges, hardware and software than any altcoin
Bitcoin’s network effect is a huge advantage and with a high probability it will remain as the leader of blockchain movement.
All these factors shaped the current value proposition of Bitcoin, which seems to be a store of value, often characterized as digital gold. This approach is very unlikely to change anytime soon; If Bitcoin continues to follow the same path and association with digital gold only strengthens, eventually it will make sense for Bitcoin to stay as the most valuable blockchain-based asset. In that scenario, scarcity, security and stability would remain as its major advantages. Besides, digital economy is constantly getting bigger, becoming more and more influential. In a very digital-friendly environment, it’s logical to have a flexible alternative to gold.
Another big reason why Bitcoin is an undisputable king and should remain as such, is the lack of actively used blockchain solutions. Currently there are almost no actual business implementations. Sure, we can see lots of blockchain projects, but how many of them delivered working products, that are meeting unmet needs? Big companies and governments are also testing this technology in various fields, but it’s not even close to what it could and should be.
Well, to be fair, adoption process of a completely new technology is always slow and painful. At this stage, the main barrier for blockchain is not lack of interest , but rather the technical issues. Existing distributed ledgers are not scalable and efficient enough- until developers solve these problems, the whole crypto and blockchain space will rely mainly on promises. In such a speculative field, Altcoins are mostly used for making quick money and scamming others, which are weak fundamentals. Consequently, they are still closely tied with Bitcoin. If Bitcoin’s reputation gets damaged , it will negatively affect the whole cryptocurrency market. Pretty much all Altcoins will suffer from problems of Bitcoin, especially in market capitalization. Until other projects deliver what they were planned to, Altcoin market will most likely continue to rely on Bitcoin’s brand. Versatile platfroms, with Ethereum as their leader, have a relatively bigger chance to move out of Bitcoin’s shadow- if at least several successful applications will be built on top of them in the near future.
Still, Bitcoin’s brand is overwhelmingly powerful, that’s by far its most valuable feature. Because of that, all forks of bitcoin do more harm than good. Even if we ignored the obvious attempts of making easy money and centralizing the network, and just viewed forked chains as a way to improve the technology in a most efficient way (which is ideally the purpose of decentralization), that still wouldn’t be enough to overtake the original Bitcoin, as long the fork is not named “Bitcoin”.
So forks just add confusion and uncertainty. All technical improvements should be done on the original chain and reaching consensus should be managed in a much more efficient way. That’s what Bitcoin really needs, not the countless forks, all claiming to be the “real Bitcoin”.
Now that I’ve talked about the advantages of having Bitcoin as the King of cryptoassets and blockchain technology, it’s time to analyze downsides.
The major disadvantage, from my point of view, is that Bitcoin’s limited functionality and outdated technology damages reputation of cryptoassets/currencies. To put it simply:
Bitcoin clearly fails to be a good medium of exchange and is mostly used as a speculative tool (high fees, long confirmation times, lack of consumer protection and little incentive to spend due to its deflationary nature)
Mining is more centralized that we would wish-that goes against the purpose of blockchain technology and makes Bitcoin network more vulnerable to attacks
Segwit 2x serves as an example of how much power lies in the hands of a few. Such obvious attempts of centralization should not be able to cause civil wars in Bitcoin community. This time the community won, but who knows what will happen in the future
Wealth distribution is extremely unequal
Bitcoin’s volatility isn’t going away anytime soon
Combination of these factors makes it hard to understand the real value of cryptoassets. As critics mainly focus on Bitcoin, their pessimistic conclusions are often quite reasonable. If Ethereum was the representative of cryptoassets, it would be much harder to simply call it “a speculative bubble” and “a thing without actual value”.
All in all, Bitcoin’s title has its pros and cons, just like anything else. Decades later we might have a completely different situation, but at this stage, blockchain space needs Bitcoin. As simple as that.