For most people, “cryptocurrency” equals “Bitcoin.” Blockchain equals Bitcoin too. National channels discuss Bitcoin. BTC price fluctuations influence all crypto market. All crypto newcomers hear about Bitcoin at first. Their brains tag it as the most significant crypto and the most important.
Sometimes it seems that altcoins don’t exist at all. However, is Bitcoin indeed the king of cryptocurrency or it has gained such popularity just because it was the first?
We decided to wade through media hype and evangelistic revelations and find out whether the frescoes depicting the beautiful bitcoin future are right.
The first doesn’t mean the best. Shells were the first money, but as we can see, they didn’t last long. The next versions of any invention are usually more adapted to the humans’ needs and thus are more convenient.
Some people think that a better question is “When will Bitcoin lose its dominance?”1 Google wasn’t the first search engine; Chrome wasn’t the first browser, Facebook wasn’t the first social media platform. It is rare in the technology that the first version of anything keeps dominating position. They are sure that Bitcoin is just a foundation upon which all other researchers and developers are building.
To support the idea, let’s consider that Bitcoin was created a decade ago, and, as the anonymous founder Satoshi Nakamoto has left the project, hasn’t been developed much after that. Bitcoin core code today is almost the same. According to the recent Crypto Ratings Index by research group linked to China’s Ministry of Industry and Information Technology (MIIT), Bitcoin took the 17th place. The researchers took into account the technological capabilities and the network use cases. Notably, that the EOS, Ethereum, and NEO coming took first, second and third places, respectively.
Will Bitcoin lose its dominance?
To answer this complicated question, we contacted experts to ask about the Bitcoin future. Among those surveyed were CEOs of crypto companies, editors of major publications, developers, and financiers.
We asked two questions:
- Will Bitcoin lose its dominance?
- What qualities should have a new dominant coin?
We received a variety of answers, both from the true Bitcoin believers and from those who are confident of its imminent fall. In total, we received 19 responses, which, to varying degrees, repeat the following:
Cynthia Turcotte, Editor-in-Chief of the Bitcoinist.com
While I think that there are several valuable altcoins on the cryptocurrency market, I don’t see Bitcoin losing its dominance — at least not anytime soon.. Ethereum, Monero, Litecoin… even Ripple and Bitcoin Cash have their place in the crypto space, but Bitcoin is the granddaddy of them all.
To even begin to approach usurping Bitcoin, a cryptocurrency would need to not only resolve not only Bitcoin’s shortcomings (scalability, transaction times, etc.) but also offer something else groundbreaking that is both exciting and useful to investors and traders, while at the same time not running afoul of government regulations.
What would that “something else” be? I’m not sure. A blockchain that is immune to 51% attack perhaps?
Roger Ver, CEO of Bitcoin.com
The cryptocurrency that provides users with the best user experience will be the one that becomes the most popular. Bitcoin Cash is a likely candidate due to its low fees, lightning fast transactions, and full merchant acceptance.
Ofir Beigel, Owner of 99Bitcoins.com
Dominance is often measured by comparing the market caps of all cryptocurrencies and crypto-assets on sites like CoinMarketCap.com. However, the market cap is a highly misleading metric for coins or tokens which may be issued in any quantity at zero cost and then sold in constrained supply. For example, I could issue 1 trillion Potato Coins, sell 1 to my friend for $1 and so realize a market cap of $1 trillion. In this way, the market cap of Bitcoin could be easily exceeded without changing any of the fundamental factors which constitute real dominance of the space. These factors include user adoption, security through the highest total hash rate, technical innovation and optimization, brand recognition and similar factors unrelated to price.
For a new coin to take Bitcoin’s leading position, it would probably have to solve some significant technical problem which currently limits the development of the crypto-financial space. It would also have to be launched in a demonstrably fair manner, attract significant developer and community interest, be integrated into numerous commercial and financial systems, and proliferate. While I don’t believe this to be impossible, it does seem highly unlikely at this time. One possible shortcut which might propel a new coin to dominance would be backing by a corporation, state, central bank, or some combination thereof. However, such a coin is likely to be centralized and so not a direct competitor to Bitcoin.
Kyle Fournier, Co-Director of Content at Cryptomaniaks
It may take quite a while, but it seems inevitable that Bitcoin will eventually lose its dominance. Compared to other cryptocurrencies, Bitcoin does not have any advantages for any particular use cases. Bitcoin’s only real advantages are its broad adoption and relatively successful history; as more people begin to understand cryptocurrency, they will look for better technology to believe in.
The new dominant coin has to provide its users with the solution to a real problem — as Bitcoin did in its early days. Mainly, a new dominant coin has to solve the scalability problem.
Malcolm Cannon, CMO at Cyberian Mine GmbH
It’s unlikely that Bitcoin loses its dominance any time soon. Every single beginner starts with Bitcoin. Couple that with the fact that the majority of cryptocurrency trading pairs are in BTC and the network effect is pretty clear.
The closest to dominate is Ethereum. Some of the reasons for its success are that it solves a new problem that Bitcoin did not have before — programmable smart contracts that are easy to deploy on the blockchain.
Almost all the respondents agree on the idea that bitcoin will lose its leading position. The question remains only in a time when this happens and under what circumstances.
Bitcoin disadvantages, which lead to a fall
Comparing to newer altcoins, Bitcoin has a few serious drawbacks:
Low efficiency
“Bitcoin is a distributed ledger” — this basically should mean that blockchain is some distributed computer, which performs distributed computations. This leads to the idea that bitcoin nodes spread across the world work on the something significant bit by bit. Have you ever thought about how this concept works?
In fact, all nodes record the same information into blockchain and store the history forever.
Millions of nodes (=computers) all around the world do the same operations, for all time. There is no parallel work, no synergy, no distribution. Doesn’t seem efficient? It is just duplication.
As for now, the full bitcoin wallet has 100 GB history of all transactions. It doesn’t sound user-oriented and efficient.
Slow transactions
The problem mentioned above plus the small size of the block end up in the long confirmation time of transactions. Average Bitcoin transaction takes at least ten minutes, but, for example, back in the days of the crypto boom in December 2017 users were waiting for a few days for the transaction to be verified.
If the network faces scalability problems when the number of crypto users doesn’t exceed 3 million, how can it soon become the substitute for the money? The network won’t be able to process all transactions. For comparison, Visa processes thousands of transactions per second.
It’s one of the main issues that prevent Bitcoin from becoming a full-fledged alternative for money. For example, Ripple, that has gained popularity in 2017 and quickly became rose to the third largest market capitalization 2, completes one transaction in 3 seconds.
Security vulnerability
Bitcoin blockchain is vulnerable to a 51% attack — if someone controls 51% of computing power, that person makes decisions in the network and can write entirely new financial history. So miners are mining blocks not only to verify transactions but to decrease the probability that someone grabs the control of the system. “Good” miners use huge amounts of energy just to protect blockchain from “bad” miners.
The illusion of decentralization
Nobody mines Bitcoin at home with a personal computer anymore. Now mining needs much more computing power to operate blocks. So miners unite in mining pools and share the profit, which may be not so high but stable.
Here is a pie chart of these mining “cartels.” Four of the top together would control more than 51% of the system. If they decide to unite (which is unlikely but possible), Bitcoin will stop being decentralized. One more interesting fact: 81% of the network hash rate concentrated in China.
Pseudoanonymity
You send money to your friend, so he knows your wallet’s public address. Now your friend can see the balance of your wallet, all previous transactions and, what is even worse, all future ones. Have you imagined that? Now you understand that anonymity is essential not only for drug-dealers or fraudsters who want to launder money. It’s the fundamental right of every person.
To avoid these, many people don’t use blockchain wallets, preferring, for example, online wallets, where public address changes automatically after every transaction so that no one would see the details of your wallet’s operations. Otherwise, they can create new wallets for every big enough transaction which needs anonymity, or they use coins that have enhanced anonymity in their bones (such as Monero).
Using Bitcoin without third-party services like exchanges and wallets is inconvenient. However, all exchanges and wallets are centralized to some extent. So the core idea of decentralization seems utopian with current state Bitcoin.
Other disadvantages
Like any other currency, there are other disadvantages associated with using Bitcoin out of technical features mentioned above:
- Wallets can be lost — if a computer crashed and the wallet file is corrupted, Bitcoins have mostly been lost.
- Bitcoin volatility — the price fluctuates according to demand, and only God knows what else. BTW, we at Bonpay make weekly newsletter where we analyze what influences the Bitcoin price. Learn more.
- No buyer protection — nothing can be done to reverse the transaction. Escrow services would assume the role of banks, which destroy the original idea of a peer-to-peer currency.
- Built with deflation — since the total number of bitcoins is capped at 21 million.
- No Valuation Guarantee — no one can guarantee its minimum valuation. A large group of merchants can dump or pump Bitcoins.
Why isn’t Bitcoin dead yet?
It’s been ten years since the invention of Bitcoin in 2009. There are more than 1500 altcoins now, but Bitcoin is still the most valued cryptocurrency with the largest market capitalization.
It was the first and for some time the only one cryptocurrency. No surprise that it has gained enormous popularity and a lot of committed fans. Some additional factors make Bitcoin special even compared to the most advanced altcoins:
Breakthrough technology
Principles used in the Bitcoin protocol weren’t new. There were trials to create virtual money before 2009, but only the creator/s of Bitcoin were able to piece them together to create a decentralized network successfully. They managed to make it work with no control center and with no one having to trust anyone.
Noble goal
Bitcoin was created as a decentralized, anonymous alternative for money. Mysterious Satoshi Nakamoto didn’t launch it to grab a few millions of dollars during ICO and ride into the sunset in the Lambo. So Bitcoin compares favorably from many altcoins because in the Bitcoin world no one should trust the CEO and the board of directors. Bitcoin’s goal is much more ambitious — to provide people with pure financial freedom.
Limited supply and high demand
The supply of coins is limited to 21 mln to avoid inflation. When compared to fiat money that may be printed uncontrollably, Bitcoin, which technology doesn’t allow to exceed the number, looks trustful. Moreover, one more time proves that the founders aimed to create new money, not to obtain some cash and leave happily ever after.
At the same time, many people want to buy Bitcoin. Bitcoin has more users than any other cryptocurrency. Cryptocurrency newcomers usually choose to invest in BTC than to bother with some altcoins. It provides the king of crypto with constant demand.
Brand recognition
A brand is more important than technological advantages. Even people who know a little more than nothing about cryptocurrency know about Bitcoin. Bitcoin is like Apple or Coca-Cola in crypto industry.
It doesn’t mean that Bitcoin is still in the game only because of the brand, it just shows that the trust level of users is higher than to any other altcoin.
Fanbase
The majority of crypto users are owners of Bitcoin. They are devoted holders, waiting for the price to skyrocket. They don’t trade daily; they don’t cash out BTC at the slightest changes in the rates. They are sure Bitcoin will be greater in the future than it is now. Bitcoin has an ideology, and people believe in it. No matter what the price is, Bitcoin has value.
What if there will be a new dominant coin?
The most significant feature of Bitcoin is that people trust in it. Anonymous Satoshi Nakamoto seems to have more credibility than founders of all those altcoins, no matter how many promises about bright crypto future they give. Actions speak louder than words.
New altcoins are born every day, but most of them don’t last long. Now everyone can create their coins, so credibility is extremely low. Bitcoin is one of a few coins that have proved to be a real deal. Everything in the crypto industry is connected with it. Any wallet or exchange works with Bitcoin. Merchants that decide to accept cryptocurrency, start with Bitcoin. All altcoins are tied up to the price of Bitcoin. Ethereum, for example, followed the Bitcoin wild rate ride in 2017, soaring from 100 USD to 800 USD in 2017, and then falling to 400 USD.
Bitcoin is called the digital gold. Gold was used as currency in ancient times but slowly changed to the asset with high liquidity. Gold is a win-win investment: times change, but it still has a high value. Most likely, Bitcoin will have the same future. It’s inconvenient to use as a currency, but it has the value that won’t be lost.
Perhaps someday Bitcoin will give first place to some other coin. Perhaps it won’t be used as money in day-to-day life. However, it will always remain the gold standard of cryptocurrency.
1 — Shunsai Takahashi, Creator Proof-of-Approval, Founder Takanium
2 — As of June 9, 2018
Originally published at bonpay.com on July 9, 2018.
