In the ever-evolving world of cryptocurrencies, Bitcoin stands tall as the pioneer and leader, setting itself apart from the myriad of alternative coins, often colloquially referred to as "altcoins" or, more controversially, "shitcoins." While the cryptocurrency market is flooded with a plethora of digital assets, it's essential to recognize the unique qualities that make Bitcoin different and, I will argue, superior. In this blog post, we'll explore the distinctive features of Bitcoin that sets it apart from the thousands of other cryptos.
1. Decentralization and Security:
Bitcoin's genesis block was mined in 2009 by the pseudonymous creator Satoshi Nakamoto, marking the beginning of a decentralized financial revolution. Unlike traditional fiat currencies or many altcoins, Bitcoin operates on a decentralized network of nodes, ensuring no single entity has control. This decentralized nature is a cornerstone of Bitcoin's security, making it resistant to censorship and immune to single points of failure.
Altcoins, on the other hand, often lack the robustness and security that comes with Bitcoin's extensive network. Many of these alternative cryptocurrencies compromise on security and decentralization for the sake of features that might not stand the test of time. Some have small cabals of people that are in control of the destiny of the currency (such as a corporation, a foundation, or perhaps only a few anonymous leaders). Much like the erosion of governmental integrity and transparency often paves the way for increased issuance of currency, the same can undermine the fiscal discipline required to maintain a stable and trustworthy monetary system. Even if the organizers resist outright corruption, they are susceptible to influence by governments or other powerful actors, which is in effect, the same.
2. Store of Value:
Bitcoin is often hailed as "digital gold" due to its scarcity and its capped supply of 21 million coins. This limited supply is a fundamental breakthrough in tradable/exchangeable assets. Human civilization has never had such an asset before the invention of Bitcoin. The people that truly understand Bitcoin recognize that it is the future of money and that it will become the global currency. This is not simply a hedge against inflation, but the cure for inflation.
Many altcoins, however, lack this fundamental characteristic. With an abundance of new tokens flooding the market regularly, their value propositions often become diluted, and they fail to establish themselves as a store of value comparable to Bitcoin. Ethereum last year (2022) created an incentive structure where users can 'stake' their Eth and earn a return. In times of high network demand, this can even trend the Ethereum network dynamics to deflationary economics. However, Ethereum originated as an investment, has a small cabal of rulers, and after moving to proof of stake, it is hard to argue that purchasers are not expecting returns. I believe these are the reasons SEC Chairman Gary Gensler could not say that Ethereum was not a security.
3. Network Effect and Recognition:
Bitcoin boasts the most extensive and established network effect in the cryptocurrency space. Its recognition as the first digital currency that worked will never be replicated. This first-mover advantage is tremendous. When the attributes of permission-less, leaderless, and self-custody are stacked on top of this advantage, it is difficult to see how any other currency could supplant its position. While there is extensive incentive to create a competing currency that you and a small cabal of your friends control, when you play out the game theory of all currencies trending to one, there is no lasting incentive to join a competing currency*. It is for these reasons that institutional investors, businesses, and individuals are more likely to trust and adopt Bitcoin due to its proven track record and widespread acceptance.
The term "shitcoins" is often associated with alternative cryptocurrencies that lack recognition, face liquidity issues, or have dubious use cases. The network effect that Bitcoin has achieved over the years sets it apart from these lesser-known and often short-lived altcoins.
Conclusion:
In conclusion, Bitcoin's unique combination of decentralization, security, scarcity, and network effect distinguishes it from the multitude of altcoins in the market. While alternative cryptocurrencies may offer innovative features, it's crucial to scrutinize their fundamentals and potential for long-term success. As the cryptocurrency landscape continues to evolve, Bitcoin remains a beacon of stability and trust, demonstrating why it deserves its place at the forefront of the digital revolution.
* I do think that there are short-term incentives to own things other than Bitcoin. You can buy and sell stocks, real estate, or even shitcoins if you think you can increase your stack of Bitcoin faster that way. This is an inherently risky game, because Bitcoin historically has outsized returns, big volatile moves, and a simpler strategy is to DCA. If you chose to play the trading game, good luck! I confess to owning more than Bitcoin.