Of all the different cryptocurrencies, why should bitcoin be “the one”? This article will explore some of the different reasons why bitcoin is the only truly viable option to replace the global monetary system we have today.
There are many different cryptocurrencies which do not compete with bitcoin and are instead attempting to offer completely different services. This article solely addresses why bitcoin is the most superior cryptocurrency compared to its competitors.
1. There must be a winner. Not every coin will survive.
For starters, it must be understood that the cryptocurrency market is unnecessarily large. At the time of this writing, there are currently 8,545 different cryptocurrencies that exist (again, many are not trying to replace bitcoin). “Shouldn’t I diversify?” or “Shouldn’t I own more than one?” are questions that have probably crossed your mind when getting involved in bitcoin.
One concept which is crucial to understand is that naturally, people will want to transact in one currency which everyone agrees has value, and will therefore exchange real world items for it as a result.
One of the most respected thought leaders in Austrian economics, Ludwig von Mises describes this concept brilliantly in his famous book, The Theory of Money & Credit when he said the following:
Under Mises’ point of view, there will ultimately be one currency which outcompetes all others and is the most universally liquid form of money. Naturally, human beings don’t want to transact in thousands of different currencies because it’s inefficient and confusing to do so. Does it make sense for John to pay sally in X-coin, then for Sally to convert X-coin to Y-coin in order to pay Steve, then in order for Steve to pay Patrick, he needs to convert his Y-coin into Z-coin? Obviously not.
2. Bitcoin has the largest network effect.
Relating to the previous point, bitcoin has the strongest network effect and severely outcompetes any altcoin. According to the Real Bitcoin Dominance Index, it dominates about 80% of the cryptocurrency market against its competitors.
Network effect is paramount when it comes to technology. A great example of this would be the backbone of the internet, which is called “TCP/IP” (Transmission Control Protocol/Internet Protocol). According to computerhistory.org, similarly to bitcoin vs. altcoins, there was competition among what would be the prevailing protocol in which everything else was built on top of for the internet:
Everyone agreed on the goal: develop a global computer network. They didn’t agree on how. By the early 1980s, several different protocols competed.
OSI (Open Systems Interconnect), backed by European telephone monopolies and most governments, was favored. Other strong competitors included two corporate networks, IBM’s SNA and DEC’s DECNET. The dark horse contender was the Internet (TCP/IP), defined only by a self-governing community dependent on volunteers.
The Internet community was nimble—able to develop in months what took the OSI committee-based process years—but it scared off some potential adopters because nobody seemed ‘in charge.’”
Echoing this sentiment, even the inventor of Gmail, Paul Buchheit said “Bitcoin may be the TCP/IP of money”. Aside from that, Adam Back, CEO of Blockstream and also one of the first people to speak with Satoshi Nakamoto stated, “I think it’s like TCP/IP the internet exists. We don’t need 5800 TCP/IP copies trying to monetize and profiteer off pumpanomics or such. It detracts from value (I gather there are about 5,800 altcoins as of today)”.
Some claim that other altcoins are superior because of quicker transactions, better privacy, or another technological feature. However, these improvements can, and already are currently being built on top of the bitcoin network instead of having to switch to an entirely different cryptocurrency.
That being said, imagine if the entire world were to switch to a different internet protocol? At this point, not only would this be unnecessary, it would be impossible. Bitcoin can be thought of in the same way. It is the monetary network with the strongest brand recognition and user base. As its dominance continues to rise among other altcoins, it will continue to become increasingly unrealistic and undesirable to switch.
Metcalfe’s law essentially states that the more users a network has, the more valuable the network is. The law itself was observed by Robert Metcalfe, who was the co-inventor of Ethernet. With this in mind, Timothy Peterson (CFA, CAIA) wrote a report titled, “Bitcoin Spreads Like a Virus” in which he uses Facebook’s adoption in comparison:
“Facebook is ideally suited to comparison to Bitcoin. The lengths of each data series are nearly the same (about ten years). Both were fairly innovative, though not entirely original (Digicash preceded Bitcoin, MySpace preceded Facebook.) Both faced bans in China, a large potential marketplace. Both received widespread publicity about their adoption.”
The recent wave of corporations purchasing bitcoin has been further proof of its dominance in the market. MicroStrategy ($6B market cap), Square ($98B market cap) and Tesla ($573B market cap) did not buy Ethereum, Litecoin, Dash, Bitcoin Cash…etc. They all bought bitcoin as a result of its first-mover advantage and dominance throughout the cryptocurrency market.
Relating to altcoins, Michael Saylor, CEO of MicroStrategy also commented on the idea of bitcoin being overtaken by a competitor: “There’s never been an example of a $100 billion dollar monster digital network that was vanquished once it got to that dominant position”
3. Bitcoin is the most decentralized.
The word “decentralized” is used quite often in the cryptocurrency space. However, bitcoin is the most decentralized cryptocurrency of them all and is actually the most powerful computer network on the planet.
A bitcoin node is essentially a computer that has an entire copy downloaded of the blockchain, which updates itself every 10 minutes and keeps a publicly available record of every single transaction that occurs. Bitcoin nodes enforce the consensus rules of the network as well as communicate with each other simultaneously.
Bitcoin is distinct in this aspect because it is the most decentralized network, having anywhere between 10,000 to 100,000 nodes that currently exist. Bitnodes shows a live map of over 10,000 nodes which can be publicly displayed:
As a result of the amount of nodes running, in order to kill bitcoin, you would have to do one of two things which are almost definitely impossible:
- Shut off the entire global internet or electricity grid system all at once.
- Destroy each and every single bitcoin node that exists.
4. Hash Rate: Bitcoin is the most secure.
Hash rate is defined as “the measuring unit of the processing power of the bitcoin network”. Having a strong hash rate is crucial to bitcoin’s security because this ensures that it cannot be 51% attacked – this is essentially when over 50% of the mining power is controlled by one single entity, which would then have the ability to double spend and block transactions. If you want to learn more about 51% attacks, 99bitcoins.com has a thorough explanation listed.
Some real world examples of 51% attacks include Bitcoin Cash, Ethereum Classic, Vertcoin, and Bitcoin Gold. So, how does bitcoin’s hash rate compare with other cryptocurrencies? The chart below indicates that the difference is not even close:
Corporations are convinced of its network dominance and have bought it as a result. Historical examples of Metcalfe’s law such as TCP/IP and Facebook are very similar with bitcoin’s network effects today. It has proven to be the most decentralized and the most secure cryptocurrency compared to the competition.
With all of these things combined, the path for bitcoin appears to be pointing in one direction: Up.