Many people seem to be convinced that the only cryptocurrency that really matters is Bitcoin. For every altcoin with a good idea, some developers are working on creating something which can overlay or otherwise use the Bitcoin protocol. For example, for Ethereum, building smart contracts and purchasing processing power, there is Counterparty and Rootstock. For Steemit, cryptocurrency-driven social media, there is (or will be) Yours. And so, the argument goes, why would we possibly need anything else when Bitcoin is already there and functioning, and we can build on top of it? Here are a few reasons.
The problems with Bitcoin
Growing pains - the block size debate and unconfirmed transactions
One problem with that argument is, that Bitcoin has certain technical limitations. The first thing that is very obvious to those who use Bitcoin frequently, is the block size problem, which otherwise might be known as "the unconfirmed transactions problem". The limited amount of data in a block, means that there can only be a limited amount of transactions. When the amount of unconfirmed transactions goes into the tens of thousands, people must wait days for their transactions to complete. That is a level of inconvenience that Bitcoin was supposed to solve, and was touted as solving. But now we see that, at its worst, Bitcoin can be just as inconvenient as the traditional banking system, or even more inconvenient.
There appears to be little movement on the block size debate with the development team. One proposed solution to solve this problem was the adoption of Bitcoin Classic. I thought that miners would adopt Bitcoin Classic, and the problem would be solved. Unfortunately, Bitcoin Classic has less and less support over time.
Source - coin.dance
Every month that goes by without resolving it reduces faith in Bitcoin as a system. If this (relatively simple) problem cannot be solved, what will happen if there is a serious problem with the protocol?
In contrast, when the Dash team realised that there might be a problem with their block size, they took a vote over the network, and every holder of Dash had the ability to have their say. The crowd voted yes, and the block size was increased within 24 hours. The Bitcoin block size debate has persisted for more than 18 months.
That leads me to another problem. The system changes are largely decided by the developers, and secondarily, the miners and noders. What is in the interest of the developers, miners and noders isn't necessarily in the interest of the Bitcoin users, which presents a problem. A central point of failure such as a development team means that the system can potentially be manipulated by shadowy interests, bribing or even threatening the developers, or for those of you less willing to speculate about conspiracies, a team can be subject to interpersonal conflict. For a Bitcoiner who is not mining, running a full Bitcoin node provides no economic returns, and is essentially an act of charity, and this makes it more likely that the amount of full nodes will diminish over time.
Of course, those are also potential problems with just about every altcoin which has been developed so far. However, a constant flow of new altcoins, with several new currencies with various features, at different levels of development and penetration, does give us a decentralised system, because if a grave problem with Bitcoin or any other coin were to occur, there would always be alternatives; there are always different places to put our money.
The next problem is, certain technical limitations which are built into the protocol. A block time of ten minutes may be suitable for many transactions, but not for certain types of transactions which involve large amounts of calculations. I've read about the idea of a decentralised poker network, but not even Ethereum has a small enough block time to provide that service satisfactorily, as people would have to wait 14 seconds at a time for each action to be processed. Perhaps there are some off-blockchain solutions to this issue, waiting to be discovered or released.
Addressing the case for Bitcoin
Bitcoin has the largest ecosystem, the largest market cap in the crypto space, the most penetration, and it's the easiest to spend - but that's not necessarily guaranteed to be the case within a year or five years. Bitcoin is mostly accessible for tech nerds and financial nerds, and trying to convince regular people that it's something valuable or useful isn't the easiest task, as laypeople don't spend a lot of time thinking about how development or acceptance of new technology will change the world.
"Can I spend at the market?" Not really. "How about the supermarket?" Not likely. "Can I pay my rent with it?" Possibly, but probably not. "Then why the hell do I want it?"
A system similar to Steemit, a social medium platform, a medium which more than a billion people are familiar with and enjoy using, has a much larger potential for growth, if you look beyond what's happening today. For someone who knows nothing about cryptocurrency, Bitcoin is confusing and unnecessary, however, Steemit and similar applications are almost immediately appealing, and have a much easier path to capturing a much wider market, much more rapidly. Assuming linear growth of Steemit at 2,000 accounts per day, it could have more penetration than Bitcoin within a few years. Assuming exponential growth, it could be a matter of months.
A new kind of money
Reading through some articles about Bitcoin maximalism, I found this little nugget.
Bitcoin created a new sub-category of commodity money: /money/commodity money/digital. Due to the nature of Bitcoin being a money innovation, and the fact that commodity money has a very particular way in which it can come to be accepted as a money (the mining or work process in extracting and preparing the commodity for use) this essentially means that a lot of technologists are wasting their efforts in trying to build better versions of it because they only see it for its technological implementation. If they only realized what many of us with financial backgrounds have realized, which is that Bitcoin is a new money, then they would be more likely to better spend their efforts building technology on top of this new money network, instead of trying to build their own version of it.
Wall Street Technologist
That's like saying that, once gold is discovered as money, silver shouldn't be used as money. We've already discovered commodity money which is a metal, so we obviously don't need another type of metallic commodity money with any. Or, when the Diner's Club card was released, other financial institutions should have said "This is the new type of money, so we shouldn't develop new versions of it, but instead, build on top of this network," and Visa and Mastercard should have never attempted to create their own infrastructure, because this is money, not just technology.
The fact that Bitcoin is money doesn't preclude it from being technology, nor from having the qualities of technologies, nor from the possibility of improving it or developing the technology for more specific needs. If people accept the Wall Street Technologist's argument, it will hold back countless innovations.
First mover advantage
Having a first mover advantage is good, but it doesn't provide any guarantees. Diner's Club had the first mover advantage too, and they enjoyed the benefits, but now Visa and Mastercard run the credit card game. How long can Bitcoin get by on that title?
Of course, a first mover advantage is a real phenomenon, but so is a second mover advantage. If the first mover doesn't fully capitalise on its opportunities - for example, if a piece of software doesn't have a user-friendly interface which is easy to understand for the masses - then it opens the gate for a second mover to swoop in and claim victory.
We can do those things with Bitcoin
Yes, you can do a lot of things with Bitcoin, strapping on sidechains and adding layer after layer. You can also strap a lawnmower engine to a wheelchair, but that doesn't necessarily make it a good idea. A purpose-built device may serve your purposes even better. Or maybe it won't - this is a new area of human endeavour, and nothing is certain.
The market cap
To give you an idea of how much the market capitalisation of Bitcoin means, here are a few companies with a market cap in a ballpark similar to Bitcoin:
- Best Buy Co. Inc. $9.99 B
- Trip Advisor $8.55 B
- Expedia $16.32 B
These companies offer a lot of great services, but nobody would claim that their market cap alone would keep them growing, or sustain them. Nobody would claim that, their market cap alone means that they are going to be around in five or ten years.
To further put it into perspective, $9 B is about the amount that Nintendo stock increased with the release of Pokémon Go, and also the approximate amount that Target stock went down when they changed their bathroom policy.
Just a few short months ago, the market cap of BTC was under $3 B, and just a couple of months ago, the market cap of ETH rose to $1.5 B. The fact that an altcoin can have such a comparable market cap might indicate that Bitcoin could be knocked off its podium in years to come.
A market cap definitely means something, but for an enterprise to continue to be successful, it also requires other things, for example adaptability, responsiveness to the market. It takes much more than a market cap to maintain growth, and that brings me to my next point.
The combination of fruit flavours
The combination of having quite a high market cap, having a large scale functional blockchain, its potential flexibility to other projects, and having the first mover advantage in a disruptive industry, definitely gives Bitcoin a few legs to stand on when it comes to longevity. Nevertheless, it doesn't negate the possibility that other coins may run in parallel, fulfilling different niches through their well-designed structures.
I love Bitcoin. I love what it does, what it has done, I love what it represents, I love that it has brought wealth to so many wonderful people, that it inspired so much innovation, that it has disrupted our very idea of what money is, and lead us to higher questions. Bitcoin is by all accounts, a very fascinating and useful technology. However, that is no reason to feel loyalty to it.
There is no reason that other services cannot run in parallel to Bitcoin, fulfilling different functions to which Bitcoin is not suited. Furthermore, if you expect the banking industry to be disrupted, then you must also expect Bitcoin to be disrupted. The only question is: when, and by what.
If there are any important points I've missed, or if I'm just plain wrong, please let me know how and why, and I will be eternally grateful. And remember to have a great day!