Bitcoin is a nascent technology that is like no other. Many cryptocurrencies have tried to replicate its qualities, but they simply fail. But what is it that makes Bitcoin so unique?
It’s tempting to think (hope) that a new cryptocurrency will be the new Bitcoin, one that will fix all Bitcoin’s problems and be able to scale to meet the demands of 8 billion people and become a currency overnight, but the truth is they won’t because they don’t have Bitcoin’s unique characteristics.
Why Bitcoin Is Unique
Decentralized digital scarcity is Bitcoin’s main unique innovation, but to understand why, it’s necessary to look at its history and that of the cryptocurrency space.
All the other cryptocurrencies that have faster transactions, are private, can host applications on a Turing Complete system, etcetera, are all slight variations of Bitcoin’s uniqueness.
There have been many “next Bitcoins” since the first attempt: Namecoin in 2011, but none of them have come close to displacing it.
It started with people having ideas about how to fix Bitcoin’s problems and when they were frustrated at not getting their ideas implemented, they went about and created their own clones, such as Namecoin, SolidCoin and Litecoin.
There have been many interesting projects since: Factom, Ethereum, EOS and even IOTA, and they have all been dubbed “the next bitcoin” or “the bitcoin killer” at one stage or another.
They all have different qualities, and are interesting, but they haven’t been adopted. Why not? There are two main reasons: network effect and decentralization.
The Bitcoin Network Effect
Bitcoin has the largest network of any cryptocurrency, by far. So much so that other cryptos are essentially playing catch up.
Because the network effect of Bitcoin grows over time and the people using it, it has the effect of locking more and more people in.
And as it grows, unseen benefits accrue and become the next norm. To some, these may seem insignificant, but they actually have huge benefits to the Bitcoin network.
When describing the power of networks, it’s a good idea to look at Metcalfe’s Law, which states the value of a network is equal to the square of its user base. As a result, adding new members to a network causes it to enjoy disproportionate gains in value.
There are many stages to the network effect but it starts with people willing to speculate, and grows through different layers, such as hodlers, who then encourage merchants to accept it.
This will drive development, which all together ensure it’s price rises. This encourages miners to keep working on it, which also helps with the liquidity of the trading aspect of the network effect.
All of these and many other use cases are solidifying and growing the Bitcoin network effect.
Once Bitcoin can scale to meet deman, regulatory approval becomes more likely, and even more mainstream products will be developed, and this will add to the utility of Bitcoin and ultimately the network effect.
Network effect is so critical to a currency or platform being a success, that if other cryptocurrencies don’t grow theirs, they will eventually die off. Think about it, why would a developer create an application for an unpopular system when he can create it for a popular system?
Bitcoin The King of Decentralization
Bitcoin’s other main property is its decentralization. No other cryptocurrency comes close to Bitcoin’s decentralized properties.
They all claim to be decentralized and are to a degree, but Bitcoin is the only crypto that doesn’t have a central point of failure. Every other crypto has a founder or company that launched it, or has been there shilling it since hardforking Bitcoin.
There’s an advantage to these more centralized altcoins. Having a central figurehead, they can implement change much faster than can be done on Bitcoin. But if you want to be a “money” as well as an operating system or even a faster currency, you have to be fully decentralized.
All altcoins with their central backing who have influence in changes to the protocol are pretty much the same as governments. They can do exactly the same things, too. As a holder of an altcoin, you have to trust the central figure, and as time goes on, you’ll have to trust all future leaders of the crypto too.
Bitcoin Has No Central Point of Failure
Bitcoin is different from all altcoins. Bitcoin is unique. One of Bitcoin’s greatest strengths is that it doesn’t have a central figure. A central point of failure.
It was launched by pseudonymous Satoshi Nakamoto back in 2009, and to this day, nobody knows who he is. Or is that who they are?
The early days of Bitcoin, Satoshi controlled the network. He mined it all on his CPU, made the first transaction and built up the network without anyone noticing. This isn’t just impossible for altcoins to do. In fact, it would be impossible to do ever again.
The network is now run by everybody participating in it. The hundreds of thousands of miners and nodes are the defacto decision makers and every change to the protocol has be agreed upon by 51% of the network. With altcoins, that central point of failure heavily influences any decisions in protocol changes.
There are over 5000 cryptocurrencies all offering something “different”. The problem with all of them is that they can’t offer the same network effect or decentralization that Bitcoin has. Most of them will die off, and maybe all of them will one day.
Bitcoin will scale, and it will be much easier to use one day. But with a truly decentralized coin, things take time, but it’s all good. Bitcoin is building its network effect every day, and as each day goes by Bitcoin gets stronger.
Bitcoin doesn’t pretend to be an operating system yet, it doesn’t even pretend to be peer-to-peer everyday cash yet, but it will be. Altcoins have many different abilities, but none of them can compare with Bitcoin’s decentralization or network effect, and they never will. Bitcoin is unique.
Author: Tommy Limpitlaw