Bitcoin, the queen of crypto-currencies?
In any case the proposal made by the developer Bitcoin Core Jimmy Song at the start of April 2018, through a great post titled " Why Bitcoin is different ."
This platform, which can no doubt be seen as partisan, will not please the "altcoin maximalists" - investors who expect the "king" Bitcoin to end up, in the years to come, being dethroned by a corner more recent, more powerful and offering additional features.
Apprehended with the necessary hindsight, it seems to us particularly interesting insofar as it allows to better understand why, in spite of an older and less advanced technology than that of many blockchain networks, the BTC still represents today, 9 years after its arrival, more than 45% of the valuation of the ecosystem.
The article you are about to read is a free translation of Jimmy Song's text. The "I" that expresses itself is the "I" of the author. Feel free to consult the original ticket by clicking on this link .
If you are new to the Bitcoin ecosystem, then the past few months have been rather hectic. We witnessed mad outbreaks and paralyzing falls, in a whirlwind of emotions difficult to control.
The evolutions of the price are sometimes exciting, sometimes painful. It is easy enough to lose sight of what you have invested in.
And since all the corners seem to evolve in the same direction, what is the difference? How can one distinguish a corner from another? And, more importantly, how can an investor predict the value a long-term area can reach ?
In this article, I will try to explain how the BTC is a different cryptocurrency. I will try to show how Bitcoin is a system that, despite the many copies that have been developed, has never been truly replicated .
A real innovation
In order to fully understand the value proposition of Bitcoin, it is interesting to look back a bit. It is tempting to believe that the last ICO or the latest altcoin is the one who will manage to "improve" the Bitcoin, to settle all its problems, and that the Bitcoin will soon be relegated to the dustbin of history because it would lack a " feature "in particular. Indeed, almost every altcoin , ICO or "hard fork" think it's fundamentally innovative.
What they forget is that the greatest innovation has already taken place .
Decentralized digital scarcity is the true innovation . Bitcoin was the first to introduce it and, as this article tries to demonstrate, it continues to be the only corner of this type. All other so-called innovations - such as faster confirmation times, changes to "proof-of-something", "turing-completeness", another signature algorithm, another way of processing transactions and even privacy - all this is that slight variations of the gigantic innovation of Bitcoin .
It is important to remember that alternatives to Bitcoin have been proposed since 2011 - and none of them have been able to replace Bitcoin in terms of price, usage or security.
The IxCoin was a clone of Bitcoin, created in 2011, which had larger blocks and a premine (a significant number of corners were assigned immediately to its creator). The Tenebrix was altcoin created in 2011, which tried to integrate a "resistance GPUs" - which also included a premine important. The Solidcoin was another altcoin , launched in 2011, with "blocktimes" less important, and, again, a premine .
The only corners born under this age who have managed to survive (and whose network is still used) are the Namecoin and litecoin - the corners that also share the characteristic of not being accompanied by a premine .
And ICOs are not something new. The Mastercoin led an ICO in 2013, with, you guessed it, a premine , and had managed to raise more than 5000 BTCS. He had to change his name (and become Omni) because his ecosystem was not good enough for him. The Factom had launched an ICO in 2015, and had harvested more than 2,000 BTCs. The entity behind it had then organized several rounds of funding for additional funding because it no longer had the funds to develop it.
In other words, all these new "thrilling" tokens have generally accomplished little, and have not brought any real utility. The altcoins and ICOs have tried many "features" different, and most have not proved useful, or have not been widely adopted.
But then, what makes a currency happen? Why does Bitcoin have a special role in the ecosystem? Why is it different?
Exploring two unique aspects that make the Bitcoin is different from others: the network effect and decentralization .
The network effect
As Bitcoin claims the largest network, and thus benefits from its network effect, the other corners only play a game of catch-up.
It's a bit like Bitcoin is a week of 7 days, and every other altcoin offers a variation (Let's set up a week of 4 days! Let's limit the days to 18 hours! Let's change the names of the days! Let's change the durations weeks according to the wishes of a central authority!).
This goes without saying, but these "innovations" are, at best, minor, and are not generally adopted. The reason is this: Bitcoin's network effect is growing over time , and users using the network are making the standards set by the network more optimal, leading others to turn around. , in turn, towards him.
As the network expands, we see the subtle, previously unseen benefits that can be attributed to each of the standards set by Bitcoin.
At first glance, this may seem inefficient and will bring benefits to those who comply with the norm. For example, if cars do not fly or roll on water, it is because these vehicles have been optimized for use on the ground. The lack of additional features makes cars more useful, as it is easier to park (with a smaller size than a theoretical hybrid boat / car / plane), they are less expensive to use. maintain, to supply energy, etc.
In addition, these standards were able to withstand the test of time, and were able to prove their resilience, in a way that was not necessarily obvious at first. You would not want, for example, to be the first person to fly in a hybrid car / plane car, since you do not know if such a vehicle is secure enough. Conversely, a vehicle that has been in use for decades has been able to prove its safety.
In a sense, Bitcoin offers the most interesting "bug bounty" to encourage computer scientists to look for possible security vulnerabilities . And therefore, Bitcoin has been able to prove its security with the only thing that really allows to test it: time .
For their part, the other corners are younger and / or showed that they were less secure.
Thus, the dubious nature of many new "features" becomes, over time, extremely clear. For example, the fact qu'Ethereum uses a programming language "turing-complete" makes all the more vulnerable platform (as shown by the flaws TheDAO and Parity ).
Conversely, Bitcoin's smart contracts language, Script, did not seek to be "Turing-complete" - that's precisely why! The usual answer of the central authority of a corner is to solve these vulnerabilities through an even more authoritarian behavior (rescue plans, hard forks , ...). In other words, the network effects and time act with centralization, as a catalyst which will make altcoins even less resistant .
For its part, Bitcoin relies on the largest network. Thus, the utility of Bitcoin will increase simply because it claims the largest number of users. It is, for example, much easier to get accessories to put on a popular smartphone than it is for a non-popular smartphone. The ecosystem built around Bitcoin makes the fact to obtain and maintain much easier BTCS that this is the case (s) " altcoin / ICO of the week."
Decentralization
The other main property of Bitcoin, which enjoys no other corner , is decentralization .
By decentralized, I mean that Bitcoin does not suffer from any single point of failure or bottleneck. Each of the other corners is based on, and has the greatest influence on, a founder or a company that is at the origin of it.
A hard fork imposed on the users, for example, constitutes the proof that a corner is relatively centralized.
Centralized corners certainly have the "advantage" of being able to evolve quickly, in order to face the demands of the market. Centralization is good for businesses as they seek to generate profits by offering good products or services to their customers. A centralized company is able to better respond to market demand, and to make changes to its offer in an attempt to increase profits.
But for the money, centralization is a bad thing.
First, one of the main value propositions for a store of value is that it must be an asset whose properties will not change over time (immutability). A store of value needs that its qualities remain the same, or improve over the years. A change that would change its properties (an increase in supply, a decrease in acceptance, a change in security) will drastically change its usefulness as a store of value.
Secondly, the centralization of a currency may tend to lead to rule changes - which often implies catastrophic effects. Thus, through the history of central banks during the 20th century, we can see a slow deterioration in the usefulness of fiduciary currencies as valuable reserves. That is why they have, on average, a life of only 27 years - despite the fact that they are supported by powerful entities (governments), and that it is almost universally used as a means of exchange in an entire country.
But for a currency to survive, its "features", its ability to react quickly or its rate of use are far from being as important as its rarity and immutability .
Each cryptocurrency, each ICO other than Bitcoin is centralized. For an ICO , it is obvious. The entity that is at the origin represents the centralized part. She issues this token, and may decide to change the way it will be used, change the incentives around it, or issue additional tokens. She may also decide abruptly not to accept these tokens for her goods and / or services.
The altcoins suffer from the same problem - even if it is not, at first sight, so obvious. Usually, the creator is, in fact, a kind of "dictator" for the corner he has created. It has power similar to that of a government. The implementation of taxes (developer's tax, storage tax, etc.), inflation, a change in the direction that the network will take (TheDAO, proof-of-X, ...) are often decreed by the creators. As a holder of a altcoin , you not only need to trust the leadership in place, but you also pray that the next leaders of the cornerdo not confiscate your assets, tax them or decide to increase the supply of outstanding coins .
In other words, the altcoins and the ICOs are not so far from the fiduciary currencies. In a world of altcoins and ICOs , you are no longer sovereign on your own corners!
This is especially true for the main "competitor" of Bitcoin: Ethereum. Whatever approach you decide to take, Ethereum is controlled by a central entity. Ethereum has caused at least 5 hard forks, which have imposed themselves on its users. They decided to compensate for poor decision-making related to TheDAO. They evoke even now the idea of a new " storage fee ".
This centralized control was also apparent from the beginning of Ethereum with a premine result .
Bitcoin is different. One of the best things that Satoshi could do is disappear . In the early months of Bitcoin, Satoshi controlled everything that was developed very closely. By disappearing, it allowed us to find ourselves in a situation in which the different participants who disagree have the opportunity to indicate the direction they would like the network to take. Each update ("soft forks") is voluntary, and these do not force anyone to do anything to keep their BTCs.
In other words: there is no single point of failure .
Bitcoin relies on a system in which, even if an entire group of developers were overturned by a bus, there would still be many open-source implementations that would offer alternative choices to users. With Bitcoin, you are sovereign on your own BTCs .
This is a very good thing, since no central authority has the power to erode the usefulness of your corners . Therefore, Bitcoin is really rare (and not theoretically or temporarily rare), its qualities will not be changed without community agreement, so it is an excellent store of value.
Conclusion
Tokens, Cryptocurrencies and AltcoinsYou may be wondering: why the altcoins are they so many, and why did they manage to exceed collectively the market cap of Bitcoin? First, the market cap is given a highly manipulated . Secondly, the markets are, by their very nature, a lot of "noises": they only go away after a long period of time.
Because of the network effect and decentralization, Bitcoin is different from all other pretenders to its throne . This is not to say that nothing can ever replace the Bitcoin. Such a statement would be far too general and far too optimistic about its chances of success.
What seems clear if we study the history of crypto-markets is that Bitcoin has always dominated them, and it will not give up its first place so easily. And the addition of a new "functionality", which could compromise the network effect and decentralization, would not be a relevant initiative.
What would it take for an asset to succeed in replacing Bitcoin? It seems that it would emerge an innovation at least as important as it has been the BTC itself, or that there is a bug that would jeopardize the safety of Bitcoin . But if a corner wants to catch up, changing a few variables will not be enough. Even the addition of an important feature (such as anonymity) does not seem to me sufficient, since the network effect has already created a specific Bitcoin ecosystem.
Moreover, decentralization is not easy to achieve, and altcoins have not yet found the methods that might allow them to make such a direction. And the simple idea of trying to take this direction suggests that it is about centralized corners ! It is hard to imagine the creators of a valuable corner wanting to decentralize it, as they have an emotional, economic and social incentive to retain some control over their creation.
Bitcoin is different: unlike altcoins , Bitcoin has created a new category , and may therefore enjoy a network effect. Bitcoin will continue to be different from others: unlike centralized corners , it is driven by the market, it is immutable and elusive. These are characteristics of an excellent store of value, and this gives Bitcoin a utility that no other token can claim.
As investors bullish, it is tempting to believe that we have found a altcoin or ICO that will do better than the Bitcoin, and that will make us "early adopters" of this revolution. Unfortunately, such wishful thinking will have no effect on such fundamental characteristics as network effect or decentralization. Over the last 7 years, thousands of corners have failed to replicate these characteristics - characteristics that explain why Bitcoin is the only one to be a true revolution.
Also read: " Is Bitcoin a currency? "
This article does not constitute an investment recommendation. We suggest that you conduct your own research before deciding to purchase cryptocurrencies - extremely risky assets. Do not spend more than you can afford to lose. We will not be held liable for any loss of capital, in connection with the reading of this article.
