Bitcoin is the first functioning blockchain and decentralized cryptocurrency. Since its code is open-source, there’s been many adaptations and experiments often referred to as “altcoins”.
Many altcoin enthusiasts make wild-eyed proclamations that their coin of choice will one day dethrone bitcoin as the top blockchain. Some of these coins are pure hype, with developers copying source code so they can turn a quick buck scamming people on pump and dump schemes.
Other coins can offer better features such as speed, scalability and smart contracts. Although some of these alternative coins may offer increased innovation, bitcoin remains the dominant cryptocurrency in the world.
The main reason why Bitcoin is still the king of crypto is because it serves as a decentralized reserve cryptocurrency. Within any market, value is measured by comparing one thing to another. Usually there’s one type of currency that becomes the dominant choice for comparing the values of most things traded.
Bitcoin has always been the main cryptocurrency for measuring altcoin values and may continue to do so for years to come. Here are the main reasons why BTC remains the reserve cryptocurrency of choice.
The Most Secure Blockchain
Bitcoin is the most peer reviewed and time tested blockchain in the world. It functioned as a blockchain for eight years and has survived many network attacks. It also has the greatest amount of hashing power securing transactions, making it the most expensive blockchain to conduct a 51% attack on.
Some people claim that Bitcoin is outdated because it lacks the sophistication of newer blockchains. Bitcoin’s simplicity is actually a strength as oppose to a weakness because it reduces security vulnerabilities on the network.
Although blockchains like Ethereum are paving the way for innovation, it’s still highly experimental and has already suffered from multiple bugs. We have yet to see the long term effects of a turing complete blockchain.
Liquidity and Stability
Bitcoin ranks as the top cryptocurrency for liquidity and price stability. It’s often used as a gateway to purchase altcoins because it’s available on more exchanges with the most fiat pairings.
Even when the price is going sideways, bitcoin ranks #1 for trading volume. In fact, most altcoins are paired against bitcoin, which technically counts towards its volume.
Generally speaking, liquid markets tend to have better price stability. Although a stable bitcoin price makes for poor trading conditions, it gives it greater utility as a global currency. Stability reduces the risks for merchants and makes it easier for traders to measure the price movements of other cryptocurrencies and lock in profits.
Looking at the bitcoin volatility index, we notice a drop in volatility as the market matures.
Bitcoin may soon have the first crypto ETF traded on Wall Street. This will give institutional investors easier exposure to the currency and may significantly boost liquidity. The immediate impact may show a bullish increase in price and volatility but may stabilize as new levels are set.
Store of Value
Security, liquidity and stability all contribute to bitcoin being used as a long term store of value. Many altcoins have bull runs but it has yet to be determined which ones retain their value over the long haul.
The bitcoin supply is fixed with its inflation regulated by mathematics. Unlike many of the new coins and ICOs, development is completely voluntary and there’s no centralized organization that has full control over the network.
There’s a long list of over-hyped dead altcoin projects and we will likely see more join the ranks. Even most of the top coins of 2014-15 that have managed to stick around have lost most of their value.
The main problem with altcoins is that they’re constantly being diluted with new ICOs and coins. Traders tend to abandon old coins to chase the next big thing and these markets are driven by FOMO and hype.
Bitcoin also has the most infrastructure which adds to its utility as a currency. Many traditional investors are looking at bitcoin as a non-correlated asset class, which is hard to find in today’s economy.
There will likely be many new blockchain projects on the horizon and more hype about killing Bitcoin. Perhaps the best way to promote new projects isn’t by trying to compete directly against Bitcoin but by fulfilling another niche in the market.
Bitcoin is dealing with a $10 billion market cap, so development has to be ultra conservative. Bitcoin may not have all the new shiny bells and whistles but it doesn’t need to. Building smart contracts and faster transactions does little to directly compete against Bitcoin.
Once a coin becomes the dominant currency to measure altcoin values and has the most liquidity, then we can talk about its potential to dethrone Bitcoin. Talk is cheap without this being the main metric of success. Although layers of complexity can be added to the network on the periphery, Bitcoin never claimed to be anything other than an alternative global currency and store of value similar to gold.