Since the creation of Bitcoin, there have been hundreds of altcoins created that are supposed to be the next big cryptocurrency. The first one to gain any real success was Litecoin, and now we’ve seen the likes of Peercoin, Dogecoin, and others get their time to shine. While some of the newer variations of Bitcoin offer some interesting characteristics, it’s important to remember the power of Bitcoin’s position as the first cryptocurrency ever created. For a variety of reasons, Bitcoin is already halfway around the track as these new altcoins are just about to takeoff from the starting line.
The first reason that Bitcoin has a huge advantage over newer altcoins is the network effect. Since almost everyone who finds out about cryptocurrency only really knows about Bitcoin, that’s the one they’re going to buy and try to integrate into their daily lives. When new merchants decide to accept cryptocurrencies as payment, they are usually just talking about Bitcoin. Bitcoin already has the largest community, and bitcoiners want to get all of their friends and the rest of the world to join that particular community. There are many more bitcoiners out there telling people about Bitcoin than dogecoiners telling people about Dogecoin or litecoiners telling people about Litecoin.
The first-mover advantage in the cryptocurrency space is unique because of the effect that it has when it comes to price stability. A stable price is one of the most important features of any form of money, and even the price of bitcoins is not stable enough for most people to handle right now. The volatility of the bitcoin has gone down over the years because it now takes a larger amount of money to push the price in one direction or the other. The reason that it will be extremely difficult for any altcoin to gain a larger share of the market than Bitcoin is the reality that Bitcoin’s much larger market cap is actually what allows it to hold onto that top spot. Litecoin is currently in second in terms of total market cap (not counting Ripple), but the value of all the litecoins in the world is 1/20th of all the bitcoins. Not only is Bitcoin more widely used than Litecoin, but the reality is that it takes 20 times the money to move the price of bitcoins than it does to move the price of litecoins (relatively speaking). It should also be pointed out that Litecoin could probably never takeover for Bitcoin when its main claim to fame is that it’s the “silver to Bitcoin’s gold“.
Taking the Good Ideas
It would definitely take an amazing new set of features to replace Bitcoin as the top cryptocurrency in the world, but it’s important to remember that Bitcoin can add new features when they prove to be popular with other altcoins. As of right now, altcoins are basically a laboratory for new features that could be implemented in Bitcoin. There are a few projects, such as Ethereum, Mastercoin, Invictus, Namecoin, NXT, and others, that are trying to do something completely different from Bitcoin, but these projects aren’t really competing with Bitcoin directly. These projects seem to be a move in the right direction because they are actually using the blockchain technology for something besides money and payments. Bitcoin has the market pretty much wrapped up as of right now when it comes to using the blockchain technology to create a currency, but there are still a countless number of other uses for decentralized consensus that will be explored in the coming years.
The Only Plausible Scenario
The only real possible scenario where an altcoin could overtake Bitcoin is if there is some serious flaw in the code that basically causes Bitcoin to stop working. The real problem with this situation is that altcoins are also based on the Bitcoin blockchain. This means the flaw would likely also exist in those altcoins. It’s also important to point out that the Bitcoin blockchain could be rolled back or forked after the bug was removed, and then everything would continue from that last good block. The fact that Bitcoin could fail is what gives some altcoins a bit of “intrinsic value“, but it’s likely that those altcoins would fail with Bitcoin is something horrific were to happen.
Last modified (UTC): April 20, 2014 18:31