What is the difference between Bitcoin and other cryptocurrencies

I've been tearing my hair out for a week now and I think that prevented me from investing the extra 100 bucks in bitcoins a couple of years ago? Even last week, there was a chance to catch the departing train and get on the plus. Against the background of sadness and sadness, I had a chance to delve into the foreign press. Under the cut, Jimmy Song 's curious story about how and how bitcoin differs from other cryptocurrencies.

Earlier, I described how market capitalization of many altcoins is misleading due to the recent surge in prices for most alternative cryptocurrencies.

How to invest in Bitcoin

Having been familiar with Bitcoin for a long time and firsthand, I noticed that many, gradually discovering this system for themselves, change their attitude towards it. As a rule, people think like this:
1. Wow! Bitcoin is great! Their release is limited, and my money is under control. Where to get them?
2. Mining or mining sounds just awesome. That seems to be how money appears. Where to find the miner and get the first bitcoin?
3. Mining is very difficult. It’s probably better to just buy coins. And where to buy them?
4. Great! Now I have bitcoins, and what are these other coins? Will they ever be able to replace Bitcoin?
5. Something needs to be done in this case. Maybe buy some of these altcoins?
6. But there are so many of them, I can never figure them out. What to choose?
7. I know, I’ll just buy the most popular ones - they most likely have more chances to get around Bitcoin.
8. Hmm, but they are very expensive. Maybe it’s better to buy some other, just emerging?

Many stop at one stage or another. For example, I know people who have never bought Bitcoin, but always mined them on their own. They happily spend thousands of dollars on mining equipment, but they will never buy a single bitcoin in the market. Others stop at Bitcoin and are completely uninterested in altcoins. And there are those who are trying to hedge themselves by buying all the altcoins in a row. The bottom line is that no matter which path you choose, everything will develop fairly predictably, but each person has his own beliefs, and each will act in its own way.

Why buy altcoins

Most often, altcoins are bought to protect themselves from possible problems in Bitcoin. Here are a few reasons to insure yourself with altcoins:
1. On the Bitcoin network, a catastrophic failure may occur one day that altcoins are not subject to.
2. The prospects for the use of altcoins in the future are significantly higher than those of Bitcoin, due to which one of the altcoins may sooner or later replace Bitcoin.
3. Even if Bitcoin remains the most valuable cryptocurrency, there will still be a place for altcoins, and they will be able to occupy their own niche, therefore, perhaps investing in them makes some sense.
Let's examine each item in more detail.

Bitcoin Crash

There are several options for the catastrophic death of Bitcoin. First of all, these are technical malfunctions (for example, some kind of bug that will allow you to steal all the coins). Secondly, an economic error (for example, the code will change and give someone 10 million coins at a time). Thirdly, a consensus error (for example, Bitcoin will be divided into two approximately equal currencies).

Among technical malfunctions, the most likely are the vulnerability in the encryption used by Bitcoin, or in the security of the consensus code used. An encryption vulnerability (a “smart” attack against a particular elliptic curve used in Bitcoin) will naturally transfer to most other coins using the same cryptographic libraries. A security vulnerability again applies to all coins with the same code.

In any case, the question arises: what will happen if any of the above does happen? Firstly, if a vulnerability is discovered quickly enough, then, most likely, the Bitcoin developers will have time to write the necessary patch and, possibly, will immediately create a fork that is not exposed to this risk. In fact, something similar has already happened , and then the fork became the reaction of the community.

It is more interesting to know what will happen if the moment is missed. Most likely, the price will drop sharply, and not only for Bitcoin, but also for most altcoins, because people will no longer trust cryptocurrency as such. By and large, we don’t know if there are undetected vulnerabilities in altcoins?

An economic error should be understood as certain changes in the economic rules of Bitcoin itself. There has never been such a situation in Bitcoin, moreover, such an opportunity has never even been discussed. But from the recent Bitcoin scaling debate, we know for sure that any changes require the full agreement of almost the entire community. Such an outcome, as a rule, is unacceptable a priori.

On the other hand, the prevention of technical and economic errors requires a talented, dedicated and reliable team of developers, as well as a risk that must be confronted. Of course, all altcoins are subject to such a risk, however, it is worth noting that Bitcoin is one of the few cryptocurrencies that has a natural barrier in the form of alternative clients.

The last drawback, perhaps, is a real threat, which is worth insuring against. The scaling debate has shown that at least there is a desire in a community to share a network . They suggest making a soft fork, activated by users , or activating the consensus disconnect function . Both that and another speaks that in reality Bitcoin has no leader and there is no dominant position. Most altcoins have a creator, the so-called "generous dictator", which actually decides the fate of the currency. The fact that Bitcoin does not have it carries a certain risk. Although in the absence of such a "generous dictator" there is a positive point - the risk of economic error is reduced.

Future Prospects

Most altcoins are technically different from Bitcoin, and often for this very reason, people invest in them. To explain this pattern is simple - altcoins can be used in the same way as Bitcoin plus somehow else, so they are more useful than Bitcoin, which means they will someday be able to surpass it.

Everything seems to be logical. With the same technical parameters, the altcoin existing in a vacuum will succeed no less, if not more, than Bitcoin, which also exists in a vacuum. Even if the source code bases are significantly different, but the economies are similar, then in a vacuum, the effect will most likely be similar.

But we, of course, do not have a vacuum, and the life of Bitcoin affects its use in the future. Most likely, Bitcoin itself in one form or another will take over the necessary use case. So far, none of the properties of altcoins that distinguish them from Bitcoin have proved to be useful, therefore they were not accepted by the first cryptocurrency.

If any of the altcoins shows its usefulness, there are several ways in which Bitcoin can adopt the necessary property. Firstly, Bitcoin can easily borrow a property that it finds useful enough for itself. An example is the confidential transactions offered on the Bitcoin sidechain. Certain features, however, may conflict with current Bitcoin use cases. Bitcoin for exampleperfectly saves cost , so it’s worth several times to think before adding parameters that create more favorable conditions for an attack. And here comes the second opportunity to add useful Bitcoin properties. Entrepreneurs can introduce similar functionality while they make a profit. Given that it is very difficult to change consensus, the latter method of introducing innovations into the Bitcoin network seems the most plausible.

In other words, altcoins have to compete not only with Bitcoin itself, but also with all entrepreneurs who want to make money on it. It turns out that despite the fact that in some cases the protection of risks makes sense, it is nevertheless most likely that as a result of Bitcoin in one form or another, it will take over other usage scenarios and nullify all the advantages of altcoins.

Highly specialized use

Undoubtedly, many altcoins are trying to occupy their niche. Dogecoin, for example, is built on a reward system and value transfer, often for the sake of movement. Ripple was originally conceived as a means of moving value for banks and large institutions.
The only opportunity for coins that occupy small niches is to achieve some results, i.e. Be able to do what Bitcoin cannot and will never do. Dogecoin quickly realized that issuing Bitcoin as a cash bonus (reward) is also easy. You can argue that this is quite problematic in view of the transaction fees in Bitcoin and, perhaps, Dogecoin has a chance to break ahead, but to begin with, bonuses in Dogecoin were never issued on-chain (on the network), like Bitcoin bonuses (ChangeTip was a centralized service). If promotions go back into fashion, then the Bitcoin ecosystem can easily cope with them. Banks sharing value with each other can do this with Bitcoin.

The question of occupied niches is similar to the question of future use, but not so large-scale. Entrepreneurs have many reasons to bring similar, profitable innovations to Bitcoin, given the wider base of its users.

What is the difference between Bitcoin

The main advantages of Bitcoin are the effect of network benefits and proven security. Both of these benefits are virtually irresistible .

Bitcoin has a proven use case - value storage . It is significant that most coins try to somehow differ from Bitcoin, therefore they offer less popular use cases, including forecast markets, completely anonymous purchases or the addition of a decentralized name server.

Bitcoin is the leader in value storage among all altcoins, and over the 8 years of its existence, it has not had a single failure. Bitcoin security is much higher than its younger counterparts

In addition, Bitcoin is much more affordable - more exchanges, more sellers, more software and more supported hardware. Bitcoin is much more liquid with volumes significantly exceeding the volumes of any altcoin. Bitcoin has the largest ecosystem of developers with a lot of software and implementations compared to altcoins. Bitcoin has more entrepreneurs investing their intelligence, desire and creativity in the development of the network.

Competing with Bitcoin, you compete not only with the largest user base, development team and mining, but you also compete with the largest ecosystem of startups, open source projects and entrepreneurs.

Example

To make it clearer, imagine that I am creating a coin for an email spam filter. Let's call our currency SpamCoin. This altcoin allows you to send a message only after paying a certain amount of SpamCoin coins. Suppose that this feature was very useful, and many began to use it, so SpamCoin began to acquire more and more value. What will happen?

It is unlikely that Bitcoin will directly take over the SpamCoin function (although in the case of sidechains, I think you can’t even resist this). But it is likely that some entrepreneur will create a similar service based on Bitcoin. They initially have a much larger base of potential users, and no SpamCoin is needed for the service to work. They have practically no obstacles to enter the market, the user base is larger, so in the end, the new Bitcoin service will initially have the benefits of the network benefit effect, which cannot be said about SpamCoin.

I am not saying that SpamCoin will lose, but on its way it will encounter much greater difficulties.

conclusions

I do not want to say that investing in altcoin is useless. Each investor must evaluate the ratio of risk and profit and decide whether certain coins are suitable for him. It’s clear that altcoins will not protect you in the event of a Bitcoin crash. Altcoins are subject to the same risks, and a large share of the potential profit goes to Bitcoin.

Undoubtedly, there is a chance that some altcoin will take the place of Bitcoin, but first it must show its profitability (now, not in the future), it must develop independently in order to compete before the Bitcoin ecosystem has a chance to add the same function .

In the process of its development, Bitcoin can begin to grow in any, most unexpected direction, depending on the appearance of new use cases. Bitcoin owners can be sure that over time, its scope will only increase. Owners of altcoins, by contrast, are at great risk of refusing to use their coins.

In other words, Bitcoin is already ahead of everyone in the circle, and with a great advantage, given its ecosystem and resources. There are two factors that help Bitcoin succeed: stability and entrepreneurship. Today, for both of these indicators, Bitcoin is much ahead of any altcoin, and it will be very difficult to catch up with it.