What is the difference between Bitcoin and other cryptocurrencies?

I've been ditching my hair for a week now and I think it prevented me from investing an extra 100 bucks in Bitcoins a couple of years ago? Even last week there was a chance to get on the outgoing train and get a plus. Against the background of sadness and sorrow, 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.

I have already described how much the market capitalization of many Altcoins is deceptive due to the recent jump in prices for most alternative cryptocurrencies.
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How to invest in Bitcoin

Being 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 do you get them?
2. Mining or mining sounds just awesome. It seems that this is how money appears. Where to find a miner and get the first bitcoin?
3. Mainig is very difficult. Probably better to just buy coins. And where to buy them?
4. Great! Now I have Bitcoins, but what are these other coins? Will they ever be able to replace Bitcoin?
5. It is necessary to take something 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 probably have a better chance of getting around Bitcoin.
8. Hmm, but they are very expensive. Maybe it is better to buy some other, just appearing?

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 never buy a single bitcoin on the market. Others stop at Bitcoin and are completely uninterested in altcoins. And there are those who are trying to hedge, buying all the Altcoins in a row. The bottom line is that no matter what path you choose, everything will develop quite predictably, but each person has his own beliefs, and each will act in his own way.

Why buy altcoins

Most often, Altcoins buy to protect themselves from possible problems in Bitcoin. Here are a few reasons to hedge with the help of altcoins:
1. In the Bitcoin network, a catastrophic failure may occur once, to which the Altcoins are not susceptible.
2. Prospects for the use of altcoins in the future is significantly higher than that of Bitcoin, so that one of the Altcoins can replace Bitcoin sooner or later.
3. Even if Bitcoin remains the most valuable cryptocurrency, there will still be a place for the Altcoins, and they will be able to occupy their niche, therefore, perhaps, the investments in them have some meaning.
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 to steal all the coins). Secondly, an economic error (for example, the code changes and gives 10 million coins to someone at a time). Thirdly, the error of consensus (for example, Bitcoin is divided into two roughly equal currencies).

Among the technical failures, the most likely are vulnerabilities in the encryption used by Bitcoin, or in the security of the consensus code used. Encryption vulnerability (a smart attack against a particular elliptic curve used in Bitcoin) will naturally shift to most other coins using the same cryptographic libraries. Vulnerability in security again spread to all coins with the same code.

In any case, the question arises: what will happen if something from the above still happens? First, if the vulnerability is discovered quickly enough, then most likely, Bitcoin developers will have time to write the necessary patch and, perhaps, immediately create a fork that is not subject to this risk. In fact, something similar has already happened , and then the fork has become 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, not only on Bitcoin, but also on most Altcoins, because people will no longer trust cryptocurrency as such. By and large, we do not know if there are undetected vulnerabilities in altcoins?

Under the economic error should be understood some changes in the economic rules of the Bitcoin. There has never been such a situation in Bitcoin; moreover, this possibility has never even been discussed. But from the recent debate on scaling Bitcoin, we know for sure that any changes require the full agreement of almost the entire community. Such an outcome, as a rule, is inadmissible 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 customers.

The last drawback, perhaps, is a real threat against which it is worth insuring. Scaling debates have shown that, at a minimum, there is a desire in the community to share a network . They propose to make a soft-fork, activated by users , or to activate the function of disabling consensus . Both that and another says that in reality Bitcoin has no leader and no dominant position. Most Altcoins have a creator, the so-called “generous dictator,” who actually decides the fate of the currency. The fact that Bitcoin doesn’t have one, bears a certain risk. Although in the absence of such a “generous dictator” there is a positive moment - the risk of economic error is reduced.

Future perspectives

Most altcoins are technically different from Bitcoin, and it is often for this reason that people invest in them. It is easy to explain such a pattern - altcoins can be used as well as Bitcoin plus some other way, which means they are more useful than Bitcoin, which means that they will somehow be able to surpass it.

It seems to be all logical. With the same technical parameters, altcoin existing in a vacuum will succeed no less, or even more than Bitcoin, also existing in a vacuum. Even if the source code bases differ significantly, but the economies are similar, then in a vacuum, the effect is likely to be similar.

But we, of course, do not have a vacuum, and the life of Bitcoin influences its use in the future. Most likely, Bitcoin itself in one form or another will transfer the necessary use case. So far, none of the properties of the Altcoins, distinguishing them from Bitcoin, have not proven their usefulness, so they were not accepted by the first cryptocurrency.

If any of the altcoins show their usefulness, then there are several ways that Bitcoin can adopt the necessary property. First, Bitcoin can easily borrow the property that it finds quite useful for itself. An example of this is the confidential transactions proposed in the Bitcoin sidechain. Certain features, however, may conflict with current Bitcoin usage scenarios. Bitcoin, for example, perfectly saves the cost , so you should think a few times before adding parameters that create more favorable conditions for the attack. And here comes the second opportunity to add the useful properties of Bitcoin. Entrepreneurs can introduce similar functionality while they make a profit. Given that it is very difficult to change the consensus, the latter method of introducing innovations into the Bitcoin network seems to be the most plausible.

In other words, altcoins have to compete not only with Bitcoin itself, but also with all entrepreneurs who want to earn money on it. It turns out that despite the fact that in some cases risk protection makes sense, all the same, most likely, as a result, Bitcoin in one form or another will switch to 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 a cost transfer, often for the sake of the movement itself. Ripple was originally conceived as a means of moving value for banks and large institutions.
The only possibility for coins occupying small niches to achieve some results, i.e. be able to do what Bitcoin cannot and will never do. Dogecoin quickly realized that it was also easy to issue Bitcoin as cash bonuses. You can argue that this is quite problematic in view of the commissions for a transaction in Bitcoin and, perhaps, Dogecoin has a chance to break through, but let's start with the fact that Dogecoin bonuses have never been given "on-chain" (on the network), like Bitcoin bonuses (ChangeTip was a centralized service). If the promotions come back into fashion, the Bitcoin ecosystem will easily cope with them. Banks transferring value to each other can do this with Bitcoin.

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

What makes Bitcoin different

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

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

Bitcoin leads the storage of value among all altcoins, and for 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 vendors, more software and more supported hardware. Bitcoin is much more liquid at volumes significantly exceeding the volumes of any altcoin. Bitcoin has the largest ecosystem of developers with a large number of software and implementations, compared to altcoin. In Bitcoin, there are more entrepreneurs who invest their intelligence, desire and creativity in the development of the network.

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

Example

To make it clearer, imagine that I am creating a coin for the spam email 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 opportunity turned out to be very useful, and many began to use it, thanks to which SpamCoin began to acquire ever-increasing value. What will happen?

Bitcoin is unlikely to directly switch to SpamCoin (although in the case of sidechains, I think you can't even stand up to 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 operation of the service. There are practically no obstacles for them to enter the market, the user base is bigger, so in the end, the new Bitcoin service will initially have the benefits of a network benefit, which cannot be said about SpamCoin.

I'm not saying that SpamCoin will lose, but on his way he will face much greater difficulties.

findings

I do not want to say that investing in altcoin is useless. Each investor must himself evaluate the ratio of risk and profit and decide whether certain coins are suitable for him. It is 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 potential profits go to Bitcoin.

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

In the course of its development, Bitcoin may begin to grow in any, the most unexpected direction, depending on the emergence of new uses. Bitcoin owners can be confident that over time its scope will only increase. Altcoin owners, on the other hand, are at great risk of not using their own coins.

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