Opinion: Why isn’t there another Bitcoin?

Written by Pete Rizzo, Kraken Editor-in-Chief

Pete Rizzo is a leading Bitcoin historian and author of over 2,000 articles on the cryptocurrency. He is also the editor of Bitcoin Magazine.

The views and opinions expressed in this article are those of the author and do not necessarily reflect the views of Kraken or its management. This opinion is not investment advice.

Bitcoin, an invention of computer science, is a world first that will never be repeated.

Bitcoin was not created out of thin air. Decades of previous electronic cash projects have failed, but each builds on the incremental progress made by the others. Bitcoin was the culmination of this process and a victory shared by the entire scientific community.

Some predecessors, such as DigiCash, were too dependent on trusted institutions to gain market acceptance. Others, like HashCash, created currencies based on computer networks, but were unable to retain their value over time.

Finally, there have been horror stories, such as Liberty Reserve, where e-money operators were blatantly arrested and imprisoned for their work.

All of these projects shared the common goal of breaking down government currency monopolies and creating a viable internet currency free of central control.

Here are 5 ways Bitcoin succeeded while this project failed:

• We issue BTC, an asset, in a fair and transparent manner without a central issuer.
• Allow users to participate in and benefit from network operations
• Provides strong property rights assurance through encryption
• Adopting a fixed, immutable monetary policy
• Provides users with tools to continuously improve Bitcoin

Many in the digital asset space agree that Bitcoin has achieved all of the above. Therefore, the chances of Bitcoin being out-competed by government or private market alternatives are incredibly high.

These achievements represent a value proposition that exceeds the sum of its parts. Among thousands of cryptocurrencies, Bitcoin remains unique.

fair release

Satoshi’s genius was that he decided to use an earlier invention called Proof of Work (PoW) to distribute Bitcoin to anyone willing to secure the network with their computing power.

To mint new Bitcoins, Bitcoin users compete to solve mathematical puzzles using computer equipment and consume electricity and resources to verify their work. In return, they receive newly mined BTC through a process called mining.

This distribution created a level playing field and fostered a global community.

Crucially, this system meant that Nakamoto did not have to sell, issue, or market Bitcoin. In 2011, he also handed over the operation of the Bitcoin software to a community of open source developers, none of whom he paid directly or received any form of financial compensation from.

Users earned Bitcoin by providing services to the protocol, trading energy for ownership, or trading directly with each other. This design ensured that work was required to receive Bitcoin.

Bitcoin’s success was about more than creating a new currency. It was about creating a system that distributed value in a way that could not be manipulated and that would not lead to unfair advantage. any user. Satoshi, like everyone else, mined all the Bitcoin he received.

Today, Bitcoin issuance remains a level playing field, but this is not the case with many alternative cryptocurrencies that are still looking for alternatives to PoW.

Many of these allocate scarce data disproportionately within their networks, often through internal sales. This allows these advantaged users to acquire more currency or have a direct say in both network development and economic policy.

Bitcoin is free from these fairness and manipulation issues.

open network

Essentially, Bitcoin is a system of rules for managing a globally distributed database that tracks ownership of data within the economy.

For a network to function effectively, many participants must maintain and synchronize copies of the database and agree that there are no inconsistencies in those copies. Otherwise, like old electronic money, there is a risk that users may be assigning data they do not own or have not acquired. In other words, new coins can be fraudulently created and distributed.

All Bitcoin competitors face problems. There is a direct relationship between the size of a database and the ability of network users to maintain copies of that database.

Bitcoin makes careful trade-offs to maintain accessibility to this important feature. Any blockchain network can be thought of as consisting of three types of actors:

• mine workerYou are rewarded for helping secure the network by discovering new blocks and linking them to previous blocks (building the blockchain).
• nodeKeep the process honest by tracking transaction history and checking for new transactions.
• userA person who conducts transactions based on trust in these checks and balances

As with all cryptocurrencies, these essential features have barriers to entry. Crucially, however, Bitcoin’s barriers are not a product of the protocol but of market forces. Anyone who wants to secure a database can find access to electricity and computing power to do so. Users who want to check the database can do so by downloading and saving the ledger.

Both activities are influenced by the computing resource market.

Other cryptocurrencies add features that increase the cost of running these features. Some assign the ability to determine fees to specific users, allowing the user securing the database to instruct their peers to hold a certain amount of cryptocurrency or meet other criteria that they dictate in order to receive the cryptocurrency.

These sacrifices tend to be rewarded with wealth and influence. This is similar to a government-run economy where the supply and distribution of money is controlled by a small number of individuals rather than market forces. Bitcoin has no such compromise.

strong property rights

Property rights are defined as the exclusive right of an individual or organization to use, manage, and dispose of resources obtained through labor at their own discretion.

This may be intuitive to anyone living in a country that protects these rights, but not everyone in the world is entitled to these rights. In some countries, even democracies, governments can use (or abuse) the legal system to freeze a person’s bank account.

This is another dilemma common to other cryptocurrencies. It is possible to change ownership allocation by adding features to a cryptocurrency or changing its rules to force users to download new, incompatible software.

Bitcoin relies on backward-compatible upgrades to its software. This means developers prioritize changes that don’t force users to upgrade. Users can run any software compatible with the Bitcoin network without sacrificing functionality (but may sacrifice security).

Different cryptocurrencies often introduce incompatible changes to their software, and those who oppose the changes can no longer enjoy the same benefits as everyone else. Refusing the upgrade may result in your coins not being accepted within the economy.

Developers can gauge user opinion when proposing incompatible software, but ultimately every user is influenced by the majority of other users.

Bitcoin allows minority groups to cling to previous versions while keeping Bitcoin and its value intact, even if they face security trade-offs. This tolerance for differing opinions sets Bitcoin apart as a defender of property rights.

As long as you hold the private keys of your Bitcoins, you have guaranteed ownership of those coins. As long as you are running Bitcoin-compatible software, you can be confident that you will be able to transact using those keys within the Bitcoin economy. Likewise, you can be sure that there will be no more than 21 million Bitcoins.

fixed currency policy

All money is based on a social contract. Users agree to exchange their labor for a medium that they can later use to freely acquire goods and services.

The history of money has been dominated by two types of systems with different kinds of social contracts.

• market-based currencyIt is like gold, based on a limited quantity of assets that cannot be created by humans.
• government based fundingSince governments can print these currencies at will when using them to pay their bills, they are prone to inflation.

Bitcoin is a market-based currency and has all the characteristics that determine a currency.

• that durable: Bitcoin will exist as long as there is internet and electricity.
• that portable: You can access your funds from anywhere in the world.
• that scarce: All users can clearly see that there will only be 21 million Bitcoin left.

Due to its fair launch, open network, and strong property rights, Bitcoin’s monetary policy is not only fixed but also trustworthy. Users can be assured that changes will remain unchanged unless all of the millions of users agree to the changes.

In contrast, other cryptocurrencies offer unreliable and variable monetary policies.

Some change so frequently that they are no different from government-managed funds, and their value can vary depending on political circumstances. Like a central bank, it controls the money supply and takes actions aimed at price stability and economic growth.

Others have no restrictions on issuance, making them less reliable.

Likewise, global central banks use monetary policy tools to control their domestic money supply. As the Federal Reserve has shown, these institutions are vague about when and why interest rates change. Often only insiders help make decisions.

Likewise, those using stablecoins, dollar-backed cryptocurrency assets, or formal forms of central bank digital currencies (CBDCs) are only opting for these existing systems.

infinite improvement

The above characteristics lay a strong foundation for Bitcoin, but these characteristics alone are not enough to ensure that Bitcoin will not be replaced by alternatives. This is why Bitcoin’s last property is perhaps the most important: its ability to change and improve.

It seems highly unlikely that Bitcoin will scale to benefit the world’s 8 billion people as it is currently established. Work must be done to develop additional transaction layers that can expand Bitcoin’s underlying capacity without sacrificing its core value proposition.

In the past year alone, Bitcoin developers have achieved feats previously thought impossible, including unlocking Turing-complete smart contracts without changing the core code and new ways to convert Bitcoin into non-fungible tokens. .

The ability of Bitcoin users to successfully implement attractive new features makes existing crypto networks offering similar features redundant.

In the expanding sea of ​​competing cryptocurrencies and government-managed funds with diverse and ever-changing policies, Bitcoin stands alone.