When we say “cryptocurrency” most people hear “Bitcoin”. No doubt, as BTC is bigger than all of the other coins on the crypto market combined.
Today, we will explore why after 11 years and thousands of altcoins, Bitcoin is still the number one cryptocurrency.
Money is about trust
The value of money is determined by one primary attribute — trust. This is true for both, fiat and cryptocurrencies.
In the early monetary system, money was backed by some tangible commodity, usually gold or silver. You could actually bring a certain amount of gold to the bank and get the bill with an equal amount.
Using paper money instead of gold was convenient, as it is easily divisible and weighs much less. The tie to the real and scarce asset ensured that the money will not lose value over time.
However, in the early XX century, most of the countries abandoned the “golden standard” monetary systems due to complex macroeconomics reasons. From this point, the trust in money shifted from trusting something (gold) to trusting someone. In this case, this“someone” is the government.
That’s where the term “fiat” enters the scene. Essentially, fiat money translates from Latin as “money by order”. This means that the value of Dollar, Euro, or any other “real” currency is backed by nothing but the word of the government.
The money itself has no value. The whole monetary system is based on the common agreement to trust the legal status of the currency given by the central authority.
Centralization is the main disadvantage of fiat money. Government has a monopoly on issuing the currency, therefore it can flood the market with more cash and cause inflation. This is exactly what has been happening with the USD, as the Federal Reserve Systems’ response to almost any financial crisis is to turn on the money printer and throw more cash into the circulation.
This results in inflation and the lack of trust towards the government, and therefore towards the value of a currency. But what was the alternative?
Bitcoin — the first real alternative
Before blockchain, there have been many attempts to create an alternative to the fiat monetary systems. However, all of them failed to find the solution to the double-spend problem without the central authority. All of them, except Bitcoin.
With its introduction in 2009, the Bitcoin network presented the first real alternative to fiat banking. Instead of trusting someone, like the centralized government whose decisions are not predictable, you can now trust the decentralized network with transparent rules.
Trust is a key figure in determining the price and adoption of a cryptocurrency. Bitcoin is the number one crypto not because it has the best blockchain, nor because it is the fastest. There have been many altcoins that are much more technically advanced. Bitcoin is still on the top of the crypto mountain mostly because it was the first to introduce the fundamental principles of all cryptocurrencies.
It is essential to understand that just like fiat, Bitcoin is not backed up by anything. It is simply the store of value. All the factors that make the Bitcoin number one crypto are based on the investors’ trust towards the blockchain, and also the fact that BTC was the pioneer in the crypto field.
So, what are those factors that make Bitcoin the biggest?
The Trendsetter
At first, the trust towards Bitcoin was as low as its price. But as the adoption and popularity of the coin increased, people started to realize the real value behind cryptocurrency.
People trust not the Bitcoin itself, but the technology behind it. BTC was the first project to introduce blockchain solutions to finance. Therefore, it serves as the main illustration of its success and failures. If Bitcoin fails, then the foundation of all crypto space will collapse. This results in a higher demand for Bitcoin when compared to altcoins.
This makes Bitcoin a trendsetter of crypto market direction as it determines the price of other cryptocurrencies. This is well seen in the most recent crypto industry rally, which started after PayPal announced that it will soon accept Bitcoin and crypto payments. This news increased the trust in Bitcoin and therefore its value, which also boosted the price of other cryptocurrencies.
Industry-standard
Bitcoin has the highest adoption rate among all the cryptocurrencies. There are many ways to spend your BTC – thousands of online and offline stores accept it, and larger companies, like Microsoft, are catching up.
It is also very convenient to travel with BTC, as you can withdraw local cash from any of 10,000+ Bitcoin ATMs all around the globe. The adoption rate is increasing every year — since 2013, the number of places that accept Bitcoin rose by 1,000%.
It is now an industry standard for any business or project working with cryptocurrencies to first accept Bitcoin, and only then expand to altcoins.
Flawless Network
Due to a large number of miners, the Bitcoin network has very low chances of being obstructed by the so-called 51% attack. It occurs when a group of miners controls at least 51% of the network, which gives them the ability to disrupt the blockchain.
According to crypto51, the cost of 1 hour of 51% attack on the Bitcoin network is about $433,000. This amount can jump as it depends on the hash rate of the asset.
Currently, most of Bitcoin’s computing power is located in China. We can assume that the Chinese authorities will be able to seize control over the blockchain by unifying the work of the mining companies. However, experts are confident that this will never happen.
Mining companies will not destroy their source of income. Even if someone dares to attack the Bitcoin network, it will not destroy it. At max, it will lead to failures that can be solved by releasing an emergency update.
The Bitcoin network has been working smoothly without errors for many years. So far, there is no reason for this situation to change.
Deflationary by Nature
The deflationary nature of Bitcoin came into the spotlight in 2020 when the central banks of large countries introduced extraordinary measures to support the economy. Since the beginning of the year, the total money supply of the U.S., Europe, and Japan has increased by $5 trillion.
At the same time, it is impossible to increase the number of Bitcoins. Under any circumstances, it will not exceed 21 million coins.
This means that unlike the $USD, which can be issued infinitely, Bitcoin is not subject to inflation. On the contrary, over time, the supply of the BTC on the market will decrease.
This means that even if the demand stays the same, its price will increase. Bitcoin is programmed to gain in value over time, which makes it much more valuable than fiat money.
Out of 21 million Bitcoins that will ever exist in total, 18 million have already been mined. In addition, people lose access to the crypto wallets reducing the amount of BTC in circulation. There are more than 1,5 Million Bitcoins that are currently lost forever.
As the Bitcoin adoption rate increases, the demand to own at least a fraction of BTC will also increase, pushing the value of the coin up to the moon.
Conclusion
Money is all about trust, no matter if it is fiat or crypto. The trust towards Bitcoin is the highest among all cryptocurrencies due to the fact that it pioneered the industry and formed its fundamental principles.
Maybe one day some super technologically advanced altcoin will overthrow BTC from the throne, but today it is still the #1 crypto that determines the trends of the whole crypto market.