The name cryptocurrency is definitely misleading. In fact bitcoin is not actually considered a real currency to date (it is legal tender in only a few countries). Bitcoin is a digital asset, a digital property. The U.S. Securities and Exchange Commission (SEC) has defined it as property (thus different from security). Bitcoin is therefore for all intents and purposes an asset, as a house or land.

In contrast, the other cryptocurrencies, on which the SEC has not yet expressly ruled, might be considered securities. As a matter of fact, they seem to be some sort of stocks of blockchain companies. Unfortunately, in the absence of clear regulation, these companies operate without the transparency and reporting requirements typical of publicly traded companies. And they often have many of the following: known founders, a management team that can possibly modify the protocol, a treasury, they started by doing fundraising, there are premined tokens, i.e., created before launching the network. In essence, we can say that other cryptocurrencies are somehow centralized.

The importance of the network effect

Bitcoin is the first cryptocurrency and it is the most widespread. In information technology, the so-called “network effect” is crucial.

Technically speaking, Bitcoin is nothing more than a protocol, that is a set of rules that establishes how multiple computers communicate with each other. Other protocols that we use every day are, for example, TCP/IP, that we use to connect to the Internet, or http, that we use to view a site on our browser, or SMTP, that we use to send and receive email.

All of these protocols are not necessarily technically the best, but they are the ones that have spread the fastest. And because they do what they are supposed to do sufficiently well, it is very difficult for them to be supplanted by their competitors. TCP/IP for example is certainly less advanced than other protocols for connecting to the Internet, but because it is now globally widespread and works well enough, it is not being replaced by the alternatives. Even updates to the same protocol are not being adopted, since almost the entire Internet still uses TCP/IP version 4, created back in 1980.

For this reason, even if technically better cryptocurrencies were to be created than Bitcoin, which serve the same goals, they are unlikely to be able to replace it. The alternatives to Bitcoin that have been developed over the years, which proclaim themselves to be better in some aspects (such as Bitcoin Cash, Litecoin, and many others) while initially gaining some acceptance, are gradually losing more and more ground to Bitcoin in terms of popularity.

The value of the Bitcoin brand

There is another factor to consider namely the strength of the brand. Bitcoin has a name that is now very well known, by far the best known in the cryptocurrency industry. This gives additional strength to its network effect and makes it harder for other cryptocurrencies to take its place. And Bitcoin has achieved this branding supremacy without any money being spent on advertising, while other projects that have invested a lot of resources to promote themselves have not been as successful.

Therefore, the other cryptocurrencies have to find different applications and have substantial differences in order to be successful. For example, Ethereum is proposed as a platform to execute smart contracts, something that Bitcoin is not able to do by having a very simple programming language that allows sending and receiving money and little else. We can say that all the other cryptocurrencies are still in an experimental phase: they are mostly looking for different applications than Bitcoin aims for and are also subject to very large and continuous changes in their own rules. Ethereum, which is the most widely used cryptocurrency after Bitcoin, substantially changed some of its protocol rules in 2022, particularly its consensus algorithm (moving from Bitcoin’s Proof-of-Work to a different system called Proof-of-Stake), in some ways admitting that what it had built up to that point was not a scalable technology.

As for Bitcoin, on the other hand, we can consider it from a technical point of view no longer as an experiment but as a made-and-finished product. In fact, although it is actually being worked on continuously to perfect it, the changes that are being made are minimal and occur very slowly because Bitcoin is already able to perform sufficiently well the function for which it was created.

Image Credits: Yegor Petrov