Note: This is Part 2 of a two-part series on how Bitcoin differs from other crypto markets. See Part 1 here.
If Bitcoin fails and eventually falls into obscurity, then Bitcoin was just a Ponzi game. However, this characterization also holds true for successful and widely used currencies. they are bubbles that are not effectively poppedSome forms of money are considered more reliable than others. Still, the similarities between money, bubbles and Ponzi games can cause a great deal of confusion for cryptocurrency market participants.
What is clear is that the speculative activity taking place in the rest of the crypto market cannot compete with Bitcoin as a money or savings mechanism, at least in the traditional sense. predictability, safety, longevity, andset in stone”, and no other crypto market comes close to Bitcoin in that respect.
Bitcoin monetary policy credibility
Bitcoin’s key differentiator in terms of its ability to function as money is the reliability of its monetary policy. The fact that new bitcoin issuance rates do not change over time is even more important than the often touted cap of 21 million. future.
Bitcoin holders know what they are getting when they first buy cryptocurrencies and worry about external factors such as central banks and potential inflation of traditional fiat currencies caused by central banks. No need to. supply shock It causes unexpected changes in the price of goods in the physical world.
Jamie Dimon, CEO of JPMorgan Chase, recently said: claimed Bitcoin creator Satoshi Nakamoto could one day reappear and inflate the bitcoin supply on a whim. However, this is not possible due to the design of the system. Satoshi can propose code changes to the market, but operators of full nodes on the Bitcoin network must accept the changes en masse. The difficulty of making controversial changes was made clear by the end of the block size wars in 2017 (Click here for details).
As a side note, one of the main criticisms of the idea that Bitcoin’s monetary policy is already fixed is that in situations where transaction fees alone cannot provide sufficient income for miners, monetary policy may need to be changed. is that there is (as new bitcoin issuance in the form of block subsidies approaches zero), weakening the security of the system. If you don’t use bitcoin that much, then bitcoin no longer works as money.
For the most part, money use cases are credited to Bitcoin. . But none of these options come close to Bitcoin in terms of monetary policy credibility. It means that the If Dogecoin is its closest competitor, it’s safe to say that the currency-focused altcoin concept itself is pretty much dead.
Additionally, Ether’s monetary policy was only recently changed in the final stages of its transition from proof-of-work to proof-of-stake, so it will take a long time for that particular policy to create credibility.
Different Strokes: Money and Technology
So far, the most successful cryptocurrency projects besides Bitcoin have been more tech stocks than money. Compared to Bitcoin, systems like Ethereum make a different set of tradeoffs when it comes to functionality, centralization, security, and various other factors. While other platforms are striving to be the best platform for developing decentralized applications, Bitcoin makes tradeoffs. This tends to make the system’s issuance policy less reliable and more centralized. A reliable form of savings.
Platforms such as Ethereum, BNB Chain, Tron, and Polygon resemble traditional tech stocks, especially when you look at how transaction fees effectively pay dividends to stakers in that particular system’s underlying cryptocurrency. If a platform becomes useless for applications such as stablecoins, non-fungible tokens (NFTs), decentralized finance (DeFi), the value of its crypto assets should decline over time (and vice versa). ). This same framing applies to her DeFi token, which shares revenue with token holders.
This view of the cryptocurrency market makes it clear that there is much more competition in this space than there is for Bitcoin’s niche use case as money. First, various layer 1 blockchains want to become platforms for this kind of decentralized application.
Second, it is unclear how much it makes sense to expose this kind of activity on a public blockchain in the first place. As discussed in Part 1 of this series, there are many centralization points in these applications. This indicates that it may make more sense to demonstrate a more centralized approach at the base layer, whether through traditional servers or permissioned blockchains. This adds an extra layer of complexity and uncertainty to the general lack of credibility from a monetary policy perspective when it comes to using these cryptoassets for long-term savings. increase.