Three reasons why altcoins have failed to overthrow Bitcoin

When people first learn about Bitcoin, they often feel like they missed out on the opportunity, having not caught the wave of skyrocketing prices of this cryptocurrency over the past decade. This has at least to some extent become a reason why many are interested in whether there is an altcoin that could eventually overthrow Bitcoin to become the world's largest digital asset.

Altcoins may give newcomers a feeling that instead of joining a game where early development opportunities are scarce, it is better to seize favorable opportunities in new projects. However, no altcoin has managed to overthrow the king yet.

Setting aside the obvious inherent advantages of Bitcoin, the key challenges that altcoins face include the network effect of Bitcoin as a currency, their own lack of decentralization, and the fact that the Bitcoin network can evolve. Now, let's take a closer look at the three reasons why altcoins have not been able to take down Bitcoin's dominance.

Bitcoin's Network Effect as a Currency

From the start, altcoins have faced a serious problem because most people prefer to use a cryptocurrency that is more reputable, liquid, stable (relatively), and trustworthy compared to any other cryptocurrency, which is Bitcoin.

The network effect is crucial for a currency, perhaps more so than for social media. When both parties in a transaction use the same currency network, it is not only Bitcoin users who can transact more easily. As broader adoption reduces price volatility, Bitcoin has become a more reliable store of value. As reported last year, over time, the Bitcoin network has gained more users and its price volatility has been decreasing.

According to a recent report by Bloomberg, as a store of value, Bitcoin has clearly emerged victorious in the battle against other cryptocurrencies in terms of adoption rate. Altcoins must demonstrate enough innovation to convince users to hold and use a new currency that is not as convincing as Bitcoin.

The chart below depicts the dilemma of the altcoin market in recent years. The Bletchley Index tracks the value of specific cryptocurrency asset portfolios. The Bletchley 10 follows the top ten market cap cryptocurrencies, Bletchley 20 tracks twenty mid-cap cryptocurrencies, and Bletchley 40 tracks forty small-cap cryptocurrency assets. In the chart below, we compare the performance of Bletchley 10, Bletchley 20, and Bletchley 40 indices to Bitcoin.

Trustworthy Decentralization and Resistance to Censorship

The credibility of Bitcoin's value proposition as a decentralized, apolitical, and uncontrolled digital asset also benefits from Bitcoin's network effect.

As demonstrated by the failure of the SegWit2x plan, Bitcoin is resistant to changes that cannot achieve broad consensus, and it is this resistance that protects its system's unique and valuable characteristics—including Bitcoin's monetary policy.

SegWit is essentially a patch to fix transaction scalability issues, which is highly beneficial for the development of second-layer protocols like the Lightning Network. While Segregated Witness (SegWit) largely gained support from the Bitcoin community, some influential members rejected this change, which combined an upgrade with a block size increase hard fork.

To prove its value, cryptocurrency innovation must be based on a trustworthy decentralized network. However, no altcoin has demonstrated itself in this respect like Bitcoin has (as seen in the case of SegWit2x). If users can easily co-opt a cryptocurrency network or control it, there is no guarantee that the predictable issuance policy of the asset will remain unchanged. This issue is crucial for the success of an asset that emphasizes a non-politically influenced monetary policy as its main selling point.

Some projects in the cryptocurrency industry, such as Ripple's XRP, have such a low level of decentralization that it is questionable whether assets like these can even be classified in the same category. This

Bitcoin's Network is Witnessing Innovation

While Bitcoin remains resistant to tampering, it is also open to innovation. Although some may consider Bitcoin's network relatively slow pace of change as making it an "antique" in the realm of cryptocurrencies, new features are actually being added to the world's most popular cryptocurrency network in a way that preserves the first two key factors—network effect and decentralization. Furthermore, with developments happening on the second layer like the Lightning Network, Bitcoin's evolution is also faster because changes on the second layer do not require consensus among all Bitcoin full nodes.

Some of the most popular features in altcoins have already appeared on the Bitcoin network, such as smart contracts, privacy, and micropayments.

In the realm of smart contracts, Bitcoin is expected to gain more functionality through the integration of Tapscript. Furthermore, the integration of the Simplicity language will provide smart contract developers with greater flexibility. Additionally, there is the RSK sidechain, which is essentially a clone of Ethereum but uses Bitcoin instead of Ether as its base token.

In terms of privacy, CoinJoin has implemented protocols like JoinMarket and ZeroLink for maximum privacy in Bitcoin usage. In the long run, moving more transactions from the base blockchain to second-layer networks like the Lightning Network and sidechains should help users avoid many privacy issues faced when using public blockchain-based monetary systems.

A key goal of Bitcoin network development is to consider the long-term impact of any potential changes to the network. Payments are a good example of this goal. The SegWit patch was used to implement a second-layer protocol that could bring faster and cheaper payments without breaking the essential permissionless nature of the underlying Bitcoin protocol, rather than simply achieving greater transaction capacity through block scaling.

A key issue in altcoin innovation is that the drawbacks of new features are often overlooked or even completely ignored. Smart contract platforms have scalability issues and lack formal verification. Many privacy-centric altcoins' implementations may be non-scalable or involve experimental cryptography. Meanwhile, public chains focusing on increasing TPS come at the cost of higher node operation costs, which to some extent compromise their decentralization. Those involved in the Bitcoin development process often focus on avoiding these pitfalls when introducing these features to the Bitcoin platform.

While altcoins may seize headlines by quickly rolling out new features and enjoying short-term price spikes, most of these solutions are not viable for decentralized systems due to long-term sustainability issues like rising costs of operating full nodes. Watching altcoin experiments with real money is certainly interesting, but many of these systems may end up being just "testnets" for the features that will ultimately be implemented on the Bitcoin network.

This article is from our partner LONGHASH

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