What about the other coins?

How do we know that bitcoin isn’t the MySpace of crypto?

If you were a true believer in the internet in 1995, you were right where many others were wrong. But was there a way to take advantage of this insight? It would be tempting to invest in an internet company, but most went out of business in the dot com crash, even seeming no-brainers like selling pet food online at Pets.com1.

Does this same question apply to crypto?

With so many cryptocurrencies out there, how can one know which one will emerge as a significant, let alone dominant, token? When I first thought about this in 2017, I concluded that being a believer in crypto was like believing in the internet in the 90s - I still had all my work ahead of me in researching the comparative advantages of the different coins, their development teams, the regulatory environment, etc.

However, the situation with bitcoin is different - investing in bitcoin is like investing in the concept of digital money, because there is only one, and there can only ever be one. While it did require a fair bit of research to discover this, I will give you a head start here.

1- Nobody is running bitcoin. True, it was run by someone at one time, and there was an early set of developers who could exert strong influence, but that period is over. It’s like basketball - the game was invented by James Naismith, and in the early years he and other popularizers had sufficient sway to modify the rules. But at some point basketball became sufficiently popular that it took on a life of its own, and even its inventor became powerless to make significant changes. And now, while there is an official governing body of basketball, there is no such body for bitcoin. Anyone can suggest changes, but for it to be adopted this would require agreement from a majority of the tens of thousands of nodes spread across the world.

The other coins each have a founder and/or a development team that holds sway over the network. Many have a so-called non-profit foundation which also holds a large stake of coins. Most of the popular coins had a pre-mine, which is where tokens are first sold to venture capitalists at a discount in an effort to pump up the total value of the coin and give it legitimacy to crypto enthusiasts. Together, the founder, foundation, and early VC investors can exert massive influence on the direction that the coin’s monetary policy takes.

Bitcoin is unique in that not only is the founder gone, not only is his identity unknown, but even if he were to reappear and try to change bitcoin, it would be like James Naismith emerging to try to change the rules of basketball.

2- Proof of work. Proof of work enables us to distinguish bitcoin from other cryptocurrencies in a way that we couldn’t distinguish among internet companies like amazon.com versus pets.com.

Few of the other tokens use proof of work, and those that do use proof of work have only attracted small amounts of energy compared to bitcoin’s staggering energy use. Proof of work, while often considered to be a liability (I described energy confusion here), is actually bitcoin’s magic sauce. In brief, proof of work is a big part of what makes bitcoin’s transactions and total supply immutable. The amount of work done to update the transactions on the network presents a kind of barrier over which anyone seeking to modify the network must climb. At this point, even a nation state would have trouble assembling sufficient computing power to mount an effective attack. Yet this same nation state could easily approach the dominant influencers for other coins and pressure them to make certain changes.

Now we can see that there is no real competitor to bitcoin as a place to store value. Would you rather secure your value behind a fence that is 20 feet tall or 19 feet tall? 

3- Track record. Bitcoin has been running without interruption since January 2009. If you acquired a quantity of bitcoin in 2009 it would still be transferable today. Not so for most other tokens, because their underlying protocols have changed several times. Although we can’t use past performance to predict future performance, we can look at the past as a series of criticisms that have demonstrated bitcoin’s resilience to multiple threats. Bitcoin is far, far far and away the most robust, reliable, longest running token. It offers nothing fancy like smart contracts or sharding or a platform for gaming or file storage. It is just a public database of transactions.

4- Secure. Bitcoin has an undeserved reputation as being vulnerable to hacking. Quite the opposite - Satoshi Nakamoto’s bitcoin address contains 1 million bitcoin, which at the time of this writing is worth $16 billion, and at bitcoin’s peak was worth $69 billion. It is a massive honeypot sitting out in the open, for a decade, but it has never been hacked. Meanwhile, countless other crypto products have been hacked, frozen, or diluted by some malicious, greedy, or simply incompetent actor. Any yet bitcoin is often branded with the failures of its less secure competitors. When mainstream media write about the collapse of FTX or Three Arrows Capital, they often use the bitcoin logo because it is the most recognizable symbol for crypto.

No other tokens come anywhere close to bitcoin on these parameters. Bitcoin is old, rigid, has minimal features, and is very slow to change - all good qualities for a store of value.

1- The first internet ETF didn’t appear until 2006.