Bitcoin, with its unique decentralized characteristics and role as an alternative currency, stands in stark contrast to other multifunctional blockchains and their tokens, which often sacrifice decentralization in the name of innovation.

Author: Marie Poteriaieva

Translation: Blockchain in Plain Language

Bitcoin is the first, most popular, and largest cryptocurrency by market capitalization. However, many Bitcoin advocates draw a clear line between Bitcoin and the broader "crypto" space. Michael Saylor, founder of MicroStrategy and a Bitcoin supporter, expressed this view on CNBC's "Squawk on the Street." He said, "As representatives of all Bitcoin holders, we feel confused in our relationship with cryptocurrencies, and we want to break free."

Why is there such a stark divergence between these terms that seem closely related both linguistically and technically? After all, every cryptocurrency is built on a blockchain—a technology that allows for the transfer of digital assets through a decentralized network that maintains and updates a growing ledger of transactions.

The essence of "Bitcoin, not cryptocurrency" lies in the concept of decentralization. So far, no blockchain can compete with Bitcoin in this regard. However, we can reconcile this view by recognizing the different purposes served by other blockchains.

1. Decentralization is a Spectrum

Decentralization is a solution to avoid the pitfalls of central authority. Bitcoin is revolutionary in achieving a truly decentralized value transfer system, based on cryptography and economic incentives—newly generated bitcoins and transaction fees paid to miners. In return, miners invest in specialized hardware and consume vast amounts of electricity. They do this to find proof of work for each block, thereby securing the blockchain. Miners are motivated to keep Bitcoin secure, operational, and, most importantly, resistant to censorship.

The alternative to proof of work (PoW) is proof of stake (PoS), which requires validators to stake the blockchain's currency to prove their good intentions. This consensus and its variants are currently the most popular in blockchains because they allow for greater scalability. However, PoS can lead to oligarchic systems. The more coins you stake, the higher your chances of adding blocks and receiving rewards. This makes you richer, allowing you to stake even more coins. Unlike Bitcoin miners, whose power remains unchanged after mining a block, PoS validators can expand their influence.

Moreover, the issue of centralization is not limited to proof of stake consensus. A small number of nodes, liquidity staking protocols that pool user funds, nodes hosted by centralized services, high hardware requirements, and centralization risks associated with maximum extractable value (MEV) are some of the challenges that most blockchains must face.

According to Dune Analytics, on Ethereum, the second most decentralized blockchain after Bitcoin, nearly 35% of staked coins come from the top three decentralized liquidity staking services, with another 20% from the top three centralized services. Additionally, 69% of Ethereum nodes are hosted by three centralized providers, and 90% of blocks are sorted by three builders optimizing for MEV. The capacity of the Ethereum blockchain is 1.16 TB, nearly double that of Bitcoin (604 GB), making participation more difficult for average users.

Yes, the level of decentralization in most blockchains is far inferior to that of Bitcoin, resulting in weaker censorship resistance. Furthermore, unlike Bitcoin, which Satoshi Nakamoto handed over to the community less than two years after its release, most other blockchains remain closely tied to their founders. These insiders, including early investors, often maintain significant control through pre-mined coins, further concentrating their wealth and power.

Does this mean the entire "crypto" space is worthless? Perhaps it is still too early to say. Decentralization is a spectrum, and even platforms with lower levels of decentralization offer users more freedom and control than traditional network services. This gives them various application potentials beyond currency.

2. Not All Cryptocurrencies Are Currency

The primary goal of Bitcoin is to create and maintain an independent currency. As more people place their trust in Bitcoin as an alternative to traditional currency, its value has increased.

In contrast, most other blockchains, such as Ethereum or Solana, aim to be multifunctional smart contract platforms. Their goal is to support the development of decentralized applications (dapps). Through these blockchains, the next phase of the internet—Web3—can realize various innovative applications, from gaming and social media to finance and commerce.

From this perspective, Ethereum's native coin, Ether, is not a cryptocurrency. Although it can be invested in or traded, Ether is more like a utility asset for Web3 rather than a universal currency. Its primary role is to power the Ethereum blockchain, serving as payment for transactions and incentives for validators. As dapps based on Ethereum become increasingly popular, the demand for Ether rises to cover transaction costs.

Moreover, the founding teams of smart contract platforms typically operate like traditional companies. They face various challenges, such as seeking investment, solving technical issues, building communities, and marketing. The value of these blockchain native coins reflects the quality of their work in these areas, distancing them from the concept of independent currency.

In the Web3 space, many believe that this organizational form is necessary for innovation, which is hard to dispute. However, sacrificing decentralization for efficiency contradicts the spirit of cyberpunk. This further widens the gap between Bitcoin and other cryptocurrencies.

Web3 is actively developing. However, according to DappRadar, the top 15 blockchains register only 165 million independent active wallets each month. The future of this space may depend on finding the right balance between decentralization and innovation, as well as the teams' ability to hand over projects to the community at the right time.

3. Blockchain-based Tokens

In addition to native coins like Bitcoin and ETH, blockchains host a variety of tokens, each with different functions and levels of decentralization. These tokens include stablecoins, memecoins, protocol tokens, and various digital units that anyone can easily create through smart contracts. These tokens share the blockchain environment with native coins, but their value depends on the projects that issue them.

Over the years, these tokens have deepened Bitcoin maximalists' disdain for all cryptocurrencies other than Bitcoin. Many scams involving these tokens have caused significant reputational damage to the entire crypto space, even affecting Bitcoin's image in the process.

With the introduction of Ordinals and Runes, some Bitcoin holders have reconsidered their views on tokens. These protocols assign value to Bitcoin's smallest unit, "satoshis," or create tokens on Bitcoin, sparking discussions about new application scenarios for the blockchain.

However, after the initial hype, the usage of both protocols is now quite limited. Since the peak in 2023, the daily average of Ordinals inscriptions has dropped from over 400,000 to about 40,000. Runes inscriptions have fallen from over 35,000 in April to less than 400. So far, Bitcoin's role as a better form of currency remains its primary use, overshadowing other uses.

In summary, Bitcoin remains unmatched in its decentralization and primary role as an alternative currency. Meanwhile, the broader crypto space is willing to compromise decentralization for innovation and new application scenarios. Therefore, the differences between Bitcoin and other cryptocurrencies are becoming increasingly apparent.

Article link: https://www.hellobtc.com/kp/du/10/5449.html

Source: https://www.forbes.com/sites/digital-assets/2024/10/03/the-most-important-difference-between-bitcoin-and-crypto/

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