Why Bitcoin is Different than other Cryptocurrencies.
Let me start by asking this question, what comes to your mind when you hear the word “cryptocurrency”?
The first thing that comes to most people’s mind is Bitcoin. However, there are a couple of other cryptocurrencies that are worthy of consideration. These currencies came around after Bitcoin and are generally known as altcoins. Ethereum, Litecoin, and Electroneum fits into this category. No, they are not exactly the same as Bitcoin and they are not nearly as valuable. You are thinking, why do people invest in altcoin? The answer is coming up shortly, stay with me.
Why People Invest in Altcoins
A lot of people that invest in Altcoins do it as a way of hedging against Bitcoins. There are a number of reasons an individual might want to use Altcoin as a backup against the financial risk of investing in Bitcoins trading. These reasons include,
- In case Bitcoin fails.
- Future utility of Altcoin.
- It’s still not a bad investment.
I’m sure the idea of Bitcoin failing tickled your interest. Relax, let me explain further, I’ll start with the catastrophic failure of Bitcoin.
In Case Bitcoin Fails
The truth is that Bitcoin is not completely immune to sudden death. In fact, there are many reasons Bitcoin can die. The first major reason would be a technical flaw. How is that possible?
It can come in a form of a vulnerability in cryptography or the consensus code of Bitcoin that can be exploited. If such vulnerability is caught early, Bitcoin would patch to reduce its exposure and fork very quickly (that has already happened). Now, imagine if such vulnerability wasn’t caught on time, what would be the result? I’ll tell you what, a huge drop in price. The only problem is this huge drop will undermine confidence in other cryptocurrencies as well.
However, the possibility of a split in Bitcoin is a major reason to hedge with altcoins. If you had been paying attention to the scaling debate, there are people in the community clamoring for a permanent split. Some have even suggested a User-Activated Soft Fork.
Future Utility of Altcoins
There are technical differences in Altcoins that explains the reason why people invest in them. They have the value (not as much) associated with Bitcoin and another unique property that allows them occupy their own niche. For example, Ripple was developed as a way for banks and other large establishments to transfer value.
Bitcoin is Still Not a Bad Investment
This is the major reason most people invest in Altcoins. It’s a way of diversifying their Cryptocoin portfolio, with the end goal of reducing the risks. Ethereum has enjoyed a decent increase in value in the past couple of months, and so has Litecoin.
Sorry for the short digression. Let’s get back to the subject matter, shall we?
What Makes Bitcoin Different from Other Cryptocurrencies?
There are two major things that makes Bitcoin distinct, compared with other cryptocurrencies. These are; the network effect and proven security that it possesses.
Bitcoin has existed for eight years without failing in its role as a large store of value. The length of years it has been in circulation is a proof that it is more secure than any other coin in circulation.
In addition to these, the many merchants, exchanges, more software and hardware support for Bitcoin makes it more accessible than any other cryptocurrency. Compared with other altcoins, Bitcoin is more liquid, it is easy to convert to cash. Finally, it has a larger volume than any other altcoin.
Basically, any Cryptocoin competing with Bitcoin is contending against an incredibly large userbase, a huge development team, and wide spread mining operation.
This article was not written to tell you the disadvantages of investing in other cryptocurrencies. That was why I actually started by discussing reasons you should invest in altcoins. There are actual benefits of investing in altcoins. You just need to have a correct evaluation of your risk-reward ratio. To know which investment is favorable for you, and which is not.
In truth, using other Cryptocurrencies as a hedge against Bitcoin is not really a good idea. This is because, eventually, entrepreneurs will find more use for Bitcoins. Altcoins on the other hand, stands a high chance of being disused over time.