Bitcoin is often referred to as the most popular digital currency and as the first alternative to fiat money. While traditional currency is valuable because it is widely used by people and institutions everywhere, and it is issued by a monetary authority, bitcoin is not yet used much in retail transactions. However, Bitcoin is similar to precious metals such as gold: both are limited resources and can only be used in select ways. Gold is for example used for luxury items and industrial applications, while cryptocurrencies’ blockchains have direct effects on the entire financial ecosystem. Even though it’s moving along slowly, Bitcoin is already serving as a medium for some retail transactions.
But what are the reasons behind Bitcoin’s dominance among other cryptocurrencies?
What does dominance mean in the crypto industry?
The dominance of one coin can be simply explained as the proportion of the entire market capitalization that the one coin accounts for. The market capitalization can be determined by multiplying the coins in circulation with their current price.
For example, when Bitcoin was the only cryptocurrency in the market, its dominance was 100%. When other coins were created, including spinoffs of bitcoin, the dominance began to dilute when measured by market capitalization.
Why is Bitcoin still dominating?
Over the years, Bitcoin has been an important trendsetter in the industry through its decentralized peer-to-peer network, and in addition, it has inspired a large group of spinoffs and various technology.
One of the key aspects as to why Bitcoin is still very successful is its blockchain technology, which was created in order to allow coin transactions to be facilitated between different users on the network without a third party being involved.
The fully decentralized system comes with some features that have attracted many fans of the technology, such as transparency, the anonymity of the users, and fast transactions.
Satoshi Nakamoto, the alleged founder of Bitcoin, chose to remain anonymous and disappeared after the cryptocurrency gained a significant amount of attention in 2011. This aspect of the story and the fact that the creator’s identity has remained hidden for over ten years has also contributed to the ongoing popularity of the coin since people are constantly theorizing and trying to unveil the truth behind the creation of the coin.
Another reason why Bitcoin is dominant is its popularity within online exchange sites. Since Bitcoin was the first cryptocurrency ever launched, it quickly became accepted by the majority of trading sites. Facing a harder time, new cryptocurrencies take some time to earn a place in the market, and fewer trading sites will carry new crypto.
Moreover, the Bitcoin halving makes it slower for new coins to be released in the market. With the demand growing at a faster rate than the supply, the price is growing exponentially, making it an attractive investment option and contributing to its market dominance.
What could threaten the dominance?
There are a few factors that experts worry about when talking about the future of Bitcoin’s popularity:
1. The environmental footprint
Crypto miners are the groups who use complicated, energy-intensive computers to solve complex algorithms in exchange for cryptocurrency. However, this adds new transactions to the blockchain, and concerns have been voiced more and more about the environmental impact of coins that use this transaction verification process, such as Bitcoin.
2. Bitcoin’s open access
Every virtual crypto transaction over time has been recorded on a blockchain, that helps to verify who rightly owns the coins in a public ledger. This can be a risk because surprises are sometimes hidden in the code – from memes to more serious information. This data can never be deleted because every subsequent block added has to contain every previous block in order to upkeep a legitimate recording of events. Otherwise, the blockchain can no longer be trusted.
3. Government regulations
Cryptocurrencies have managed to stay independent through processes to build blockchains like mining. This prevents counterfeiting and fraud, and in addition, makes them mostly immune to local regulations because of the miners’ ability to live and work from anywhere in the world. As long as miners have the necessary hardware and electricity, they can work from any country and relocate when needed.
However, even if governments might not have the authority to ban cryptocurrencies, they can ban their use in certain countries. For example, China recently issued a warning about using cryptocurrencies as a form of payment.