In the world of fiat money, the USD reigns supreme. Since 1944, the USD has been the main currency against which all other currencies are pegged, with the dollar officially replacing the gold standard in 1971. In much the same way, the cryptocurrency space has its own anchor currency, and currently this role is filled by Bitcoin—but is that really most viable long-term?
How Bitcoin rose to power
Being the first decentralized cryptocurrency, Bitcoin’s dominance in the crypto market is largely the result of its first-mover advantage. As awareness of and interest in cryptocurrencies grew beyond the early community of enthusiasts and the market entered into the mainstream, Bitcoin became synonymous with this new form of digital currency.
With greater awareness came a self-perpetuating cycle of rising prices and new investors, which pushed the value of a single Bitcoin and the overall Bitcoin market capitalization sky-high—especially in 2017. For better or worse, size and power often go hand in hand, and with Bitcoin accounting for the lion’s share of overall cryptocurrency market capitalization, it’s not surprising that it currently remains the USD of crypto.
Flaws in Bitcoin as a market leader
Unfortunately, those in power are not always best suited to lead. In the case of Bitcoin, there are three key flaws that undermine its role as the leading cryptocurrency: high price volatility, slow transactions, and high fees.
The value of Bitcoin has fluctuated sharply over the past year as speculators have piled in. While this volatility may create opportunities for investors to earn profits, it does not encourage the use of Bitcoin as a currency for day-to-day transactions, and it undermines Bitcoin’s role as the cryptocurrency to which others are pegged.
The blockchain on which Bitcoin is built is one of its key advantages, providing security and transparency. However, the way that Bitcoin transactions are processed and verified means that the transaction time has increased as Bitcoin has grown in popularity—rising above 16 hours in some cases.
One way to avoid a lengthy wait is to pay a transaction fee, which creates an incentive for your transaction to be processed ahead of others. But just as Bitcoin’s security and transparency have led to increased transaction volumes, so too has its incentivized transaction speed led to a steep rise in fees.
Heirs to the crypto throne
While Bitcoin was the cryptocurrency trailblazer, a proliferation of altcoins has emerged in recent years. Building on the foundation created by Bitcoin, many of these altcoins incorporate innovations that address its shortcomings.
Tether, an altcoin that’s pegged to fiat currencies such as the USD, helps to address the volatility issue facing Bitcoin. It maintains this pegged value by holding fiat currency reserves to back the value of all Tether tokens on the market. However, these reserves are held centrally, which is perceived as a shortcoming by some, as it undermines the decentralization that’s fundamental to cryptocurrencies.
Dash offers a solution to Bitcoin’s slow transaction time. It can provide near-instant transactions as it is structured differently from Bitcoin, with a second layer of masternodes on top of its blockchain. While the blockchain provides transparency and security similar to Bitcoin, the masternodes allow faster transactions and improved governance.
No king lives forever
The cryptocurrency space is constantly evolving with rapid innovation and growth. Bitcoin laid the foundations for this dynamic industry, and today it remains the standard against which altcoins are pegged—much like the USD in the world of traditional currencies.
Nonetheless, Bitcoin has its limitations, and some altcoins are finding clever ways to overcome these deficiencies. Whether one of these altcoins some day replaces Bitcoin as the anchor cryptocurrency remains to be seen, but anything is possible in an industry that continues to disrupt the status quo.
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