Bitcoin will have to evolve to maintain its dominant position in the future.
When I read articles on Bitcoin or Altcoins more generally, I often find that some influencers try to explain that Bitcoin is different and that other cryptocurrencies such as Ethereum, Ripple, or IOTA are not direct competitors.
Indeed, Bitcoin is exclusively a digital currency while Ethereum, Ripple or IOTA, to mention only these Altcoins, pursue different goals by being a smart contract platform, an interbank exchange medium, or the implementation of the Tangle, a technology that can be scaled infinitely.
If all this is true, it remains true that Ethereum, Ripple, IOTA, and all the other Altcoins can also play the role of global digital money that Bitcoin currently holds. In fact, I think it is important to restore an essential truth:
All cryptocurrencies are competing against Bitcoin to become the dominant global digital currency.
Bitcoin Has The First-Mover Advantage
Officially launched on January 3, 2009, with the generation of the first block, the Blockchain Bitcoin has the first-mover advantage. Indeed, Bitcoin is the first successful implementation of a P2P digital currency based on Blockchain technology.
As the first to enter this new sector, Bitcoin has been able to win over a huge number of users and fully benefit from the network effect also known as Metcalfe’s Law.
This theoretical and empirical law was enunciated by Robert Metcalfe. It stipulates that the utility of a network is proportional to the square of the number of its users. This law would apply under the assumption of homogeneity of the nodes of the network, which may consist of agents or objects.
In concrete terms, the more Bitcoin users there are, the more useful the Bitcoin network becomes squared. As this network utility increases, new users will have a greater interest in using Bitcoin when they enter the world of cryptocurrencies.
It is a virtuous circle that benefits Bitcoin to the full.
Netscape, MyScape, And Many Others Have Failed Despite This Advantage
The first-mover advantage lasts only a short time. History has already shown that companies that benefit from it but have not been able to evolve afterward can finally lose everything. I would even say that there are many examples.
In the mid-1990s, Netscape had more than 90% of the browser market at the time of the advent of the Internet. In 1998, Netscape still had a 70% market share. Unable to evolve, Netscape was finally joined and overtaken by its competitors in an episode known as the Browsers’ War.
During this episode, Netscape was torpedoed by Microsoft’s business practices that required the use of Internet Explorer within its Windows operating system, which spread at the speed of light to the general public. Although Microsoft was later sanctioned for its anti-competitive practices, it was too late for Netscape, whose first-mover advantage turned into a slow agony before a complete shutdown in 2008.
In the world of social networks, it was exactly the same with MySpace, which was finally largely overtaken, if not overwhelmed, by Facebook. The phenomenon is found in the field of search engines with Yahoo which was finally overwritten by Google.
As you have understood, the first-mover advantage is not eternal and Bitcoin will have to do more to last.
Ethereum Can Do Everything Bitcoin Does And Even Much More
Bitcoin is a fully decentralized and non-sovereign digital currency. Its reputation has been built on these strengths. Ethereum is known above all for its smart contract platform. Nevertheless, you should be aware that Ethereum could also very well play the role of global digital currency in the future.
In concrete terms, whatever Bitcoin can do, Ethereum can do as well. But Ethereum can do much more since it also offers a smart contract platform. In this sense, Ethereum can therefore be considered as a superset of Bitcoin. The reverse is obviously true:
Bitcoin is only a subset of Ethereum in terms of functionality.
Even better, Ethereum already has more users than Bitcoin on its network and the gap is widening. Why? Quite simply, because a large number of cryptocurrencies rely on the Ethereum platform. Did you know, for example, that Basic Attention Token relies on the Ethereum platform for the exchange of its BAT tokens, which are at the heart of its innovative advertising model?
In addition, Ethereum already has technical capabilities far superior to Bitcoin since its network allows it to validate many more transactions per second than the Bitcoin Blockchain.
Ripple is primarily aimed at interbank transactions with its XRP token. Nevertheless, it could play the role of global digital currency in the future also if it convinces enough users.
IOTA, which is based on a technology different from the Blockchain, namely the Tangle, also seeks to convince major players in the industry. IOTA has already convinced companies such as Bosch, Daimler and Philipps to use its potentially infinitely scalable network.
Bitcoin Will Have To Evolve Or Risk Ending Up Like Nokia
All Altcoins, whether they have different specific uses of Bitcoin, are in fact in direct competition with Bitcoin to become the global digital currency. Indeed, the cryptocurrency that succeeds in having the most users will be the one that has the best chance of obtaining real mass adoption and gaining ground in the long term.
The current situation could be compared to that of Nokia, which was crushing the mobile phone industry with more than 70% market share before the arrival of the iPhone and smartphones. Basically, Nokia devices were also a subset of smartphones in terms of functionality.
Nokia + Applications = Smartphones
Having failed to evolve, Nokia finally saw its market share collapse before practically disappearing in favor of players who had made the winning bet on smartphones, namely Apple or Samsung.
The comparison I have just made with the telephone industry could therefore give this reported to Bitcoin and Ethereum:
Bitcoin + Smart Contracts = Ethereum
Strange coincidence, Bitcoin currently has a market share of 70% in the cryptocurrency market…
Bitcoin has the first-mover advantage for it, which gives it a significant advantage when new investors enter the cryptocurrency market. Nevertheless, history has already shown that this first-mover advantage lasts only a short time and that companies that rely on this advantage without evolving can easily lose everything.
Behind Bitcoin, all Altcoins, from Ethereum to IOTA and Ripple, are in reality direct competitors although they claim to have specific uses. Indeed, for all cryptocurrencies, the goal is the same:
Becoming the most widely used Blockchain in order to establish itself among the general public in the long term.
For the moment, Bitcoin is still one step ahead, but there is no guarantee that Ethereum, to name but a few, will not be able to outperform it in the future if Bitcoin does not evolve in terms of functionality. Indeed, it is difficult to imagine that two dominant Blockchains could coexist in the long term.