Some people seemed interested in hearing how I came to these conclusions, so I thought I’d write down some of my thoughts.
1) This is my own personal story. I’m not making a comment on your choices, I’m not telling you you’re wrong, and I’m not going to rag on any specific cryptos.
2) Bitcoin maximalism means very different things to different people. I use the term in reference to Bitcoin as money, as opposed to the view that the Bitcoin blockchain should be the only blockchain in existence, handling all decentralised computation.
3) There are still parts of maximalist thought that I don’t agree with, and that’s okay. The crypto space can get incredibly ideological (especially on Twitter), but you don’t have to completely agree or disagree with anybody. If you find yourself not questioning anything someone says then you’re probably not thinking critically enough about it. My personal opinion is that some Bitcoin maximalists are too extreme and probably end up driving people away, but it’s not for me to tell them what to do.
So with that out of the way, let’s move on.
Without knowing the exact date, I’d say I became interested in crypto around mid-2017. It was a few months before the Bitcoin Cash fork, and I remember starting to have conversations with a friend about what it all meant.
I’m sure I’d heard of Bitcoin prior to this, but I probably only thought of it as ‘money on the internet’ and nothing more. It excited me so little when I first heard about it that I barely even remember.
Like a lot of young guys looking to make a quick buck, I’d be lying if I said that the possibility of earning money wasn’t a primary reason for getting interested in the space to begin with.
But despite the allure of easy money, there was just something about it that had me intrigued. I couldn’t put my finger on what it was until a lot later, but it hooked me in enough that I just kept diving deeper into the rabbit hole.
At that time Bitcoin was a year and a half into a bull run that had taken it from around US$200 to well over $1000.
My complete lack of prior experience in economics, finance or investing was complemented with the perfect amount of ignorance and over-optimism to make me believe some really stupid things.
I had no idea how markets worked,and believed that the 5x returns we just saw would just continue to infinity.
And the next 6 months of mania did nothing to educate me otherwise.
I’m naturally curious, so I tried to do as much research as possible – reading articles, listening to podcasts and watching YouTube videos – but trying to find rationality in an irrational market is close to impossible.
With everybody ‘making money’ hand over fist, it was easy to get sucked in and let the FOMO get the better of you. You start feeling like an idiot if your friends and work colleagues are getting ridiculous returns on obscure ICO investments and you’re doing nothing.
I got so fed up with how difficult it was to find reliable and trustworthy information on the crypto industry that I created my own website that collected all the best resources I had come across on a range of topics.
And it was around this time that I started doubting Bitcoin.
I had read enough to understand its scalability issues, and while I didn’t jump ship to the ‘larger blocks are better’ mentality of Bitcoin Cash, I could see that Bitcoin was in trouble.
It seemed like new protocols were coming out by the week that promised faster transactions, lower fees and infinite scalability.
When the Bitcoin transaction backlog was getting pushed out to hours and fees were hitting $40+, these alternatives started sounding pretty good.
I fell for the narrative that Bitcoin could be the MySpace of the crypto world, inevitably being pushed into obscurity by a newer, more technologically advanced alternative.
I basically lost faith in Bitcoin, and came close to selling all my coins.
A few months later I decided to do a deep dive into Bitcoin for my website. I wanted to have a collection of reports on the top cryptos that were fair and unbiased, so people could make their own decisions.
But after diving into the Bitcoin rabbit hole, and seeing no end in sight even 6 months later, a thought started to grow in my mind.
It didn’t happen all at once, but the seed was definitely there.
And the more I researched, the more evidence I found to back this thought up.
And that thought was that right now, Bitcoin is the only cryptocurrency that makes sense.
So why Bitcoin?
In my opinion, it basically comes down to a few key factors:
1. Monetary policy
Bitcoin is the best money humans have ever invented. I’ll expand on this idea in a future post, as the idea needs a lot of unpacking.
Suffice for now to say that the two most important aspects of Bitcoin’s monetary policy are its fixed supply schedule and total number.
These two features mean that Bitcoin will (in a few years) be the scarcest thing humans have ever produced, and therefore the best long-term store of value as well.
Bitcoin’s detractors say it’s not good for payments, and for now, that’s true. It isn’t as fast as some other cryptos, and isn’t as easy to use as PayPal or even a credit card, but for now, it doesn’t need to be.
Its primary use isn’t payments, it’s as a store of value, and it has been fulfilling that function without fail for over 10 years.
The payments function will come in time.
Some people think that first, you need to create a currency that’s super quick and easy to use, and then everybody will just adopt it.
But that thinking is the wrong way around.
To be used as money, something needs to be provably scarce, and therefore valuable so the user has confidence that it will continue to be valuable in the future.
From there it’s a gradual process of being used more and more for transactions rather than storing wealth, but the value has to come first.
This pattern has been repeated with new monies throughout history and is playing out in exactly the same way for Bitcoin.
2. Decentralisation + incentives
Bitcoin is by far the most decentralised cryptocurrency by both nodes and miners. This true decentralisation incentivises good behaviour from all participants.
The checks and balances that exist between the three user groups – miners, developers and users – can be roughly compared to those set out in the U.S Constitution between the legislative, executive and judicial branches of the government. Their functions aren’t the same but the principle behind this separation of powers is important.
No one group can gain power and influence over the other two.
The Constitution achieved this through law, the Bitcoin protocol achieves this through incentives.
Compare this with the incentives of most altcoins and ICOs, where there is little to no decentralisation or protocol security, and success depends on only a handful of individuals.
In these environments, it’s impossible to have certainty that the participants in this system’s incentives are aligned (game theoretically sound), and that those in charge can’t just run away with all the money, as has happened time and time again.
Bitcoin has a greater hash rate than all other cryptos combined. This makes Bitcoin the most secure digital system we’ve ever invented. There are billions of dollars up for grabs if somebody can hack the protocol, but Bitcoin’s hash rate ensures that this is basically impossible.
Because Bitcoin was the first cryptocurrency, the head start it got in building up its hash rate gave it a huge advantage over everything else.
Mix that with the fact that it uses proof-of-work (PoW) consensus, which forces miners to use real resources (electricity) to secure the network, and Bitcoin’s security is close to unstoppable.
4. Network effects
I alluded earlier to once thinking that Bitcoin was the MySpace of crypto, and it was about to be disrupted by a Facebook.
This thinking is wrong for two reasons:
1) MySpace lost out to Facebook mostly due to it being bought and mishandled by News Corp, as well as a child safety scandal in late 2006 that tipped the scales in Facebook’s favour, not technical deficiencies.
2) While both Bitcoin and social networks rely on network effects (where every new user increases the usability of the network for everyone else in a positive feedback loop), the way these play out is quite different.
In the competition between the social networks, they were functionally pretty similar. Because of this, users could choose between the two based on where their friends were, not necessarily on features, so the switching cost was low.
So when MySpace started having issues, it was easy for users to make the jump to Facebook, since they didn’t need to sacrifice any usability. And the more people who left, the easier it became for the rest to leave too.
Bitcoin’s network effects, however, are quite different.
It has user network effects just like social networking, where more buyers and sellers make it easier to buy and sell, but there are also effects in other areas.
Miners spend millions of dollars on hardware rigs that work specifically for Bitcoin, so they’re heavily incentivised to stay and recoup their investments. The more miners enter the network, the more secure it becomes. And the more secure it becomes, the more people want to use it, creating another feedback loop.
Further, an open-source protocol is difficult to change, so choosing to use it is choosing against anything else. Anybody can copy Bitcoin’s code and try to overtake it, but it has never worked (See Bitcoin Cash, SV, Gold etc), and likely never will.
This is because there are really only two ways to change Bitcoin – to propose a code update and get consensus, or completely start again from scratch. And starting again loses all the accumulated network effects, so the contender would need to be a monumental improvement in order to influence the existing users to jump ship.
So we can see that the friction associated with leaving Bitcoin along with the benefits of the protocol are so high that it isn’t just another MySpace, it’s here to stay.
I think it’s safe to say that Bitcoin maximalism divides a lot of people.
Originally used by Ethereum creator Vitalik Buterin to discredit those who were only interested in Bitcoin, the term has come to be both positive and negative, with maximalists now adopting the term for themselves.
Between the antics of some maximalists, as well as the inherent suggestion that maximalism dismisses the utility of all other cryptos, plenty of people seem to have a visceral reaction to this line of thought.
And it tends to bring out the worst in both groups.
Within hours of my Twitter post stating that I was Bitcoin-only, I had accusations of being brainwashed, being blinkered, being in an echo chamber, in a cult, as well as succumbing to propaganda and radicalisation.
I’m not bringing this up to complain, just to highlight how emotionally charged the topic has become.
I get the feeling that a lot of crypto investors react negatively to Bitcoin maximalism because they have a huge sunk cost (in both money and energy) that this line of thought challenges, so it’s far easier to just dismiss it.
And I’m sure plenty of maximalists do this too, dismissing projects that show potential because of their cognitive biases that come from staking their bets on Bitcoin.
Clear, rational and insightful thought is difficult at the best of times, and made even worse when large amounts of money are at stake.
If you’re right you stand to win big, so doubling down on your beliefs and telling yourself that you have the answers is the least emotionally taxing thing to do.
We humans much prefer the feeling of security to uncertainty and doubt, so the easiest thing to do is not challenge yourself.
Believing you’re right feels great, because of course you’re the smart one and nobody can see what you can.
I struggle with this all the time.
But in saying that, I’d argue that many Bitcoin maximalists have come to their conclusions despite this tendency to double down on your own beliefs.
Understanding Bitcoin fully (if that’s even possible) requires a serious amount of study, covering such a wide range of disciplines, from economics and finance to computer science and cryptography to world history and sociology.
That’s a shitload of information to absorb, and I know from personal experience that things start getting pieced together really slowly.
But if you’re able to absorb so much of that info, it’s very unlikely that you’ve got it all from the one place, and you’ve got a better chance of receiving more rounded and diversified views.
This allows you to better form your own opinions, rather than having them spoon-fed to you by one or two biased YouTubers.
I’m obviously not claiming that all maximalists are perfectly rational, omniscient beings who can see through time.
But I do believe, though, that with honest dedication to finding unbiased sources of information, and a desire to get to the bottom of a number of problems, a ‘Bitcoin-only’ or even ‘mostly Bitcoin’ perspective is the likely outcome.
So there are a few of my thoughts on Bitcoin maximalism.
I’m definitely not saying everything else will go to zero. It could even be that instead of a ‘winner takes all’ outcome, various forms of cryptocurrency exist in a Pareto distribution, with Bitcoin taking an 80% share, with others such as Litecoin and Monero etc. making up the remaining 20%.
But I still have my doubts that even non-monetary cryptos can be viable long term. Blockchains intrinsically require a token to incentivise users to secure the network and come to consensus. So the token – whether it is on Ethereum, IOTA, EOS or another non-money crypto – still requires a sound monetary policy for it to operate.
Having an unsecured supply schedule, or the ability of founders to influence the coin’s monetary policy could have outsized effects on the network as the token could become unreliable.
This is obviously just speculation, but something that I’m still wrestling with.
Only time will tell how these events end up.
But the important thing to keep in mind is that we’re living through one of the most monumental upheavals in history, with the events of the next decade or two having the potential to change hundreds of years of history.
So we should all be arming ourselves with as much knowledge and wisdom as possible and strap ourselves in for the ride.