What Is Bitcoin Maximalism
Bitcoin maximalists believe that Bitcoin, which is the world’s most popular cryptocurrency, is the only digital asset that will be needed in the future. Maximalists believe that all other digital currencies are inferior to Bitcoin. The maximalist ideology holds the view that other cryptocurrencies are not in line with the ideals that were established by the pseudonymous Satoshi Nakamoto, who created Bitcoin in 2009.
Bitcoin is unlike government-issued currencies, called fiat currencies, which are managed by a centralized authority. Instead, Bitcoin is decentralized and its blockchain is a publicly distributed ledger, meaning the transactions are shared with participants and transparent.
However, despite Bitcoin’s popularity as a heavily traded digital asset, it has also led to the creation of many other cryptocurrencies. Bitcoin maximalists believe that these other cryptocurrencies — called altcoins — are unnecessary and inferior.
Understanding Bitcoin Maximalism
Although Bitcoin may not have been the very first attempt at a decentralized cryptocurrency, it has unquestionably been the most successful thus far. Bitcoin maximalists hold the belief that the Bitcoin network will provide everything that investors want in a digital currency in the future. In this way, maximalists are unapologetically in favor of (or at least in agreement about the inevitability of) a Bitcoin monopoly at some point in the future.
Ethereum developer Vitalik Buterin commented on the idea of Bitcoin maximalism in 2014. Buterin described Bitcoin maximalism as “Bitcoin dominance maximalism.” Buterin went on to describe the view of maximalists.
The idea that an environment of multiple competing cryptocurrencies is undesirable, that it is wrong to launch ‘yet another coin,’ and that it is both righteous and inevitable that the Bitcoin currency comes to take a monopoly position in the cryptocurrency scene.
Buterin distinguished the maximalist philosophy as such:
A simple desire to support Bitcoin and make it better; such motivations are unquestionably beneficial…rather it is a stance that building something on bitcoin is the only correct way to do things and that doing anything else is unethical. Bitcoin maximalists often use “network effects” as an argument, and claim that it is futile to fight against them.2
The distributed ledger technology is at the heart of Bitcoin’s blockchain network. The distributed ledger is beneficial since it allows the sharing of transactions by sending recorded copies of the data to participants within the shared network. As a result, this transparency helps to increase security and prevent fraud. If a bad actor changes one portion of the blockchain, other participants who have copies of the original transactions can determine what was changed by the fraudster and reinstate the legitimate transaction.
However, Bitcoin’s (BTC) popularity has ushered in the age of cryptocurrencies leading to the creation of hundreds of other digital currencies. Many of these cryptocurrencies are built from the basic Bitcoin structure in some way or another, while other digital currencies are based on blockchain technology but not necessarily on Bitcoin’s network specifically. In other words, the distributed ledger of Bitcoin has been modified so that it can be used for other purposes and not merely a peer-to-peer cash payment system as was originally intended.3
The increasing popularity of blockchain technology has given rise to modified versions of Bitcoin’s distributed ledger called private blockchains. Companies and governments can create private blockchain networks in which only a select number of participants are allowed access to the network once they’ve been verified or authenticated.
These private blockchains can be permissioned or semi-permissioned networks, which allow a mixture of both public and private characteristics. Within these networks, there are designated permissions granted to certain participants allowing them to perform only specific activities on the network. The network might also impose restrictions on what functions are allowed by participants, such as read-only and editing access. An example of a semi-private blockchain network would be a local government that allows certain taxpayers and businesses access to legal titles and record-keeping while restricting access to those records for the general public.
While public blockchains are decentralized, meaning they have no centralized authority with oversight power, private blockchains have a centralized entity, such as a government or business, that manages and controls the network.
Since Bitcoin maximalists believe that decentralization is a key characteristic of Bitcoin’s blockchain network, the use of private, semi-private, and permissioned blockchains runs contrary to the purposes of cryptocurrencies in that they should be open, transparent, and have no centralized governance.
Reasons for Bitcoin Maximalism
The maximalists are a vocal group of Bitcoin supporters that back Bitcoin above all other digital currencies. Below are some of the reasons why maximalists believe Bitcoin will render all other cryptos ineffective.
Many Bitcoin maximalists today support the idea that the success of a digital currency is dependent upon the underlying blockchain network. It is common to hear the idea that, although other digital currencies may offer modifications upon the original Bitcoin premise, which are designed to address issues inherent in the Bitcoin network, the ultimate marker of success is the length and strength of a blockchain. Because Bitcoin’s underlying network is as strong as it is, the thinking goes, and because features of any particular digital currency can be freely co-opted by another digital currency, the network itself is the most important factor.
Maximalists may point to the dominance of Bitcoin and Bitcoin cash in the leaderboard of digital currencies by market cap as evidence of this principle.4 Bitcoin cash and Bitcoin gold have limited features in comparison with many newer altcoins. However, the altcoins maintain a higher value because of their connection to the Bitcoin network. The wealth, the size of the user base, and the history of success are features, which set the Bitcoin network apart from other blockchains.
Bitcoin Is Well-Established
Another argument for the maximalist perspective is the principle that new financial instruments must face a high barrier to building investor trust. Even as digital currencies have become exponentially more popular, there are still many major financial institutions and individual investors that prefer to bow out of the market.
Bitcoin maximalists believe that the process of integrating digital currencies fully into the world of mainstream finance and investing will be a slow one. As a result, outsiders are likely to pay the most careful attention to the oldest, most popular, and most established networks. In the case of digital currencies, the most established is Bitcoin.
With dozens of new, untested digital currencies emerging, Bitcoin has a strong advantage in that it has proven reliability and success. When other cryptocurrency networks suffer from hacks or other negative publicity, Bitcoin maximalists tend to see this as further evidence in support of their argument.
Bitcoin’s Trading Influence on Altcoins
A final argument for the maximalist philosophy has to do with diversification within a cryptocurrency or broader portfolio. Because the price of Bitcoin tends to influence the price of the altcoin world more broadly, investing in altcoins may be a questionable way of diversifying one’s cryptocurrency holdings.
The argument then follows that investors would be better off investing in a best-of-breed asset, such as Bitcoin, instead of risking their money by investing in other coins or tokens. However, Bitcoin’s rise in price has not always driven altcoins higher but maximalists might argue that’s due to the inferior quality of altcoins.5
Concerns About Bitcoin Maximalism
Bitcoin maximalism has its hurdles to overcome if Bitcoin is to become the only digital currency. Many of the altcoins and the subsequent variations of blockchain networks have come into existence because of the limitations of the Bitcoin network and its cryptocurrency. Some of the challenges and limitations of Bitcoin include the following:
Cryptocurrencies like Bitcoin use a proof-of-work (PoW) process to verify transactions done on the blockchain. Those who are responsible for verifying the transactions and ensuring that they’re accurate are called miners. Miners act as the auditors of the network by verifying the legitimacy of the transactions and help to prevent fraud.
As new transactions are added to the blockchain, copies are sent to all of the nodes, which are the participants and computers on the network. However, as Bitcoin’s popularity grows, so too does the volume of transactions. If we think of a blockchain network as a shared database, the more data that’s added, the more the system gets bogged down leading to latency.
As a result, an enormous amount of energy is needed to process the growing volume of transactions. For example, the amount of power needed to secure the Bitcoin blockchain is getting so large that it, as of 2021, exceeds the total amount of energy consumption of the country of Pakistan.
The latency or slowness within Bitcoin’s blockchain is preventing the scalability of the cryptocurrency. In other words, Bitcoin’s scalability issue is preventing it from being accepted for widespread use for financial transactions since it cannot handle the volume. As a result, other blockchain networks and their cryptocurrencies are needed, which punches a hole in the Bitcoin maximalist ideology.
Another challenge to Bitcoin becoming a widely-used method of payment is that the cryptocurrency’s price fluctuates too wildly — called volatility. If the price fluctuates too wildly, it makes it difficult for companies and individuals to use crypto as a medium of exchange for day-to-day business transactions.
In the early years, Bitcoin was limited in its usage and didn’t provide mechanisms for building smart contracts and decentralized applications (dApps), which other blockchains are specifically designed to support. A smart contract is a self-executing contract that contains terms of an agreement between a buyer and a seller, which is written in computer code. The digital code controls the terms and the execution of the transaction.
Smart contracts allow transactions to be done between two parties, such as the purchase or sale of an automobile. As a result, there is no centralized authority needed since the contract is only executable if both parties perform the duties required in the contract.
Smart contracts, which are used in the Ethereum blockchain network, have gained popularity within the financial sector. Although Bitcoin’s blockchain network has increased its capability by offering smart contracts, it lags behind Ethereum for financial transactions.
Over the past several years, blockchain networks have been established by businesses and industries. These alternative blockchain networks don’t necessarily require the cryptocurrencies that are commonly traded today. Instead, these businesses are creating their own networks and cryptocurrencies to be used privately by a specific group of participants.
For example, a banking group, led by the Union Bank of Switzerland (UBS), has developed a sandbox, which allows them to explore the uses of blockchain technology for payments within the financial sector. In doing so, UBS — in partnership with other large banks — created its own cryptocurrency called the Utility Settlement Coin (USC) and known as the Finality project.8
The USC would operate in a way that’s similar to cash since it could be converted on a one-to-one basis into a fiat currency, such as the U.S. dollar. The USC would also be backed by a central bank, which is in stark contrast to Bitcoin’s cryptocurrency. In other words, the financial sector has bypassed Bitcoin’s blockchain and cryptocurrency by creating its own network, which can be used for payments between customers, businesses, and for bank-to-bank transfers.
Future of Bitcoin Maximalism
Bitcoin maximalists would claim that any issues with the Bitcoin blockchain can be solved and are currently in development. Whether governments, companies, and investors opt for Bitcoin’s blockchain versus the many other options will likely determine whether Bitcoin maximalists will win out in the end. However, given the investment in other networks and cryptos, it’s looking like there will be many other cryptocurrencies for years to come.