3/14/2024

Why does Bitcoin maximalism exist?

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Bitcoin news has been increasingly exciting the markets lately. Bitcoin ETF, upcoming halving, sharp rise in asset price – just a few key events for 2024 related to cryptocurrency. Therefore, against this background, it is not surprising that such a phenomenon as Bitcoin maximalism appears.

Proponents of this idea have a strong belief that Bitcoin, being the most popular cryptocurrency, will be the only digital asset needed in the future. They believe that all other cryptocurrencies are unable to compete with Bitcoin and are doomed to be replaced.

Moreover, Bitcoin enthusiasts are confident that none of the alternative cryptocurrencies meet the high standards of the most important cryptocurrency.

We talk about the phenomenon of Bitcoin maximalism, its causes and pitfalls.

Why did Bitcoin maximalism arise?

Although Bitcoin was not a pioneer in the field of decentralized cryptocurrencies, it is undoubtedly the leader today. Proponents of Bitcoin maximalism are convinced that the Bitcoin network is capable of satisfying all future digital currency needs of investors.

According to this ideology, Bitcoin is likely to become a monopoly in its field. Maximalists unconditionally support this trend, or at least recognize its inevitability. Here are the main reasons for the emergence of maximalism:

Bitcoin network. Bitcoin maximalists are of the opinion that the success of a digital currency is directly dependent on the characteristics that underlie the Bitcoin network. The strength of Bitcoin’s underlying network and the ability of other cryptocurrencies to freely borrow features make the blockchain itself its most valuable asset.

Bitcoin fame. Enthusiasts appeal to the principle of a high trust barrier for new financial instruments. Despite the rise in popularity of cryptocurrencies, many large financial institutions and investors remain wary. Maximalists believe that the full integration of digital currencies into the world of finance and investment will be slow. In this situation, the oldest, most popular and reputable networks will attract the most attention. Compared to dozens of new, unproven cryptocurrencies, Bitcoin has an edge due to its proven reliability and success. Hacking attacks and other problems faced by other networks strengthen the maximalists’ arguments in favor of the main cryptocurrency.

Why Bitcoin maximalism can be harmful?

Scalability limitations. Bitcoin uses a Proof-of-Work (PoW) algorithm to verify transactions on the blockchain. As Bitcoin’s popularity increases, so does the volume of transactions. Blockchain, like a shared database, becomes overloaded, causing delays. Bitcoin’s low scalability limits its capabilities as a means of payment. It cannot cope with a large volume of transactions, which requires the creation of other blockchain networks and cryptocurrencies. This problem threatens the ideology of Bitcoin maximalism, which claims that Bitcoin is the only digital currency necessary.

Cryptocurrency volatility. The widespread use of Bitcoin as a means of payment is associated with the problem of excessive volatility of its exchange rate. The wide fluctuations in the price of cryptocurrency make it inconvenient for companies and individuals in day-to-day business transactions.

The problem with smart contracts. A smart contract is a self-executing code that fixes the terms of a transaction between two parties, which allows transactions to be made without intermediaries. Ethereum, thanks to its support for smart contracts, has become a leader in the field of decentralized finance. Although Bitcoin has added support for smart contracts, it still lags behind Ethereum in terms of functionality and popularity for financial transactions.

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