Bitcoin vs. Altcoins

Let me share some information that will help you wrap your head around what is going on with Bitcoin
and how that is affecting the other altcoins.

Think of Bitcoin as gold. A new "rare" and "valuable" commodity that will act as the backing behind any other type of currency (fiat or crypto).

You probably know that until the mid 20th century, the US Dollar was backed by gold, in one way or another. Dollar bills used to say something to the extent of, "the bearer of this note can exchange it for the equivalent in gold." Towards the end of the twentieth century, the US Dollar was no longer backed by gold (in truth there was never quite enough gold to actually back all the bills printed by the US Mint, but that's another story).

A lot of people felt that was ok , at least for a while. When the 2007-8 banking crisis took place and investment banks like Lehman Brothers and Bear Stearns defaulted, the US government was forced to save the banking industry (and the US economy, so dependent on the banks) by "printing" money---A LOT OF MONEY.

Many people felt this was BAD, I mean REALLY BAD. Saving the long economic discussion for a different post, one might say that it felt that currency was floating in the air, borne and held up by the magical act performed by the government. They longed for the good old gold days.

That is where Satoshi and his bitcoin protocol come in. In 2009, after a lot of research and basically putting together different technologies, Satoshi developed an internet protocol that would create a rare and therefore hopefully valuable new commodity called a bitcoin. Everyone just assumed that if it was digital, you could always find a way to copy it. Satoshi though found a way to (hopefully) ensure that once a bitcoin was "mined," you could never duplicate it again. You could just move it around the network. And behold, digital gold was born.

People mistakenly call Bitcoin a crypto-currency. But, the correct nomenclature would be a crypto-commodity. What is the difference?

One of the reasons that currencies were invented was to make it easy and quick to conduct trade. They allow for a large number of transactions to occur on the spot and with ease. So if you take a hundred dollars to the market, you can in the course of an hour buy all your groceries. At the same time, once you have used the money to buy your needs, that same bill/coin can be used by the merchant for their needs. Your hundred dollars could easily change hands 10 or more times in the course of the hour you spend in the market, with each change-of-hands, allowing another transaction to take place. You could theoretically do the same with gold coins, but most people don't like lugging them around, cause they're just too expensive. Try taking a krugerand (worth say $650) and getting change for it. Just not very practical.

Now think about checks. Checks are better than money in some ways because you don't have to carry the money around (can't get stolen) and you can write them for the exact amount, no need to look for change, etc. But, checks don't immediately transfer value. You have to take them to a bank (or scan them in to your phone nowadays) and then it still takes a day or two (or three if they're from a foreign country) to be cleared and the funds transferred. Why is this? Because all checks go at night to a clearinghouse, where the information about the bank accounts and available funds are checked and it is made sure that there was no double-spending (you didn't write two checks for all your savings to two different people). This takes time.

So Bitcoin is supposed to solve all this, right? Ummm, no!

Bitcoin is way too slow. It can take a few hours for your transactions to be verified. More importantly, conduct more than a certain number of transfers on the network at any given time, and the queue just gets longer and longer, as there is an upper limit to how fast transactions can be processed by being entered and verified on the blockchain.

So what is Bitcoin?

Really, it's a commodity. Like gold. Only better. Because you don't have to move it around.
Bitcoin is now the standard backing against which every new cryptocurrency is being held. You could theoretically figure out a way to buy STEEM for dollars (transfer dollars to your Bittrex acount, wait for the verification, and then buy STEEM), but actually, most if not close to all purchasing of cryptocurrencies go through Bitcoin.

The future of currency is in cryptocurrencies. There is no doubt in that. They can be blazing fast in terms of processing and verifying transactions, scalable, they don't need to be minded by using half the planet's electricity, etc. Cryptocurrencies will be the future.

But, to ensure all cryptocurrency values, they are actually backed as it were by Bitcoin. So bitcoin is the Ft. Knox of Gold for the cryptocurrency world. And we're just getting started.

The price of bitcoin will ultimately depend on how much money moves to the whole cryptocurrency/altcoin ecosystem. If you think of an altcoin as a stock, you can get a good idea of how much money is going to go in.

I'll dedicate my next post to figuring out how much money Bitcoin will eventually be backing, so that you can get a rough (but scientific) estimate about what its final price range will be. Hint: It's well over $100,000 per bitcoin.

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See you next time!