What is Bitcoin Maximalist?
People who predicted (or gambled on) bitcoin’s rise when it was still small. Their love for cryptocurrency is so strong most or all of their portfolios are comprised of bitcoins. Maximalists are typically so heavily invested in bitcoin; they refuse to see its many downsides even when laid out clearly.
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 believe 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.
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 a digital currency's success depends on 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. Because another digital currency can freely co-opt features of any particular digital currency, the network itself is the most critical 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.3 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 that new financial instruments must face a high barrier to building investor trust. Even as digital currencies have become exponentially more popular, many major financial institutions and individual investors still 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 found is Bitcoin.
With dozens of new, untested digital currencies emerging, Bitcoin has a strong advantage in proven reliability and success. When other cryptocurrency networks suffer from hacks or other negative publicity, Bitcoin maximalists tend to see this as further evidence supporting 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 cost 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.4
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 Bitcoin network's limitations 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.5 Those who are responsible for verifying the transactions and ensuring that they're accurate are called miners. Miners act as the network auditors 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 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 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 necessary to secure the Bitcoin blockchain is getting so large that, as of 2021, it exceeds the total amount of energy consumption of the country of Pakistan.6
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 is 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 the terms of an agreement between a buyer and a seller, which is written in computer code. The digital code controls the words and the execution of the transaction.
Smart contracts allow transactions between two parties, such as the purchase or sale of an automobile. As a result, there is no centralized authority needed since the warranty is only executable if both parties perform the duties required in the contract.
Smart contracts, 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 create their 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 cryptocurrency called the Utility Settlement Coin (USC) and known as the Finality project.7
The USC would operate in a similar way 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, in stark contrast to Bitcoin's cryptocurrency. In other words, the financial sector has bypassed Bitcoin's blockchain and cryptocurrency by creating its network, which can be used for payments between customers, businesses, and bank-to-bank transfers.