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By most metrics, Bitcoin is the ‘King of Cryptocurrencies’. It was the first, is the most widely known, and from its inception has maintained its mantle as the largest cryptocurrency by market capitalisation. Indeed, it was Bitcoin that created the entire crypto industry. Accordingly, Bitcoin has gained many admirers over the years and the crypto has cultivated a loyal following of devotees. Some are drawn to the coin by its first-mover legacy, others, by its elegant design, reputation for security or proven reliability over a sustained period.
Furthermore, Bitcoin is truly decentralised, having no central authority and a permissionless blockchain. Comparatively uncomplicated and apolitical in its function, it embodies crypto in its purest form, and while this may hinder certain innovations, it affirms reliability. Bitcoin employs a Proof of Work (PoW) consensus mechanism and is highly unlikely to change.
Still, nothing lasts forever. Speculation surrounds Bitcoin as to which competitor—if any—might surpass its market dominance. At this point in time, Bitcoin’s closest rival is Ethereum which sits number two, only behind the ‘King of the Cryptos’. Here, we examine Bitcoin’s dominance and explore what factors may impact its reign at the top, and what might have to happen for Bitcoin to fall into second place.
Bitcoin has maintained its dominance over the crypto world since its inception and remains the crypto with the highest market capitalisation despite altcoins showing signs of growth and strong performance metrics. One of the best arguments for any risk to Bitcoin’s reign is its lack of ability to facilitate smart contracts. The popularity of smart contracts, and their ability to provide autonomous operations, has seen Ethereum often cited as the primary challenger to Bitcoin, and the coin with the greatest potential to win that challenge, if such a win is at all possible.
Throughout the early days of cryptocurrency, Bitcoin’s dominance index hovered around the 90 per cent mark, yet this has slowly declined due to current trends, market movements, and the emergence of new altcoins.
Ethereum achieved its highest percentage of total market cap in 2017—the closest it has come to beating Bitcoin’s percentage. While holding a strong secondary position, Ethereum has also undergone a number of developments to improve the usability and scalability of its blockchain, now hosting a wide array of decentralized applications such as NFT marketplaces, crypto games, and decentralized exchanges.
Whether Ethereum will overtake Bitcoin’s market cap is yet to be seen, with Bitcoin dominance currently hovering around 40%, with Ethereum below 20%.
Having established that Bitcoin is well and truly at the top, one must consider what factors may contribute to a decline in its primacy. From scalability issues to the effect on the environment, and application and utilisation, there are multiple considerations in play that might see Bitcoin fall behind or charge even further ahead.
Bitcoin and Ethereum, being the two largest cryptocurrencies, are often faced with similar challenges inherent to their size and influence. To date, scalability has been one of the key factors hindering continued exponential growth. Scalability is vital for cryptocurrencies because they need to be able to compete with established, centralised systems. Ideally, blockchain networks would be able to handle thousands of transactions per second with minimal to no fees for transacting.
Both Bitcoin and Ethereum have answers to the scalability challenge. The Lightning Network is a scaling solution built on top of Bitcoin that enables cheaper and faster transactions by handling transactions off the Bitcoin blockchain.
Ethereum’s answer to its scalability issues is the consensus layer, previously called Ethereum 2.0. One of the key steps in this transition is an upgrade called sharding. Sharding involves breaking the blockchain into smaller, more manageable segments, reducing the overall computational burden and enhancing scalability. Ethereum is aiming to introduce sharding sometime in 2023.
In a world increasingly concerned with environmental degradation and energy consumption, public opinion is starkly shifting towards renewables, and away from those resources and industries deemed unecological.
Bitcoin employs a Proof of Work (PoW) consensus mechanism and is determined to continue doing so. It’s estimated that a single Bitcoin transaction uses 2-million-watt hours (Wh) of energy, which is roughly equivalent to 100,000 Visa transactions. Bitcoin mining also leads to the increased production, and subsequent discarding, of huge quantities of hardware. By comparison, Ethereum shifted to a Proof of Stake (PoS) mechanism earlier this year in a transition known as the Merge, consuming an estimated 120 Wh per transaction, a minuscule fraction of the energy of Bitcoin and drastically less electronic waste.
While this is, of course, broadly popular on the part of Ethereum, and means there aren’t the enormous costs associated with mining, things could go either way. The difficulty of mining Bitcoin increases value by way of demand, and while PoW is intensive and expensive, it carries with it a lot of confidence and a sense of equality and reliability.
The crypto space is evolving at accelerating speeds. Blockchains are becoming faster and more efficient to support new use cases and meet application-specific requirements.
That said, Bitcoin’s use case is simply a peer-to-peer payment method, somewhat limiting its utility. It opens the way for other cryptocurrencies, Ethereum in particular, to fill that vacuum.
Over the past few years, Ethereum has become the most popular blockchain for developers to build DeFi, Web3 gaming, and NFT applications.
Ultimately, whether Bitcoin can maintain its dominance indefinitely is yet to be seen. For now, Bitcoin, the progenitor of the crypto industry and the undefeated market cap leader is often referred to as the ‘King of Cryptos’. That said, like any asset or enterprise, Bitcoin will have to stay agile, particularly with respect to altcoins designed specifically for their versatility and with use cases in mind.
In any case, if a coin does in fact supplant Bitcoin, it will likely be due to a multitude of overlapping factors, including a heavy dose of luck. Right now, Ethereum is Bitcoin’s biggest challenger, but it would be unwise to rule anything out—especially when deliberating upon such mobile, innovative, and relatively novel assets.