What Is The Difference Between Bitcoin And Cryptocurrency?

In various discussions and sources, it's common to encounter the statement, Bitcoin is not crypto, and crypto is not Bitcoin.

This raises the question: what precisely does this statement imply, and what sets Bitcoin apart from the broader concept of cryptocurrency?

Let's have a look at the main differences between Bitcoin and other cryptocurrencies.

Legitimacy

Bitcoin, unlike "cryptos", has proven its legitimacy and credibility over time. While the cryptocurrency industry has witnessed numerous failed "crypto projects," it is essential to recognize that most of these ventures operate on a pyramid-like model.

Some of the crypto projects thrive as long as money keeps flowing in, with new investors acting as the source of interest payments. However, when the inevitable rug pull occurs, new investors become the exit liquidity for the project founders, resulting in significant losses. Unfortunately, such instances have occurred repeatedly.

Bitcoin, on the other hand, stands apart from these scams. Despite experiencing one of the most substantial bear markets in 2022, Bitcoin has consistently retained its value and functionality. This resilience can be attributed to its robust nature, which enables it to operate successfully irrespective of daily fluctuations in the influx of new investors.

Decentralization

One of the distinguishing characteristics of Bitcoin is its decentralized nature, setting it apart from the majority of other cryptocurrencies. While many cryptocurrencies rely on centralized entities or governing bodies, Bitcoin operates on a decentralized network that encompasses individual nodes working collectively.

This decentralized structure has been exemplified during the Blocksize War, a significant conflict within the Bitcoin community regarding the appropriate size of blocks in the blockchain.

The true power of Bitcoin's decentralization lies not just in its network of global miners collaborating in pools but also in the participation of individual nodes. This distributed network ensures that no single entity has complete control over Bitcoin's operations and prevents the concentration of power in the hands of a few.

Furthermore, Bitcoin's Proof-Of-Work consensus mechanism further enhances its decentralization, as it requires miners to expend computational resources to validate transactions and secure the network.

Legal Definition

Under the Commodity Exchange Act (CEA), Bitcoin has been officially classified as a commodity—a designation that carries legal weight and regulatory implications. This categorization has been established as a factual understanding.

Chair of the U.S. Securities and Exchange Commission (SEC), Gary Gensler, has consistently asserted that Bitcoin is indeed a commodity. Gensler's interpretation draws on precedents and the reality of the cryptocurrency landscape. He highlights that most "crypto financial assets" possess key attributes resembling securities. This is primarily due to the prevalent presence of centralized entities that oversee projects and stand to gain the greatest profits.

Michael Saylor, CEO of MicroStrategy, has called for regulators to eliminate the risks associated with the crypto industry, referring to them as a "parade of horribles." Saylor sees government endorsement as a significant milestone towards Bitcoin's acceptance as a "treasury reserve asset" for politicians, agencies, governments, and institutions worldwide. This vision is grounded in Bitcoin's inherent qualities: its limited supply of 21 million coins and its resistance to debasement, acting as a safeguard against the erosion of value caused by an inflating fiat economy.

Echoing this sentiment, also Jameson Lopp, a prominent figure in the Bitcoin community, concurs with this perspective. He recently emphasized that the majority of cryptocurrencies are "decentralized in name only" or DINOs, suggesting that they are likely unregistered securities.

In addition, the interest shown by prominent investment firm like BlackRock introduces a new dimension of legitimacy. BlackRock's recent filing for a spot Bitcoin Trust with the U.S. SEC carries significant implications for Bitcoin's legal recognition.

If approved, the iShares Bitcoin Trust would operate similarly to an Exchange Traded Fund (ETF), allowing for daily creations and redemptions. This development holds the potential to solidify Bitcoin's position within the legal framework, as it would provide a regulated investment vehicle for institutional and retail investors.

Supply

Bitcoin operates on a disinflationary model, where coins are created through a process called mining. This process results in a constant monetary base without any changes to the supply. A crucial aspect of Bitcoin is its capped supply, with a maximum limit of 21 million coins.

It's worth noting that over time, a significant number of Bitcoin have been permanently lost, further reducing the circulating supply.

A substantial portion of Bitcoin, roughly 1.1 million coins, is believed to be held by Satoshi Nakamoto, the creator of Bitcoin (currently MIA). These coins have remained untouched and have not been moved from their original addresses.

In contrast to Bitcoin's mining process, many cryptocurrencies employ a practice called pre-mining. This refers to a scenario where a significant portion of a coin's total supply is generated and held by individuals or entities before the coin is made available to the general public, even before the genesis block is mined.

Consequently, the individuals controlling the pre-mined coins possess a disproportionately large amount of the circulating supply. This concentration of control can enable them to influence the price and exert significant control and influence over the project.

In many cases, owners of pre-mined coins from various cryptocurrency projects have chosen to sell their holdings on the market to cover their expenses. This practice raises additional concerns regarding the motivations and intentions of these project owners. By selling their pre-mined coins, they not only generate personal wealth but also potentially impact the price and stability of the coin.

Consensus Mechanisms

While Bitcoin and a few other altcoins such as Litecoin or Dogecoin operate on the Proof of Work (PoW) consensus mechanism, the vast majority of cryptocurrencies, utilize the Proof of Stake (PoS) model.

Understanding the distinctions between these two approaches is quite important, in order to understand the difference between Bitcoin and cryptocurrency.

One of the notable drawbacks of proof of stake (PoS) lies in how it distributes tokens among participants. In the case of proof of work (PoW), miners must cover significant expenses related to equipment maintenance and electricity. Consequently, they often sell (redistribute) the majority of the tokens they mine. This results in a more evenly distributed token landscape, with miners not hoarding all the tokens they earn.

On the other hand, PoS lacks a compelling reason for stakers to sell the tokens they receive. While this can positively impact token prices by encouraging holders, it can lead to a less evenly distributed token ownership compared to PoW. Over time, stakers accumulate a larger share of tokens as staking rewards surpass the inflation rate. Consequently, stakers gain increasing control over the network.

Unlike PoW, where miners must consistently invest more resources to gain control, the concentration of power in PoS occurs more organically.

To prevent wealth concentration, coin ownership should undergo gradual dilution, a characteristic achieved by PoW (ideally with a tail emission). In contrast, PoS can hinder this dilution process as stakers can maintain their share of the token distribution.

PoW stands out for its simplicity and robustness, primarily due to its energy usage. By contrast, PoS attempts to replicate the nuances of PoW through intricate code complexity.

In PoW, mining an invalid block results in self-penalization, as the electricity consumed in the process is wasted. However, in PoS, if an entity amasses a stake of 51% or more and avoids penalties, they retain control indefinitely, creating a potential scenario of "invisible capture." In PoW, this is not a concern since an infinite amount of hashrate can be introduced.

Additionally, if an entity validates two different chains, but the second one remains undisclosed, they cannot be penalized by other validators. It is essential to understand that in Bitcoin's PoW, the purpose is to provide transaction ordering and finality within the rules enforced by the node network. Miners have no role in governance aside from their dual role as users. This distinction was central to the blocksize wars. While comparing and contrasting PoS and PoW is valid, it is crucial to understand this fundamental aspect.

Innovation

In the world of cryptocurrencies, where constant changes to consensus mechanisms, emission types, and other fundamental aspects are common, Bitcoin stands out as an innovator.

Unlike other cryptocurrencies, Bitcoin focuses on refining its secondary chain rather than making drastic alterations to its core, the main chain.

An example of this approach is the blocksize war, which led Bitcoin to adopt the segwit update without the need for a hard fork.

In contrast, many other cryptocurrencies tend to incorporate discarded proposals from the Bitcoin protocol and present them as "revolutionary" features, even though they lack substantial novelty.

This stark contrast sets Bitcoin apart from its peers, as it strives to remain true to its essence and heritage.

Development

Bitcoin emerged in 2009 after extensive research, experimentation, and the development of earlier digital cash systems like B-money (Wei Dai, 1998) and Bit Gold (Nick Szabo, 1998).

In contrast, many cryptocurrencies are created hastily within days. For instance, an ERC-20 token, which operates on the Ethereum network, can be established within seconds.

The concept of immaculate conception in the context of Bitcoin refers to its unique and pristine origins. Bitcoin was introduced as the first open source decentralized cryptocurrency, separate from any government or central authority.

Its creator, known as Satoshi Nakamoto, remains anonymous to this day, and Bitcoin's launch and distribution were fair and open, without any pre-mining or special privileges.

This development contributes to Bitcoin's credibility, trustworthiness, and potential as a globally accepted, politically neutral form of money.

Bottom Line

In summary, the distinction between Bitcoin and other cryptocurrencies lies in their characteristics and underlying principles.

Bitcoin, as the pioneering cryptocurrency, operates on a decentralized network, maintains a fixed supply, and has established itself as a store of value.

On the other hand, the term "crypto" encompasses a broader range of digital currencies, many of which may have different governance structures, distribution methods, and utility purposes.

While Bitcoin retains its position as the most recognized and widely adopted cryptocurrency, the vast and diverse landscape of other cryptocurrencies offers unique features and potential applications.

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