Despite a lackluster phase of late, Bitcoin (CRYPTO: BTC) is still trading with noteworthy gains on a year-to-date basis.
A new report from Cathie Wood’s Ark Invest looks at how valid the apex currency is in the face of evolving crypto market dynamics.
Bitcoin As Self-Sovereign Digital Money: Recent rhetoric in the crypto space suggests Bitcoin is dead and Ethereum (CRYPTO: ETH) is outdated and that newer smart contract blockchains that enable faster and cheaper transactions are the future, said Ark Invest analyst Frank Downing.
The view has been substantiated by the recent token appreciation associated with blockchains such as Solana (CRYPTO: SOL) and Avalanche (CRYPTO: AVAX) and endorsement by top crypto funds like a16z, Multicoin Capital and Three Arrows Capital, he added.
Those holding the view are misguided because they overlook the fact that each blockchain optimizes and maintains the integrity of its stored data in a distinctive way, making tradeoffs to achieve the functionality and security appropriate for a specific use case, the analyst said.
Bitcoin offers the most profound function of blockchain technology, the foundation for “self-sovereign” digital money, Downing said.
Thanks to its fair launch and its decision to forego functionality like smart contracts, only Bitcoin has optimized for being able to compete in the “money revolution,” which requires assurance of data integrity and preclusion from censorship in the face of nation-state level attacks, he said.
Fair launch is equitable and transparent initial distribution of coins in a blockchain project.
Bitcoin’s reluctance to evolve its design, though criticized often, is a feature that provides the stability and consistency required to serve as a true global money, Downing said.
Evolving Networks Run Centralization Risk: Smart contract blockchains like Ethereum, in contrast, are competing in a “technology revolution,” the analyst said. This is best illustrated by the rise of decentralized finance and NFTs, he said.
The technology revolution requires diversified functionality and higher throughput to accommodate more use cases, often at the expense of the level of decentralization and stability offered by Bitcoin, Downing said.
“As the market is deciding the appropriate level of decentralization required for each use case, evolving networks run the risks of centralization and, in our opinion, a reversion to the institutional status quo.”
Diversity Creates Healthy Competition: Comparing blockchains without recognizing their distinctive designs, use cases, and value propositions, according to the analyst, is misleading and counterproductive.
Crypto opportunities are evolving in parallel, each requiring different network implementations and design tradeoffs, the analyst said. Diversity will create competition that will be healthy for the crypto space overall, he added.