Challenging Maximalism

Last week’s article on the Crypto Swamp triggered a lively discussion on Bitcoin Maximalism. If you are not familiar with this phenomenon, here is a brief explanation and what I think about it.

Bitcoin Maximalists believe that Bitcoin is the only digital currency that we will need in the future and that all other cryptocoins are inferior to Bitcoin. They call them all “shitcoins”, even the more established ones like Ethereum’s Ether. Maximalists accept nothing else but Bitcoin, because they see it as the only truly decentralised cryptocoin. Some even think that all crypto projects except Bitcoin should be regulated by governments as securities, like company stocks or bonds.

Although I am a strong supporter of Bitcoin, I do not agree with this view. I think that an open competition of currencies, as Friedrich August von Hayek suggested in his 1976 book The Denationalisation of Money, is the best way to identify sound money and to make it succeed.

Sure, many cryptocoins are useless, some are even scams or Ponzi schemes. But I still welcome their existence, because competition is good. The market – and that means: billions of individual users – will decide which of the many thousand cryptocoins will prevail.

Without a doubt, Bitcoin has a huge first-mover advantage over all other cryptocoins. No other crypto project will ever have the luxury of being developed in stealth mode. Bitcoin was created and observed by only a very small group of people for several years. It had many errors and software bugs in its early stage that could be corrected without much fuss.

The Maximalists’ critique that all altcoins are less decentralised than Bitcoin is correct today, but it ignores the fact that Bitcoin was not decentralised at all in the beginning. Satoshi Nakamoto – who was probably not an individual, but a group of people – mined nearly all Bitcoins himself in 2009 and 2010, as there were simply not many other people interested in mining. That’s why Satoshi owns an estimated one million Bitcoins. Any crypto project launched today doing the same would be accused of “pre-mining” and greediness of its founders.

There are many reasons to focus on Bitcoin without bothering too much about the thousands of other cryptocoins. I simply don’t have the time to analyse the fundamentals and to follow the ups and downs of all those coins. But that doesn’t mean that all of them are “shitcoins”. Some do have a reason to exist, even if it’s just to be the sandbox for features that can be tested and integrated into Bitcoin later.

As an example, Rootstock owes a lot to Ethereum. Bitcoin’s second layer, which enables smart contracts and DeFi, uses the same account format, virtual machine and programming language as Ethereum. Bitcoin can probably also learn something from coins like Monero, Z-Cash or Pirate Chain to protect the privacy of users better. It is understandable that Bitcoin’s core developers are very cautious with innovations, as there is a lot of money invested in Bitcoin. It is tough to repair a jumbo jet while it is flying at full speed!

Smaller crypto projects with a lower market capitalisation are better suited for risky experimentation. On the other hand, second Bitcoin layers like the Lightning Network or Rootstock also give developers the opportunity to try new things – or features that already run well on alternative blockchains – without breaching the security of the base network.

I agree with Maximalists in the sense that I focus my attention and my activities on Bitcoin, because I think that it has the biggest potential and the highest chances to succeed. But that doesn’t mean that I look down on its competitors or even call for government action against them.

If some day a coin appears that is better, faster, cheaper, more decentralised and more censorship-resistant than Bitcoin, I would use it. I don’t think this is very likely, as the network effect strongly benefits Bitcoin. I would rather expect Bitcoin to evolve into this perfect coin in the long run. But in an open competition, everything is possible. And a free market is always better than a monopoly!

By Aaron Koenig
Images generated by DALL-E 2 (by prompting “Maximalists dancing at a party”)