Are Bitcoin and Crypto the Same Thing?

An ongoing debate between bitcoin maxis and cryptocurrency investors has taken on new life recently, arguing whether bitcoin can be considered the same thing as cryptocurrency or if it is in a special class of its own which is separate from altcoins like Ethereum. 

The debate seems to have reignited following the FTX crash because the collapse showed how important it is for crypto investors to obtain full custody of their assets. Self-custody has been a pillar for bitcoin since its inception and many maxis have since felt justified knowing that their wealth stored on the bitcoin blockchain is in no harm due to distinct differences in the technology. 

So, what is cryptocurrency and how different is it from bitcoin; and does it matter?

Understanding Bitcoin

Bitcoin was first developed by Satoshi Nakamoto as a way to combat the financial mistakes that caused the 2008 financial crash. The purpose of the digital currency was to provide people around the world with an alternative that was not controlled by any central authority, institution, or government. 

This trustlessness, called decentralization, meant that investors would be in total control of their finances without any unknown figures such as investment banking firms using their assets as gambling chips for themselves. 

The new digital currency used a unique piece of technology called a blockchain: a decentralized and distributed ledger that computer nodes around the world could interact with. Transactions performed on the blockchain are broadcasted across the network to every node possible which then record the transfers, storing public records of the activity forever. 

There are a variety of advantages that are created by bitcoin because of its decentralized nature. First, the blockchain does not belong to any entity. It is merely a collection of code that runs a protocol on the internet. 

This is helpful for moving liquidity around because the blockchain is not restricted by national borders or other financial gateways. People who are stuck in financial hardship can take advantage of this to find meaningful employment opportunities through online work or to help their families if working overseas. 

Challenges with using bitcoin as a form of remittance still exist though because the network is slow compared to more recent blockchains, and the volatile price activity can create conditions that are not suitable for retail environments. 

Bitcoin is also criticized for its lack of utility. While it can still be used as a form of payment, it doesn’t provide any sort of platform for larger hosting services beyond bitcoin such as NFTs or DeFi lending protocols.  

In the wider world of web3, bitcoin is nearly nonexistent. While most networks carry some form of wrapped bitcoin that reflects its current value, true bitcoin sits alone in the only fully decentralized network. 

To operate, the network uses a proof-of-work mechanism that requires mining nodes to perform highly complex target difficulty algorithms known as hashing to earn a block’s rewards and make transactions permanent. Although mining will end in 2140, the nodes will continue operating the network indefinitely, entirely run by immutable code. 

Understanding Altcoins

Altcoins refer to any cryptocurrency that is not bitcoin. Many bitcoin maxis will argue that cryptocurrency is a term that can only be applied to altcoins because they offer possibilities for centralization and are built using different technology. 

Some of the most well known altcoins like Ethereum, Solana, BSC, and Tezos all use proof-of-stake consensus mechanisms which widely differ from the proof-of-work mechanism. Instead of mining nodes, these networks use validators to operate the blockchain and require an upfront stake to begin, unlike bitcoin mining which is open to anyone. 

Many of the coins also contain governance power and are used to determine the future of their respective blockchains. This is a form of centralization that gives additional power over the network to wallets that contain the largest amounts which can create obvious risks to the community. 

Altcoins do pose a number of benefits over bitcoin though. Networks like Ethereum and Polygon offer smart contract capabilities that allow complex transactions and settlements to occur on-chain. This opens the blockchain up to new possibilities which can support DeFi protocols, R&D platforms, and DAO governance. 

Corporations have already taken notice of this with new services and products slowly rolling out on scalable chains such as Polygon. NFT projects like BAYC and Pudgy Penguins have also turned into major companies as well.  

Further, utility-focused blockchains such as Ethereum are designed to grow and evolve over time through frequent updates. One core aspect of this is the concept of layers. The Ethereum token works as a utility token to initiate transactions on-chain. 

Understanding Web3 

The concept of web3 has a different meaning to many people and is often generalized as a term that can be used to describe anything related to cryptocurrency. However, it is a little more complicated than that. 

Web3 is a decentralized form of the world wide web that distributes information to nodes across the internet. This allows data to be stored cheaper and gives more privacy to users who only need to input a private key instead of personal information. 

IPFS, a decentralized file storage system run by Protocol Labs, is a popular example of web3. The protocol uses nodes across its network to hold fragments of data that can be provided when requested by a user and is a popular choice for NFTs because of its low cost. Protocol Labs then uses Filecoin as an incentive to node operators to continue storing the data. 

Comparison between Bitcoin and Altcoins in Web3 Business

Bitcoin and altcoins are about as similar as apples and oranges. They are both fruit, but they are entirely different in taste, texture, and consistency. While they both operate on blockchain networks and can be used as currency, Ethereum and other altcoins are much more complicated.  

Smart contracts offer entrepreneurs unique ways of incorporating Dapps that can provide services to users such as Opensea. Their use of smart contracts to list and sell NFTs on a growing selection of blockchains has caused them to become the premier marketplace for NFTs when they first began allowing collectors to trade CryptoKitties. 

Although bitcoin doesn’t have the same capabilities as Ethereum to host smart contracts, Dapps, and other web3 familiarities, its involvement in macro economics is huge. Some of the largest investment firms like BlackRock have opened up new options for major clients to make institutional investments into bitcoin. 

Conclusion

Regarding the debate between bitcoin maxis and the rest of the cryptocurrency community, bitcoin and cryptocurrency are not the same thing. Bitcoin is a unique development that utilizes cryptography to distinguish private and public keys while cryptocurrencies are a separate form of blockchain that is being used to develop new ways to interact with the internet. 

While the distinction may not matter to ordinary investors, it is important to know what separates bitcoin and altcoins when learning how to interact with the blockchain because there is a steep learning curve that involves real risk.