Bitcoin Maximalism: Definition, Philosophy, Advantages, Obstacles

What Is Bitcoin Maximalism?

Bitcoin maximalism is the belief that Bitcoin, the world’s most popular cryptocurrency, is the only digital asset that will be needed in the future. Maximalists believe that all other digital currencies are inferior to Bitcoin. The maximalist ideology holds the view that other cryptocurrencies are not in line with the ideals established by the pseudonymous Satoshi Nakamoto, who created Bitcoin in 2009.

Bitcoin is unlike government-issued currencies, called fiat currencies, which are managed by a centralized authority. Instead, Bitcoin is decentralized, and its blockchain is a publicly distributed ledger, meaning it is stored, maintained, and secured by its participants and is publicly viewable.

However, despite Bitcoin’s popularity as a heavily traded digital asset, it has also led to the creation of many other cryptocurrencies. Bitcoin maximalists believe these other cryptocurrencies—called altcoins—are unnecessary and inferior.

Bitcoin Maximalism Beliefs and Point of View

Although Bitcoin may not have been the very first attempt at a decentralized cryptocurrency, it has unquestionably been the most successful thus far. Bitcoin maximalists hold the belief that the Bitcoin network will provide everything that investors want and consumers need in a digital currency in the future. In this way, maximalists are unapologetically in favor of (or at least in agreement about the inevitability of) a Bitcoin monopoly at some point in the future.

Ethereum developer Vitalik Buterin commented on the idea of Bitcoin maximalism in 2014. Buterin described Bitcoin maximalism as “Bitcoin dominance maximalism.” Buterin went on to describe the view of maximalists,

The idea that an environment of multiple competing cryptocurrencies is undesirable, that it is wrong to launch ‘yet another coin,’ and that it is both righteous and inevitable that the Bitcoin currency comes to take a monopoly position in the cryptocurrency scene.

Buterin posited that the maximalist philosophy,

…Is distinct from a simple desire to support Bitcoin and make it better; such motivations are unquestionably beneficial…it is a stance that building something on Bitcoin is the only correct way to do things and that doing anything else is unethical…Bitcoin maximalists often use “network effects” as an argument, and claim that it is futile to fight against them.

Bitcoin’s Blockchain

The distributed ledger-based technology called blockchain is the heart of Bitcoin’s network. Blockchain allows transactions to be publicly viewable but immutable by encoding information and distributing it across a network that verifies it. As a result, this increases security and prevents fraud. If a bad actor attempts to change a portion of the blockchain, other participants who have copies of the original transactions reject it after comparing it.

However, Bitcoin’s (BTC) popularity has led to the creation of thousands of other digital currencies. Many of these cryptocurrencies are built from the basic Bitcoin structure in some way or another, while other digital currencies are based on blockchain technology but not necessarily on Bitcoin’s blockchain. In other words, blockchain technology has been adjusted so that it can be used for other purposes and not merely a peer-to-peer cash payment system as was originally intended.

Reasons for Bitcoin Maximalism

The maximalists are a vocal group of Bitcoin supporters that back Bitcoin above all other digital currencies. Below are some of the more popular reasons why maximalists believe Bitcoin will render all other cryptos ineffective.

• Bitcoin’s network is the most secure and decentralized
• Bitcoin is the future of money
• Bitcoin drives all other cryptocurrency prices
• Bitcoin is pseudo-anonymous
• Bitcoin is a viable payment method
• Bitcoin acts as a store of value, an investment, and a hedge against the effects of inflation

Bitcoin’s Network

Many Bitcoin maximalists today support the idea that the success of a digital currency is dependent upon the underlying blockchain network. It is common to hear the idea that, although other digital currencies may offer modifications upon the original Bitcoin premise, designed to address issues inherent in the Bitcoin network, the ultimate marker of success is the length and strength of a blockchain.

Because Bitcoin’s underlying network is as strong as it is, the thinking goes, and because features of any particular digital currency can be freely co-opted by another digital currency, the network itself is the most important factor. The wealth, the size of the user base, and the history of success are features that set the Bitcoin network apart from other blockchains.

Bitcoin Is the Future of Money

Another argument from the maximalist perspective is the principle that fiat money is generally limited to the country you live in and expensive to use. Bitcoin, on the other hand, is borderless and decentralized, making it much more ideal for a global economy.

While the belief is that it will eventually replace fiat currencies, Bitcoin maximalists also believe that the process of integrating it fully into the world of mainstream finance and investing needs to be a slow one. The thought is that non-users will pay the most careful attention to the oldest, most popular, and most established digital currencies when the time comes to transition. In this case, it will be Bitcoin that prevails as it is the most established.

With new, untested digital currencies constantly emerging, Bitcoin has a strong advantage because (according to maximalist beliefs) it has proven reliable and successful. When other cryptocurrency networks suffer from hacks or other negative publicity, Bitcoin maximalists tend to see this as further evidence supporting their argument.

Bitcoin’s Drives Altcoin Prices

The maximalist philosophy opposes diversification within a cryptocurrency or broader portfolio because it feels that the price of Bitcoin tends to influence the price of altcoins. Thus, investing in altcoins may be a questionable way of diversifying one’s cryptocurrency holdings.

The argument then follows that investors would be better off investing in a best-of-breed asset, such as Bitcoin, instead of risking their money by investing in other coins or tokens. However, Bitcoin’s rise in price has not always driven altcoins higher, but maximalists might argue that’s due to the inferior quality of altcoins.

There is some evidence that Bitcoin drives the prices of other cryptocurrencies, but the correlation mainly stems from cryptocurrency market sentiments, supply, and demand. Bitcoin’s price is the highest because it is valued more, expectations are higher, and investors who can tolerate the risks are now more comfortable with its volatility.

Bitcoin Is Pseudo-Anonymous

Bitcoin does not provide full anonymity because addresses can be traced back to users through financial institutions or by accidentally releasing information that connects them. However, Bitcoin’s pseudo-anonymity is advantageous for people who enjoy a certain level of privacy.

Some believe Bitcoin’s level of privacy is enough to boost Bitcoin over digital fiat currencies, central bank digital currencies, or other cryptocurrencies. It allows for some privacy, but not so much that every transaction attracts attention.

Bitcoin Is a Viable Payment Method

Bitcoin is accepted by merchants and retailers in many different countries. There are even Bitcoin ATMs where you can buy and sometimes sell bitcoin. In the U.S., there are more than 32,000 cryptocurrency ATMs—82.6% of the world’s crypto ATMs.

There are also thousands of merchants worldwide that accept bitcoin and other cryptocurrencies. But as far as maximalists are concerned, bitcoin is the only one worth using.

Bitcoin Is an Investment Asset Class

One of the most-often used arguments that favor Bitcoin above all others is that it has proven itself an asset class. When the COVID-19 pandemic halted the global economy, some investors turned to Bitcoin and discovered that it didn’t follow the trend stocks and commodities followed: it maintained and even grew in value.

During the economic recovery that followed, Bitcoin consistently outperformed the rest of the market. Inflation became an issue as the economy picked back up, and Bitcoin’s returns outpaced the fiat currency inflation rate. Proponents declared Bitcoin an inflation-proof asset, offering these returns as further proof that Bitcoin is the future of money and investing.

However, others posit that many extenuating circumstances led to Bitcoin’s skyrocketing value. Bitcoin is still relatively new on the market, they say, so any claims that it historically performs a certain way are circumstantial. Precious metals have held their value for thousands of years, commodities have been tracked through hundreds of years, and stock markets have existed since at least the eighteenth century.

Proponents of the idea have a point, but so do its opponents.

Concerns About Bitcoin Maximalism

Bitcoin maximalism has its hurdles to overcome if Bitcoin is to become the only digital currency. Many of the altcoins and the subsequent variations of blockchain networks have come into existence because of the limitations of the Bitcoin network and its cryptocurrency. Some of the challenges and limitations of Bitcoin include the following:

• Scalability
• Volatility
• Smart Contracts
• Alternative Blockchains

Scalability

Cryptocurrencies like Bitcoin use a proof-of-work (PoW) process to add blocks of transactions to the blockchain. Those who are responsible for assembling blocks and proposing them to the network are called miners. Miners also act as the network’s auditors by verifying the legitimacy of the transactions.

As Bitcoin’s popularity grows, so too does the volume of transactions. Bitcoin’s blockchain network can only handle a few transactions per second—the more transactions there are, the longer the waiting times and the higher the fees.

Additionally, an enormous amount of energy is needed to process the growing volume of transactions. For example, the energy required to power the Bitcoin blockchain continuously exceeds that of small countries.

The slowness of Bitcoin’s blockchain design prevents its scalability. Taking that thought one step further, Bitcoin’s scalability issue prevents it from being accepted for widespread use for financial transactions because it cannot handle the volume. As a result, other blockchain networks and their cryptocurrencies are needed, which punches a hole in the Bitcoin maximalist ideology.

Price Volatility

Another challenge to Bitcoin becoming a widely-used payment method is that the cryptocurrency’s price fluctuates too wildly—this is called volatility. This volatility makes it difficult for companies and individuals to use crypto as a medium of exchange for day-to-day business transactions.

Intermediary businesses have developed payment processing gateways that convert payments to fiat at the time transactions occur rather than when the merchant can get time to convert them. This is necessary under current conditions because the crypto’s market value can change so quickly that at purchase time, a merchant might receive enough payment, but when they go to cash in their bitcoin they might receive less or more based on its market value than they charged.

This is less than ideal for small businesses, as they’ll need to pay more for the additional cryptocurrency payment services in addition to traditional methods.

Smart Contracts

In the early years, Bitcoin was limited in its usage and didn’t provide mechanisms for building smart contracts or decentralized applications (dApps). Other blockchains are specifically designed to support these applications. A smart contract is a program that executes the actions agreed upon by the involved parties.

Smart contracts can allow transactions to be automatically conducted between two parties, such as the purchase or sale of an automobile. As a result, no centralized authority is needed since the program only executes if both parties perform the required duties.

Smart contracts, which the Ethereum blockchain network was designed around, have gained popularity within the financial sector. Although Bitcoin’s blockchain network has increased its capability by offering smart contracts, it lags behind Ethereum and others in decentralized financial applications.

Alternative Blockchains

Since Bitcoin’s introduction, blockchain has been researched and accepted by many, with networks being created by businesses and industries. These alternative blockchain networks don’t necessarily require the cryptocurrencies commonly traded today. Instead, these businesses have created their own networks and tokens to be used privately by a specific group of participants.

For example, a banking group led by the Union Bank of Switzerland (UBS) developed a sandbox (a contained program) to explore the uses of blockchain technology for payments within the financial sector. In doing so, UBS—in partnership with other large banks—created its own cryptocurrency called the Utility Settlement Coin (USC). The project grew and is now known as Fnality International, with shareholders such as Banco Santander, Barclays, Goldman Sachs, and State Street.

In other words, financial sector companies have bypassed Bitcoin’s blockchain and cryptocurrency by creating networks themselves, which can be used for payments between customers, businesses, and bank-to-bank transfers.

The Bottom Line

Bitcoin maximalists claim that any issues with the Bitcoin blockchain can be solved and are currently in development. Whether governments, companies, and investors opt for Bitcoin’s blockchain vs. the many other options will likely determine whether Bitcoin maximalists are correct.

However, given the investment in other networks and cryptocurrencies, it’s difficult to predict what will eventually happen to blockchains and cryptocurrencies, and, in particular, Bitcoin.