One of the key talking points near the end of 2017 was that 2018 would be the year of the Bitcoin forks. After noticing the relative success achieved by Bitcoin Cash (Bitcash), some commentators believed there would be many other coins released via a similar airdrop-based methodology this year.
Other than Bitcash, the only other two spinoff coins (altcoins that distribute a new altcoin to current bitcoin holders based on the UTXO set at a specific point in time) that have gained any sort of notoriety among the greater cryptocurrency community are Bitcoin Gold (Bitgold) and Bitcoin Private (Bitprivate).
It would be cool if we could skip the phase of creating Bitcoin forks with the features of popular altcoins and go straight to implementing them as drivechains instead. pic.twitter.com/5rQ7dgEeuA
— Kyle Torpey (@kyletorpey) November 17, 2017
While anyone is obviously free to fork the Bitcoin blockchain and create something new, these spinoff coins have received some criticism for taking the Bitcoin brand with them. But this sort of activity be considered a form of fraud? After all, there are many aspects of the bitcoin token that are not found with these spinoff coins.
Let’s take a closer look at the spinoff coin process to see whether or not altcoins that use “Bitcoin” in their names should be considered scams.
What Defines the Bitcoin Brand?
A brand is a class of goods identified by name as the product of a single firm or manufacturer. In the case of Bitcoin, there is a single product, the network, which is the product of a decentralized community of developers, who are subject to the demands of the userbase (see this piece for a full explanation of this point).
There are a lot of aspects of the Bitcoin product that go into that base network:
- The developers who work on Bitcoin are of a certain standard or quality due to the experience gained over the years. There are also a large number of developers interested in Bitcoin due to its place as the most prominent cryptocurrency in existence. The numbers of eyes (and the quality of those eyes) looking at the Bitcoin codebase makes it second to none in terms of releasing software that won’t lose people’s money.
- The bitcoin token used on the Bitcoin network comes with a level of liquidity and price stability that is not seen with any of the altcoins. There are more people willing to use bitcoin as money because of the network effects around it, and this creates a snowball effect of it becoming an even better money as more people want to use it (see a further explanation of this point with the analogy of Bitcoin as a social network). Bitcoin’s large userbase makes the bitcoin token more useful than other options.
- Bitcoin’s network hashrate has continued to climb over the years to the point where it is now at over 25 exahash. A higher network hashrate means a higher cost of attacking the network — although the level of concentration of that hashrate also plays a role here.
- Bitcoin is also perhaps the only cryptoasset that has proven itself to have reached a relatively high degree of decentralization (at least compared to altcoins), which protects the censorship-resistance use cases that underpin the entire point of having a blockchain in the first place. There are many factors at play here, but the key aspect of Bitcoin’s decentralization is the diverse userbase, which makes it difficult to implement controversial changes to the network’s consensus rules (see Jimmy Song’s recent article that includes a section on Bitcoin’s level of decentralization). The best illustration of Bitcoin’s decentralization thus far has been the failure of the hard fork related to the SegWit2x proposal (see this breakdown of how the failure of SegWit2x proved bitcoin’s value as digital gold).
The crypto-currency dominance index should only include monies whose p2p network withstood an attack from 90% of the hashrate + the biggest startups. ????
Bitcoin has 100% dominance.
— Pierre Rochard (@pierre_rochard) March 18, 2018
The above four features of the Bitcoin network are just a few examples of what provides value to the Bitcoin brand. It is these features that provide the fundamental reasons as to why more people have started to trust Bitcoin over the years.