Worth $1.16 trillion, Bitcoin (BTC 0.39%) is by far the largest cryptocurrency, representing 44% of the market's total capitalization. And while it doesn't boast the speed and functionality of newer blockchains, its brand recognition and first-mover advantage could help it keep its role as an increasingly respected store of value. Let's explore the reasons why Bitcoin is worth buying for the long haul.
1. Bitcoin enjoys a first-mover advantage
It's no secret that Bitcoin has fallen behind newer rivals in raw technical prowess. It doesn't host complex decentralized applications (dApps) which use self-executing smart contracts to build everything from games to virtual art markets. And its capacity of seven transactions per second is slow compared to the current speed leader, Solana, which can handle a jaw-dropping 50,000 transactions in the same time frame.
But despite these challenges, Bitcoin boasts a first-mover advantage as the first blockchain network to introduce cryptocurrency transactions to consumers at a large scale. And in this highly uncertain market, that gives it brand recognition and trust rivals will struggle to replicate.
According to financial service company Fundera, over 15,000 global merchants accept Bitcoin as payment (either directly or through a third party), including major companies like Microsoft, PayPal Holdings, and Starbucks. Data is hard to come by for rival blockchains, but cryptocurrency directory Cryptwerk estimates that just under 4,000 merchants accept the second-largest coin, Ethereum. Bitcoin has also received 22 million average monthly searches in 2021 compared to just 6.3 million for Ethereum, which suggests retail interest in Bitcoin is higher.
2. Bitcoin has built-in scarcity
Bitcoin is designed to be a store of value and method of payment, which makes it attractive to investors who are looking for a hedge against fiat currency inflation and aren't necessarily interested in other applications of blockchain technology like dApps. It uses a consensus mechanism called proof-of-work (PoW) in which miners validate transactions by solving computational problems in return for newly minted coins.
The drawback of this system is its energy consumption -- which The New York Times estimates totals 91 terawatt-hours (around 0.55% global electricity production). This is bad for the environment (so is gold and diamond mining, to be fair). But the fact that Bitcoin consumes real-world resources could help support its valuation by reducing miners' incentive to supply new coins if the value falls to an unprofitable level.
The total number of Bitcoin that can enter circulation is capped at 21 million. And as time goes on, the difficulty of Bitcoin mining is designed to increase as the value of rewards decreases. The Bitcoin supply will also face natural attrition as people forget accounts, pass away, or send Bitcoin to inactive accounts.
Investing for the long haul
The cryptocurrency market shows some similarities to the late '90s dot-com bubble when slews of start-ups earned astronomical valuations riding the wave of internet technology. Like with previous bubbles, weaker blockchain projects will likely fade away as stronger ones gain market share. While Bitcoin lacks the technical sophistication of some of its new rivals, a first-mover advantage and deflationary characteristics will help it stand the test of time.