Bitcoin dominance explained: Scott Dedels’ insightful analysis

_{This series is sponsored by Block Rewards, a Kelowna-based company that is focused on solutions for Canadian employers to integrate Bitcoin into their compensation, benefits, and retirement savings plan strategies.}

The Bitcoin Show recently featured an in-depth discussion with Scott Dedels and Jim Csek on what sets Bitcoin apart. The episode focused on the fundamental differences between Bitcoin and other cryptocurrencies, providing valuable insights for both novice and seasoned investors.

Bitcoin vs. altcoins

Dedels began by addressing the proliferation of alternative cryptocurrencies, often referred to as "altcoins," and how Bitcoin maintains its dominant position in the market. “In the cryptocurrency space, there's no ceiling on how many altcoins can be created,” Dedels explained. “Bitcoin, however, has always been the largest asset, consistently holding the top spot.”

Ethereum ETFs and market implications

The recent approval of Ethereum ETFs in the U.S. has generated significant interest. Dedels acknowledged that while this development may boost Ethereum's price in the short term, it is essential to understand the key distinctions between Ethereum and Bitcoin. “Ethereum was designed to be a programmable language currency, unlike Bitcoin, which is a simple ledger for tracking exchanges,” said Dedels. “The key difference is that Ethereum has a centrally controlled entity, whereas Bitcoin operates without any central authority.”

Investing risks in cryptocurrency

Dedels shared data illustrating the volatility and risks associated with investing in altcoins. Of the 8,000 altcoins created since 2016, only 41 have outperformed Bitcoin, emphasizing the precarious nature of these investments. “You had a one in four chance of losing all your money with altcoins,” Dedels noted. “Bitcoin, on the other hand, has shown resilience and long-term stability.”

Bitcoin’s market dominance

One of the primary metrics discussed was Bitcoin Dominance, which measures Bitcoin's share of the total cryptocurrency market capitalization. Despite the emergence of thousands of cryptocurrencies, Bitcoin has consistently maintained more than half of the market share.

“Think about it this way: the number of cryptocurrencies has gone from one to 20,000, but Bitcoin still holds more than half of the total market share,” Dedels explained. “This underscores the relative stability and lower risk profile of Bitcoin compared to other cryptocurrencies.”

Centralization concerns with Ethereum

A significant portion of the discussion focused on the centralization of Ethereum. Launched with a pre-mine, a substantial portion of Ethereum tokens were distributed to early investors and founders before becoming widely available. This centralization is in stark contrast to Bitcoin’s decentralized nature.

“Ethereum's largest holder is still the Ethereum Foundation,” Dedels pointed out. “In 2017 and 2021, market peaks were marked by the Foundation dumping large amounts of Ethereum on the market. This kind of central control and market manipulation is absent in Bitcoin.”

Proof of work vs. Proof of stake

Dedels also explained the technical differences between Bitcoin’s proof of work (PoW) and Ethereum’s transition to proof of stake (PoS). PoW relies on miners expending energy to solve complex problems, securing the network and creating new Bitcoins. In contrast, PoS allows holders to lock up their tokens to validate transactions, which can lead to centralization and potential manipulation.

“Proof of stake networks tend to consolidate control among a few large holders,” Dedels warned. “This makes Ethereum more susceptible to influence by major stakeholders, unlike Bitcoin, which remains decentralized and resilient.”

As the cryptocurrency landscape continues to evolve, Dedels emphasized the importance of pricing cryptocurrencies in Bitcoin to gauge their performance accurately. He advised investors to remain cautious and to understand the inherent risks and differences between various digital assets. “Bitcoin has proven to be a stable and reliable asset over time,” Dedels concluded. “While the allure of altcoins might be tempting, Bitcoin’s track record makes it a cornerstone of any serious cryptocurrency portfolio.”