Why this financial giant thinks Bitcoin is different from other cryptocurrencies

In January of last year, Fidelity published a report “on why investors should think”. Bitcoin (BTC -0.38%) In the report, Fidelity noted the various qualities that Bitcoin has that make it not only more desirable as a store of value, but also more decentralized and secure than other cryptocurrencies. And after 2022, it was never needed more.

In short, 2022

The past year has been one of turmoil and scandal, highlighted by events such as the explosion of the Terra stablecoin and the more recent bankruptcy of cryptocurrency exchange FTX. If 2022 had to be made into a headline, it would probably read “Centralized Players Exploit Decentralized Assets” or something close to that.

Due to the rapid rise of cryptocurrencies and increased investor interest, individuals and companies have realized that they need to make money. They created their own cryptocurrency tokens, gave loans to undeserving businesses, and sometimes even pocketed investor dollars.

This is the last challenge. Cryptocurrencies are supposed to be decentralized and devoid of any control by one person or one company. Through a series of analyses, Fidelity’s report found that Bitcoin embodies decentralization and security, and has other inherent characteristics that should make it a preferred digital asset for investors.

It’s a long document, only 26 pages long, and it’s full of compelling reasons why Bitcoin should be considered separate from all other cryptocurrencies. To save you from reading the full article, here are the key points from Fidelity analysts.

In a class of its own

Some of the features that distinguish Bitcoin from every other cryptocurrency are its level of decentralization and security. Since Bitcoin’s inception, a number of cryptocurrencies have hit the market, but many of them have sacrificed security and decentralization in favor of fast transaction speeds. Often, decisions such as the rate at which new tokens will enter circulation or the consensus mechanism to be used are left to a select few community members such as founders and developers.

But with Bitcoin, given the flaws plaguing some networks in 2022, the attractive quality is that there is no one person or entity pulling the strings behind the scenes. Additionally, Bitcoin’s globally distributed and extensive network of nodes makes it orders of magnitude larger. more reliable than its closest competitors.

The most interesting conclusion reached by Fidelity analysts was that they believe that Bitcoin has the potential to become a “mainstream monetary asset” due to its sound money characteristics, namely its scarcity and desirability. Fidelity suggested that Bitcoin’s limited supply of 21 million coins and its growing network effect could make it a preferred digital asset for investors.

Bitcoin’s first-mover advantage (for a while, it was the first and only cryptocurrency) made its blockchain “the most secure, most decentralized, and most liquid network”—qualities that Fidelity encourages users to choose the Bitcoin network for. instead of others. Analysts at Fidelity believe that the process of more people choosing Bitcoin over other cryptocurrencies will increase its legitimacy and subsequently make it more valuable as demand increases.

Lessons to learn

Now that 2022 has come and gone, it’s long past time for investors to realize that every new cryptocurrency doesn’t deserve a place in their portfolio. Many of these assets pretend to be cryptocurrencies, but in reality they are more like centralized Ponzi schemes.

There will likely never be another Bitcoin, and for that reason it should be preferred over any other digital asset. Bitcoin investors can rest assured that the blockchain will remain resilient in the face of the inevitable coming and going of centralized actors, but more importantly, it is the most likely candidate to become a major digital asset for years to come.

RJ Fulton has positions in Bitcoin. The Motley Fool has positions in Bitcoin and recommends it. The Motley Fool has a disclosure policy.

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