the Futility of Comparing Alts to Bitcoin

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Bitcoin is killing the planet. You can’t do an ICO on it. It doesn’t scale. It’s only good for hiring hitmen and buying unserialised assault rifles and pharmaceutical-grade methamphetamine.

It’s really quite fortunate that those parroting these killer flaws, more often than not, have a vastly superior alternative that we can all adopt instead (what are the odds?). There’s been a deluge of innovation in blockchain technology, from foolproof guides to printing your own money and mandatory KYC for participation in networks, to revolutionary decentralised systems that implement the as-of-yet nonexistent Proof-of-Stake algorithm for block generation.

Indeed, the future looks bright. Bitcoin is going to zero, while that coin you and your friends made with some tweaks to the Bitcoin codebase is going to $1m. Who needs supply caps when we’re on the brink of a happy multicoin revolution?

The Role of Bitcoin

Bitcoin was conceived as digital gold. Some (rather fiercely) contest this, often citing the title of the white paper as definitive proof that Satoshi intended to create a virtually free and near-instant payment medium.

I (along with many) disagree with this for a handful of reasons: the 21 million supply cap (whilst not in the whitepaper, it was clearly intended and coded in from day 1) and mining mechanisms would support this viewpoint. Let’s not forget, either, that Satoshi’s birthday happened to land on the anniversary of the passing of Executive Order 6012, forbidding U.S. citizens from hoarding gold. For someone with arguably one of the most airtight OPSEC setups, this seems like more of a symbol that Bitcoin was designed as an unconfiscatable asset.

Of course, there’s no reason to pit these two definitions against each other. Satoshi uses both cash and gold analogies extensively. Those marketing alternatives are quick to point out sky high fees for Bitcoin (which haven’t been an issue for the better part of a year) and slow confirmation times making it untenable as a payment option, but few that use Bitcoin for purchases complain. Besides, even continuing with the gold analogy, coins and bullion have historically acted as both stores of value and means of exchange.

Interpretation of the whitepaper (which doesn’t address a wealth of issues faced/features integrated in the last decade) is a poor metric for determining Bitcoin’s intended purpose. Realistically, what should be used to ascertain its killer app is in what holders are doing with it. It’s not easy to accurately quantify this, though general sentiment seems to fall in line with the store of value/transfer of wealth concept due to its defining features. It’s more of a get rich slow scheme.

Keep It Simple

Some criticise Bitcoin’s lack of Turing-completeness as a reason for favouring second-generation blockchains, where you can build decentralised applications that nobody uses and sell your own form of money. When put in this light, one may begin to sympathise with the somewhat conservative approach by Bitcoin users and developers: talking about second-generation blockchains as ‘world computers’ seems slightly premature.

Though it’s greatly oversimplifying things, I’m fond of the analogy that Bitcoin is more akin to a simple calculator, whilst a blockchain like Ethereum is more like a smartphone. The calculator does a single job (thus minimising attack surfaces) whilst the smartphone is capable of much more functionality (including that of the calculator), albeit at the cost of broadening its attack vectors. The currency of smartphone-like networks serves primarily to act as fuel to power applications built on top.

To date, I don’t think we’ve seen any use cases that necessitate decentralisation to the extent that such platforms provide, given the trade-offs (barring, perhaps, Augur) — the scalability and control required for business applications means that semi-decentralised databases are often better suited to the task. Federations of businesses/organisations would make more sense in most cases.

For simplicity’s sake, when it comes to money, you want barebones. Yes, certain coins have features that Bitcoin does not (yet) possess and are valuable in niche cases, though if the features are deemed crucial to Bitcoin’s viability (and they don’t expose the protocol to added risk) in the long run, they’ll be integrated eventually (whether on-chain or on sidechains).

The example I chiefly refer to is that of privacy. There are strides to make Bitcoin more fungible as we discussed last week, though for the moment, those wishing to transact in a truly confidential manner are better off using an altcoin like Monero or the highly-anticipated MimbleWimble coins in the short-term. Alts may compete with Bitcoin and payments, but Bitcoin is gunning for a bigger target — government-issued fiat.

Fundamentally, with a cryptocurrency, you want self-sovereign control over a (relatively) stable and fairly distributed asset whose code isn’t influenced by a central leader or group. Stability, evidently, is something that only manifests itself after a long process of price discovery. To these ends, you also want a cryptocurrency that doesn’t fade into obscurity after a number of years, but you also want it to be highly liquid.

Top 15 Coins, December 2013 (from coingecko.com)

There has yet to be a service (other than some fabricated narrative) where utility tokens fulfil a purpose that Bitcoin can’t, so we’ll rule them out until one manifests itself. Stablecoins and security tokens are a different beast altogether, as they inevitably can’t be trustless due to outside factors influencing on-chain transfers.

Maybe One Day

Of course, you should never say never. It’s entirely possible that something does topple Bitcoin. but that’s a very tall order to fill. Even if you built what you thought was a superior cryptocurrency, you’d need to:

a) Make it more secure (the hashpower backing Bitcoin makes it the least profitable chain to attack)
b) Demonstrate its antifragility (Bitcoin has already been battle-tested to an extent, certainly more so than other coins)
c) Prove its ability to compete with Bitcoin at scale
d) Match the distribution and network effects of Bitcoin
e) Grow old (the Lindy effect)

Again, it’s not out of the realms of possibility that a serious contender replaces Bitcoin. But it would have a lot of slack to catch up.

Cover photo from Pexels.



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