Hello again, dear reader!

As I promised you last post, I have reviewed some cryptocurrencies, and I will publish my fact-based heavily-biased opinions on them. Take this post with a grain of salt, and mind that investment (or speculation) is risky. However, I hope you find it useful.

Bitcoin

Bitcoin is the first of decentralized cryptocurrencies. It still has the most users (most addresses with >$1 USD, most Reddit subscribers, most GitHub stars), and since it lets you connect with more people, it provides more value than the other networks.

Bitcoin's current supply is around 17.9 million BTC, with a mathematically-enforced eventual maximum of 21 million (but there may be hard forks of the network, as happened several times already).

However, the transaction fees are high, at time of writing being nearly $1 USD. This is more expensive than many bank tranfers.

Therefore, the currency is not as useful as a payment system anymore, but as a "store of value" or "safe haven" (hard to transact, but hopefully still of resilient value, like gold, silver, petrol and real estate). This discourages payments but encourages speculation (however, that is not necessarily a bad thing, if you have the stomach).

@SquawkCNBC

"Humanity has now created a non sovereign, highly secure mechanism to store value that can exist anywhere that the internet exists," says @jerallaire on #btc surge amid #TradeWar

The reason for the fees is in part, its popularity, and in part, the limited transaction processing speed. Bitcoin limits blocks to 1MB (though using SegWit one can do more transactions, at the expense of having to withdraw them later in another transaction. SegWit transactions are not on the blockchain; it's complicated.).

A tyical blockchain transaction takes about 244 bytes, so a 1-MB block can only hold about 4100 of them. Also, a block is targeted to be generated every 10 minutes, which means you can only get 410 transactions per minute. You can see why this is a problem.

In spite of this limitation, the blockchain size has surpassed 277GB, storing transaction history since 2009-01-09. The size is important for judging how expensive it would be to host a mining or non-mining (just validation) node yourself.

Some free-software wallets (free-software are the only ones deserving review) are the official one, and Electrum.

Trait Value Source
Market Cap $171 B BitInfoCharts
Fee per transaction $0.94 BitInfoCharts chart
Transactions per day 336k BitInfoCharts
Blockchain Size 277.12 GB BitInfoCharts

Bitcoin Cash

Bitcoin Cash is a fork of Bitcoin that decided to increase the block size limit. This will hopefully drive transaction prices lower, which would lead to easier and more transactions. But this comes at a cost of increased workload for the miners - which might lead to centralization and relatively less security compared to Bitcoin.

As opposed to Bitcoin, which aims to be a "store of value", Bitcoin Cash has the main goal of being "cash", or a means of payment, not just of speculation. Bitcoin Cash argues it is staying true to the original Bitcoin whitepaper - "Bitcoin: A Peer-to-Peer Electronic Cash System"".

Indeed, the transactions are much cheaper at least for now (with much fewer transactions than Bitcoin, perhaps because of lower popularity), at less than $0.01 (1 cent).

Transactions being so cheap led to the development of on-blockchain chat protocols, like Twitter. These protocols are hard to censor, unlike Twitter. Memo.cash is an example (but note that the website itself is censorable, as any centralized service; do not place any meaningful money on a website that has your private key).

Bitcoin Cash's supply is meant to be the same as Bitcoin's.

A free-software wallet I could find is Electron Cash, which is forked from Electrum for Bitcoin, and it also supports Android (useful for a "cash" cryptocurrency).

Trait Value Source
Market Cap $4.96 B BitInfoCharts
Fee per transaction $0.003 BitInfoCharts chart
Transactions per day 38k BitInfoCharts
Blockchain Size 170.56 GB BitInfoCharts

Ethereum

Ethereum is more of a developer-friendly cryptocurrency. Its main feature is a flexible "virtual machine" that runs on miners' computers, allowing you to program applications - called "DApps" for "distributed apps".

Among my favorites are:

Many others can be seen on StateOfTheDApps.

Of course, this flexible programming allows for complicated software - which allows for bugs. There was an error in a crowdfunding app called "The DAO", which allowed draining funds.

Ethereum has plenty of transactions, surpassing even Bitcoin. Its blockchain size is 428 GB, in its shorter history since 2015-07-30. As a consequence, an Ethereum node or miner needs to be more beefy.

Transaction fees are around $0.12, which is still not cheap. Ethereum includes processing power into the transaction cost ("gas"), not just the storage space like Bitcoin. I think that is being more fair.

As for its supply, I am not too knowledgeable about the algorithm that emits Ethereum, but it seems the original supply still makes up 67% of it, so the inflation was not too bad (50% since July 2015, roughly 11% compounded per year; comparable with Romania's 11.5% inflation of the M2 money supply in 2017).

Still, if this fiat-currency-level inflation were to last, what would be the point of holding Ethereum?

That is the point! Ethereum wants you to use it and develop DApps, not just hold it forever. They do not promise any supply cap à la Bitcoin, and the inflation is quite high.

Ethereum is investigating sharding - splitting the blockchain in 100, and having nodes only keep 1 part of it. See here. But this is hard, not only for Bitcoin as this article says, but for all cryptocurrencies.

Trait Value Source
Market cap $18 B BitInfoCharts
Fee per transaction $0.12 BitInfoCharts chart
Transactions per day 668 k BitInfoCharts
Blockchain Size 428 GB BitInfoCharts

Monero, ZCash

These coins have innovated in another direction: allowing for private, untraceable transactions. Coupled with techniques for anonymizing your network, they might offer immense financial anonymity (and freedom).

One thing to mention is that these currencies are definitely not bug-free (and neither is any software, actually): ZCash fixed a catastrophic vulnerability earlier this year; luckily, they did not see any traces of it being exploited.

Why is financial anonymity important, aside from tax evasion (which I deem risky and foolish, by the way)?

Financial anonymity

Well, when citizens are transparent to the state, the state might be tempted to abuse that power. For example, if they see you are funding independent journalism, exposing the state's corrupt gears, they might freeze your accounts for some unrelated excuse, or they might persecute you.

Here is a very difficult decision the United States made, to reconcile their First Amendment (freedom of speech) with limiting political spending (in an election campaign). They found that limiting the spending also limits the quantity of speech, and the spending limit was deemed unconstitutional.

Another fun point I make personally: the implementation of a cryptocurrency (which is money, some say) only requires sending messages (which is speech).

An even funner point: banks do the same with money in bank accounts - if you see past the fancy suits and grandiose buildings, it's all electronic messaging. Here's one for instance.

A differring opinion is that "A system that allows corporations and the wealthiest among us to drown out the voices of others, [...] undermines the First Amendment’s core purpose – to foster and protect a flourishing marketplace of democratic ideas."

This is a valid point, but there are technologies that can let you filter out the well-funded corporate "spam":

So, speech should be free, and money at least lets you speak louder, if it is not speech in itself.

I think that is fair (as long as that speech is not blasted with a megaphone into my home, without my consent).

This is why I am in support of Monero and ZCash, in principle. You become free to support anyone whatever they may do or say, without Big Brother watching.

Just please don't sponsor terrorists (which are violent by definition)!

In any case, these two currencies are a long way from drowning out other people's speech - their market cap and adoption is very small.

Still, if these currencies get reliable enough, they would be the only form of electronic voting that I might trust. See this YouTube video where Tom Scott explains why E-Voting is a bad idea - in essence, it's much easier to rig electronic elections.

When you look at the Transaction fee / Market cap ratio, Monero is the most expensive (2.72 UScents fee per billion USD market cap), while ZCash is the cheapest (0.014 cents/billion).

Monero

Trait Value Source
Market cap $1.1 B BitInfoCharts on Monero
Fee per transaction $0.03 BitInfoCharts on Monero
Transactions per day 5k BitInfoCharts on Monero
Blockchain Size 63.75 GB BitInfoCharts on Monero

ZCash

Trait Value Source
Market cap $0.3 B BitInfoCharts on ZCash
Fee per transaction $0.000043 USD (amazing!) BitInfoCharts on ZCash
Transactions per day 3.5k BitInfoCharts on ZCash
Blockchain Size 22.98 GB BitInfoCharts on ZCash

Stellar

Stellar looks interesting, but I haven't researched it enough yet. What I can say is that they use a much cheaper algorithm to determine valid transactions and protect from double spending. I have not spent enough time with it to find out if it's safe enough.

Stellar has native trading on the platform. This means the system stores bid and ask requests on the blockchain, which makes it a decentralized exchange. You can create tokens, which might represent your promise to send real things, and sell them for "lumens" or other tokens. Of course, that promise would not mean much without escrow, which seems possible.

At one point, there was a bug being exploited in the wild, which created an unintended $10 million worth of Lumens (the unit of the Stellar network). They burnt their own funds in an equivalent of that amount, in order to protect Lumen owners from unintended inflation. Would an organization voluntarily forfeit $10 million? I hope there is more to gain; otherwise this smells fishy to me.

To prevent spam, you need to hold a minimum balance of 2.5 XLM (worth about $0.15 as of today) in order to do anything.

Ripple

Ripple is not open in the sense that anyone can join the network to validate transactions (or even to create an account, for that matter). They have "Contact Us" buttons when you want to get down to business. Their main purpose is doing financial settlement, letting banks save on payment processing costs.

There is no distributed wallet, and you have to rely on Ripple-approved validators.

Libra

Any article I could find on it either:

  • reads like an advertisement, or:
  • points out the obvious centralization, being controlled by the status quo (among others, Facebook, PayPal, Visa, Mastercard).

Since I don't trust any of those companies, which constantly lobby against individual financial freedom, and for their ever-increasing control over parts of my life, I will not trust Libra.

No, just no!


Hope you enjoyed my post. Do comment, so that I know what you think of it! Also, feel free to suggest any topic for a new post. I could write forever.


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