Bitcoin Compared 2022
Bitcoin was the first successful crypto. It has gained a dedicated and growing following, but what of its fellows, the other cryptocurrencies? What to make of them?
The Competition
The open-source nature of Bitcoin means it is easy to reproduce the network and alter the source code, so there has always been the mire of unscrupulous types, with a minimum of effort, creating new crypto and claiming unwarranted advantages over Bitcoin that do not pan out.
The Bitcoin Maximalists
This situation has caused those who appreciate the true value of Bitcoin to defend it and its uniqueness and speak out against the wannabes. They are known as ‘Bitcoiners’ or ‘Bitcoin Maximalists’. These folk emphasise the value and uniqueness of Bitcoin and warn against all others. Bitcoin Maximalism militancy is a bit of a sliding scale, but they all agree there should be only one true decentralised cryptocurrency, Bitcoin. The extent to which they deride other cryptos varies.
The ‘Alt-coin’ Condemnation
What entered the lexicon early on in crypto is the term, ‘Alt-coins’. This is a subtle condemnation of every coin other than bitcoin. It implies that every coin, other than Bitcoin, is trying to be an alternative to Bitcoin — and since none can be, they all fail. It is a bit of Bitcoin Maximalism enshrined in a simple categorisation. There have been plenty of worthless impersonators, but there has been some real innovation as well.
Alt-coins — Imitation or Innovation?
When innovating, should we change Bitcoin or should we build an alternative to it? Consider transaction privacy.
Transaction Privacy — The missing feature
Bitcoin introduced a number of technological and social innovations. One of them was the creation of a ledger where every transaction was not only indelible but also public to the entire world, for all time. In 2022 the world is struggling with increasing surveillance by governments and Big Tech companies and the continuous advances in capture technologies and data correlation, leading to the inevitable end of total surveillance. Few of us want it but we are all now seeing it coming. Bitcoin brings us all some freedoms but not the freedom of private transactions.
Society is used to having its financial transactions only visible to governments, banks and the parties involved in the transaction. Bitcoin allows everyone with an internet connection to view the entire ledger and it is continually becoming increasingly easier for the snoops to correlate that with the rest of the surveillance data set. If you use bitcoin, every transaction is dox’d.
Bitcoin missed Zero-knowledge proofs
Satoshi agreed that zero-knowledge-proof technology would have made a better Bitcoin. That technology was not available while Satoshi was involved in Bitcoin and eventually was implemented in the alt-coin, Z-Cash, which allows for a choice of transaction privacy. That choice is a restoration of that basic freedom.
Bitcoin blockchain continues to be globally visible. It may always be, but there are now some opportunities to have some degree of privacy of transactions with the Bitcoin overlay network, the Lightning Network. This way of transacting Bitcoin does afford some degree of privacy by the very nature of its implementation, though it may only be a matter of time before surveillance technology advances to correlate more of that. The future will tell.
Some alt-coins innovate with privacy, such as Monero and grin, each with their own technology but the Bitcoin Maximalists want that privacy while transacting Bitcoin and do not think adopting alt-coins is the way to go. You decide.
Extensibility — Notary, Tokenisation and Computation
A great innovation of Bitcoin is the indelible ledger. Simply being able to trust a ledger is a profound innovation. Civilisation has long had the problem of not being able to trust ledgers. Folk fiddle them. Corporations do. Banks do. Nations do. Everyone does. We trust the accuracy of the Bitcoin Ledger implemented on its blockchain. That’s what makes Bitcoin possible as a currency. In the early days of Bitcoin, this realisation led to protests of, “It is not Bitcoin that matters; it is The Blockchain Technology”. They both matter. The world’s first stateless currency for the internet age matters; being able to build trustworthy ledgers matters. This innovation leads to the prospect of representing other things on blockchain ledgers. Either (i) building new blockchains ledgers for specific things or (ii) representing other things onto existing ledgers.
The Notary Opportunity
The first other thing represented on the existing Bitcoin blockchain was Satoshi’s famous comment on the 2008 Sub-Prime Mortgage scandal in an early transaction. The comment field facility has since been used by many as a notary facility — it provides proof that the comment text was written at that time. There have been mobile apps that write checksums of photographs into the blockchains. This is fine but does not extend well to being able to represent arbitrary things on the Bitcoin ledger and then compute using them.
Representing (aka ‘Tokenising’) Assets on Blockchains
The desire to extend the use of trustworthy ledgers to assets other than currency is as old as Bitcoin. It started with (i) being able to add comments to a transaction, then (ii) colored coins and progressed to (iii) fungible ERC20 tokens and (iv) non-fungible tokens (NFTs).
Bitcoin’s Colored Coins
Bitcoin’s colored coins have never really taken off. Since Ethereum, other technologies exist that are better in many ways, although Ethereum does have its own colored coins facility. Colored coins are available on the Bitcoin blockchain, so if your solution has to be Bitcoin, they should be a consideration. However, even though many applications were initially discussed for colored coins, I doubt we will see this technology used.
Fungible Tokens (e.g. ERC20s)
Ethereum’s ERC20 standard allows anybody to easily create their own unique token supply on the Ethereum blockchain. No need to establish your own blockchain, just use Ethereum’s. You decide on their name, the total supply and how many decimal places to allow for and that’s pretty much it. Instant new currency!
Non-fungible tokens (NFTs)
These also can be created on the Ethereum blockchain using different protocol standards. A bit more effort is required with more decisions to make but again, you don’t need your own blockchain. Just use Ethereum’s.
Ethereum — the innovator
The need for arbitrary computation on the blockchain led to the Ethereum blockchain. Initially, the intention was to build on Bitcoin, but frustrations led to the realisation it would have to be built as a separate blockchain and therefore establish a new coin, ETH. Ethereum introduces an on-chain scripting language (Solidity) that allows smart contracts, written in this language, implemented to run as part of the blockchain. When the contract (program) executes, the blockchain miners — now validators — compute it and include the results as blockchain transactions. They charge gas for the transaction just as blockchain validators do for any transaction. This helps stop spammy transactions.
Now there is a way for anyone to create new token types, issue these tokens and write arbitrary smart contracts to manipulate them. This is the platform for building on the ethereum trustworthy ledger with arbitrary issuance and programming logic. Ethereum was first with this but other blockchains have followed providing the same facilities. This is the platform that has enabled decentralised finance (DEFI) and non-fungible tokens (NFTs). It still seems like the early days. Ethereum has had difficulty scaling to the demand, but other chains have addressed that, either replicating Ethereum’s facility on a new blockchain or building on top of Ethereum as scaling solutions. Bitcoin has not competed with this innovation. It has not wanted to. It is focused on being the most trustworthy store of value only. Bitcoiners will look to the Lightning Network to extend bitcoin’s reach to a payment network and seem content that its job is done.
A Payment Network for Bitcoin — Lightning
Bitcoin’s initial vision of online cash for everyone was never going to be well served by the Bitcoin blockchain ledger. It simply doesn’t itself scale well enough and, partly due to its soaring value, creates too slow and expensive a network for a planetary payments system. What is needed is an entirely different network architecture. That’s the Lightning Network. This layer 2 payment network is a mesh network of payment channels. The first transactions occurred in 2017, actually using Litecoin. It has taken time to get established and has seen enormous growth in 2021 and 2022. The Lightning Network can be used with other cryptocurrencies as well as Bitcoin, such as stablecoins. It is not a blockchain but rather a second-layer routing network, facilitating transactions. These transactions while not “on-chain” are nonetheless faster, cheaper and more private than on-chain Bitcoin transactions. There is an inconvenience in first having to establish the payment channels, which involves a funding Bitcoin on-chain transaction, but once established you gain the benefits.
For an excellent study of the Lightning Network see Lyn Alden’s paper.
Bitcoin alongside Alt-Coins
Discounting Central Bank Digital Currencies (CBDCs), I cannot see a future other than one where Bitcoin is the best-regarded and adopted world cryptocurrency. It already has probably the best adoption worldwide. It has passionate supporters and a decentralised ethos. It has paved the way for others to follow. However, those that would compete with it over the long haul, have all failed to match the lustre of Bitcoin whose value relentlessly increases every bitcoin halving cycle (approximately every 4 years).
In the early days, an individual bought a couple of pizzas with Bitcoin, demonstrating that Bitcoin could be used as a currency and then things grew. Now it might be considered a component of a nation’s treasury and some nations deem it official tender. Its decentralisation makes it special. Should it lose that, I think it would be the end for Bitcoin.
A multi-currency world?
Less decentralised cryptocurrencies are already prevalent and have gained some adoption, including Stellar Lumens, Ethereum, XRP and many more. What of their use as retail currencies? Their use-case is surely currency, at least in part. Since we increasingly pay for items with a digital wallet debit transaction, similar to a credit card transaction, I expect cryptocurrency decentralised exchanges (DEXs) will get integrated into the digital wallets so that, at the point of sale, the purchaser’s preferred cryptocurrency may be converted to the merchant’s preferred cryptocurrency. Something like this already exists today with fiat currencies and credit cards. The merchant does not need to know what currency my issuing bank adopts. The world has many fiat currencies. I think the same will come with crypto but Bitcoin will retain its special status.
What future for blockchain computational platforms?
Ethereum with its computational smart contract platform is making its own future; Ethereum is not essentially a decentralised global currency like Bitcoin. How will Ethereum and other computation platforms evolve to be more powerful and feature-rich to become the bedrock of decentralised versions of the web? Will that future be community-driven, like the IETF, or backed by venture capital behemoths, like Facebook and Google? Will it get to shake off the surveillance that came with Facebook and Google? Will the Ethereum mainframe dominate or shall it be that “the network is the computer”? Maybe we will diversify to have both for a while like we did when mainframe computers were joined by networked mini and microcomputers.
The COSMOS’ Internet of Blockchains
The COSMOS technology stack with its sovereign blockchains ecosystem is quickly building much that currently exists on Ethereum. It is largely community-driven and multi-chain with inter-blockchain communication (IBC) being its main technology differentiator. COSMOS, “the internet of blockchains”, is all about networking sovereign blockchains just as Ethereum has been all about the advantages of everything adopting a single consistent platform. Which will win, or is there room for both to flourish?
In the early days of the retail internet, America-On-Line (AOL) was the walled garden internet and it failed; Amazon won out providing its trusted simplicity in purchasing online. Retailers were free to build their own stores but found value in marketing through Amazon as well, or solely; eBay provides something similar. What can we learn? End users want simplicity and want it to just work; They want to simply consume the media they are after such as Amazon Books or CDs; they don’t like the effort required to search around to find what they want — better they go to one place and get a repeatable experience, purchasing easily and reliably. Ethereum has the early mover advantage, but with COSMOS delivering mature networking and its platform allowing for every innovation by the sovereign blockchains, the COSMOS ecosystem may win the battle to scale and adapt to the needs of the next web.
