After entering cryptocurrency via Bitcoin in 2013, I expanded my purview to other coins. Below is my opinion on the fundamentals of some other cryptocurrencies, without regard to price or technical analysis. Disclosure: I hold positions in many of these below. This is not investment advice.
The big three cryptocurrencies
Bitcoin, Litecoin, and Ethereum are the big three. They all have multi-billion dollar market caps and lots of liquidity (on a relative basis).
This is the reserve cryptocurrency. Bitcoin is the gold standard. It’s not going away. Every exchange denominates exchange rates in BTC but not necessarily in other currencies (some are moving towards ETH). Bitcoin also has the largest ecosystem of buyers, sellers, miners, and developers. The bitcoin network has 65 million PetaFLOPS of computing power (or 65 ZettaFLOPS) at the time of writing. That’s several billion times more powerful than a high powered PC.
Scaling is Bitcoin’s weakness
But the major weakness of bitcoin as a cryptocurrency is its governance: miners and developers cannot agree on how to innovate and make the network scale. Miners have poured millions into hardware and electricity. Developers poured their equivalent brainpower into bitcoin. It’s pathetic how divided the community has become, resorting to flame wars on Reddit and Twitter. They’ve recently started to compromise on an approach (SegWit + 2MB), which unfortunately isn’t much more than a compromise. We’ll find out on August 1 if it’s real.
Litecoin is my new cryptocurrency of choice since it’s so efficient and well managed. Charlie Lee (former Director of Engineering at Coinbase) left his job to run Litecoin fulltime. Litecoin is doing all the scaling things that bitcoin needs to do, such as Segregated Witness and Lightning Network. These make the network so much more efficient and prevent bloat. The Litecoin network is projected to be able to handle 7x the transaction volume of Bitcoin. But Litecoin doesn’t have nearly the ecosystem that Bitcoin has. It also doesn’t have the bipartisan gridlock. That said, I’ve never “spent” a litecoin on a product or service, but I have spent BTC over the years. What I’m optimistic about is for Litecoin to disrupt Bitcoin by moving at lot faster on new features that scale the network and keep fees low.
Ethereum is less of a transaction system but more of a global distributed computer that’s powered by a cryptocurrency. Smart contracts are run on this unstoppable, decentralized, transparent computer. These smart contracts are like regular legal contracts but the outcomes are decided by code, not by lawyers, judges and juries.
An example of Ethereum’s smart contracts
Imagine two people made a bet on how much rain will fall in Seattle tomorrow. They could setup a smart contract to pull from weather.com at midnight to disburse funds to the winner. The smart contract is transparent to anyone. There are no appeals to the outcome. There are a ton of developers building dapps (Decentralized Apps) on top of Ethereum and raising tons of capital in the process. But it’s unclear where the world needs dapps and how they will succeed. Just over a year ago, one of the first dapps (TheDAO) was hacked to the tune of $55 million. I was a victim but luckily had my funds recovered due to the Ethereum hard fork.
The other cryptocurrencies
According to coinmarketcap.com, there are 785 cryptocurrencies. Their collective market cap is over $100 billion.
— CoinMarketCap (@CoinMKTCap) June 6, 2017
Here are some smaller, more obscure coins that I’m interested in.
Bitcoin, Litecoin, Ethereum are not private nor anonymous. They operate in the clear with lots of “explorer” apps like https://blockchain.info and https://etherscan.io. Pseudoanonymous is a better description. No given address or transaction is associated with a person, but once it is, all past and future activity can be associated with that person. Monero is a class of private coins that require additional keys to look at balances and transactions. They are verified and provable to the public just like with every other blockchain. But the coins are considered fungible, meaning there’s no ability to see where they came from. This privacy feature is a very meaningful differentiator.
I like Dash for the same reasons I like Monero (privacy and fungibility). Dash had some mining challenges early on but their marketing makes up for it and might keep them growing faster than Monero.
This is a meme gone wild. Sometimes is takes the community behind a meme to do something interesting, like sponsoring a NASCAR driver.
Dapp Coins are kind of cryptocurrency
There are a ton of new projects built on Ethereum, similar to startups building on AWS. These projects are raising tons of cash by pre-selling their product in the form of a specialized token to consumers, kind of like Kickstarter. They then pay their suppliers with these tokens. I assume the accounting treatment is “pre-paid revenue”.
I recently wrote about one, Basic Attention Token (BAT) given its relationship to the ad industry. So did my friend and former colleague Sriram. BAT is one of the most hyped Initial Coin Offerings on Ethereum, selling out in less than a minute. There’s a lot of fervor over the technicals, which are irrelevant in the long term, but BAT will go nowhere unless they can gather a point of leverage. They are making inroads with a techie publishers but that won’t do much other than prove their technology out. Similar situation with Civic. They need to find leverage points to build a multi-sided market.
Net net, I love watching and writing about tokens but am generally bearish on most of the applications. I think we’ll continue to see a wave of funding and then a crash, with a few survivors. Then we’ll see a second, more robust wave of projects emerge.