Upending Bitcoin: an argument for revamping cryptocurrency’s social order
Let’s face it: Bitcoin is cryptocurrency’s golden child, and it always has been.
Since Satoshi’s whitepaper gave way to the genesis of modern cryptocurrencies, it has fluctuated between total market dominance to a majority-minority coin. In this transition, Bitcoin has not lost its legitimacy. This is exemplified in a multitude of ways: the universal access among cryptocurrency exchanges (many exchanges require you to switch from cryptocurrency to cryptocurrency using BTC as the unit of exchange), the coin’s meteoric rise to stardom in mainstream news relevancy, and the quantitative justification given by a market capitalization that exceeds $100 billion from its measly 21 million tokens. Though pundits and critics may argue that the swan dive from $20,000 to a little more than $6,000 at the time of writing disqualifies all cryptocurrencies from public legitimacy, believers in the technology reframe this harbinger of inevitable doom as nothing more than the risk of a volatile investment. Skeptical opinions aside, Bitcoin has navigated away from the territory of altcoins (ultra-volatile coins not widely adopted, accepted, or traded) and has firmly settled into its reputation as the “gold-standard” of cryptocurrency. But once we dig past its distinguished history, does it truly deserve the esteemed status that it flaunts?
Much like new business ventures, cryptocurrencies benefit and suffer from a well-known economic concept called the “network effect”. In short, this theory dictates that every new user of a good or service creates value for all others involved. The examples abound: Facebook has little intrinsic value beyond its time it takes to write the underlying code, as the network is generally useless without your friends and family on the platform. In a more obscure, but equally accurate case, Facebook itself benefits from a second-order network effect by distributing its platform to smartphones, laptops, and desktop computers. Without these adopted technologies, Zuckerberg may have been trying to find a way to connect people by mass-distributing mailed letters using USPS. Bitcoin benefits from this same effect in an outsized manner; Bitcoin is seen as the standard cryptocurrency not only because of its long history, droves of media coverage, and staggering market capitalization, but most importantly because of its perched reputation within the cryptocurrency community as a medium of exchange.
As Bitcoin’s dominance dwindles, the market-leading cryptocurrency faces a swarm of cunning, clever challengers. Monero, an altcoin, wields technical brilliance and rightfully remains among the leaders of this pack. But before we upend Bitcoin, we should ask ourselves this: is this a necessary shift that reinforces blockchain’s moonshot trajectory, or a reckless attack against cryptocurrency’s household name?
Bitcoin has done well to stand the test of time, proving its worth as the heavyweight cryptocurrency. Withstanding the pressure of millions of transactions, staggering volatility, and prospective regulation from governments, the currency has stabilized at a price point that leaves few concerned that it will fall to zero in the near-future. Though continued adoption and sensible regulation remain a future hurdle for Bitcoin’s to advance its success, one can reasonably expect that Bitcoin will be relevant in the coming years. However, as Bitcoin moves inevitably closer to mainstream adoption, we must consider even the most minute shortcomings of the currency if it is to maintain its flagship status.
Bitcoin’s most significant weaknesses originate in two dramatically different spheres of cryptocurrency design but are equally important in determining the currency’s long-term viability. The first, and perhaps most relevant issue to the occasional user, exists with the payment processing capabilities of the currency. Bitcoin suffers from relatively slow transaction times compared to other cryptocurrencies, inviting questions about its expected premier status in the coming years. Though Bitcoin has implemented Bitcoin Cash, which processes around three times faster, and is considering “off-blockchain” transaction processing that could exponentially speed up the process, it is important to consider the limitations and inflexibility that naturally exist with a developed technology with a massive user base.
Transaction processing limitations are intertwined with the immutable and decentralized blockchain. Though this bookkeeper of transactions promises revolutionary technological shifts, Bitcoin’s radical transparency creates fundamental problems if one were to use Bitcoin as an everyday currency. Researchers have determined that it is possible to trace transactions back to a particular user, opening up a bountiful landscape of opportunities for criminals looking to take advantage of wealthy cryptocurrency owners.
Bitcoin’s second major flaw, conceivably the most crucial for sweeping adoption, is the striking privacy concerns associated with Bitcoin’s protocol. The blockchain’s transparent and fraud-proof nature (the ledger is available for anyone to access and review) is one of its strongest points of design, but its naive implementation opens a public window to a user’s wallet if someone were able to connect the real-life identity to the digital wallet. As a result, this paints a wealthy user as a target to be physically attacked and forced into transferring bitcoins by tech-savvy criminals. Beyond the expanse of criminal intent, many do not feel comfortable with the possibility of having their private finances exposed to the public eye.
Enter Monero, the altcoin that constructs a comprehensive case to become the flagship coin of the future. Monero’s edge stems from a business theory known as second-mover advantage. Simply put, the strategy calls for recognizing the shortcomings of the first attempt at a business concept (or cryptocurrency) and using the flexibility and dynamism afforded to a new venture (or initial coin offering) to develop a better product. Employing the second-mover advantage affords the opportunity to capitalize on mistakes that make the long-term viability of the business idea hazy, while taking advantage of the proof-of-concept provided by the initial modest success. For some, this may seem counterintuitive, as our culture celebrates the “billion dollar idea” as the moment that riches and success become inevitable. This concept is only solidified by mega-corporations such as Amazon and eBay, which respectively represent the world’s first online bookstore and world’s first online auction site. Once we dive beyond the surface, we find that this first-mover advantage is nothing more than a myth as it ignores the possibility of unforeseeable roadblocks. By most accounts, Google was the 11th online search engine. Facebook’s long-standing reign as the chief social network required it to overcome MySpace and Friendster. Apple’s iPod capitalized on the mistakes of Intel’s “PocketConcert” and the clunky Remote Solutions’ “Personal Jukebox.” Though Bitcoin’s permanent and ultra-accessible general ledger is based in good intentions, it cannot be safely and effectively scaled to the mass market without serious changes to the core technology. As we look to the future, we start to see little value in sticking with the legacy cryptocurrency if only for the sake of habit.
Monero’s substantial promise is not without results. The cryptocurrency has ascended to the third most popular by market capitalization at various times. Though the cryptocurrency market is plagued by moments of market mania, this high-profile recognition has logical roots; the cryptocurrency provides formidable technical advantages over Bitcoin. Bitcoin’s biggest flaw is solved by Monero’s ring signature technology, a reliable but inventive method that reinforces user safety. To keep things simple, ring signatures underpin the process that ensures the transaction is valid and private by mixing together transactions from the past with the newest transaction added.
The implications of this technology are best explained through an analogy: imagine you are an author that writes pieces and then submits them to the publisher, who distributes your work under a pseudonym. The name is imperative to your long-term success, as it allows fans of your work to continue to follow you as you develop a series of books and expand into new topics. However, if someone were able to discover your identity through hacking a publisher’s data systems, they could trace every work you’ve completed back to your pseudonym. You’ve lost the right to publish outside of the public eye under that pseudonym, much like when a Bitcoin user’s address is linked to their real life identity and they can no longer make purchases in total privacy. If the same situation were to occur using ring signature technology, you would submit your piece just as you always have. Repeating this scenario, the publisher would be hacked, but your true name of the author would be mixed in with thousands of other authors who have also published pieces. You can submit work under the pseudonym without ever revealing your true identity, and the publisher can still pay you without revealing your identity or ever knowing who you are. Though this may seem like theory and infeasible optimism, Monero’s ring signature technology has ensured that every transaction is legitimate but unidentifiable, allowing high-wealth and high-profile users to shed their virtual target for crime and privacy attacks.
Impressively, Monero’s unmatched privacy technology doesn’t equate to marathon transaction times. The inherent efficiency of Monero’s protocol means that transactions are added to the blockchain and receive their first confirmation around five times quicker than Bitcoin. In times of high transaction volume, users can pay higher fees to give their payment priority. Beyond this short-term flexibility provided by Monero, the adaptable block size (the number of transactions the network can handle at once) means that Monero modifies transaction processing to calibrate the technology to handle higher transaction volumes over time. Bitcoin, on the other hand, provides no immediate solution to slow transactions during periods of high volume; its protocol requires the community to agree on a new block size, which often involves cumbersome and awkward process towards community consensus on what is the best course of action; meanwhile, Bitcoin users suffer while a solution is painstakingly developed and agreed upon.
Bitcoin, as a technology, asks us an existential question at a pivotal time of cryptocurrency proliferation: if blockchain technology and the expanse of cryptocurrencies are steamrolling towards fulfilling its immense promise, is the foundation Bitcoin’s provides strong enough to build skyscrapers of technological change? Both the possibilities and the complications of mass adoption brings about a flood of scenarios; a flood that could reduce a skyscraper to nothing.
