Bitcoin Cash vs Litecoin: what’s the point?

On August 1st, 2017, Bitcoin saw a hard fork which created Bitcoin Cash. I won’t rehash the reasons here. I want to focus on something that I feel is critically important when dealing with cryptocurrencies that fork off to create clones — new altcoins. It’s important to have real and unique attributes that make the cryptocurrency valuable. While Bitcoin Cash certainly has it’s reasons for why it exists, those reasons are anything but unique.

Nothing more than others

The thing is, you can claim that Bitcoin Cash was created to try and deal with Bitcoin’s slowing transaction rate and growing transaction fees, but there are already dozens of others that address this. There are others that have been around for years, and have already started their upward trajectory of adoption and integration. The best example of just one such altcoin is Litecoin. Litecoin is already accepted on every major cryptocurrency exchange. Litecoin maintains a healthy relationship with Bitcoin, just recently acknowledging that developments in both communities directly helps the other. Litecoin achieves it’s transaction rate speed by allowing for more frequently blocks of transactions to be generated. Besides, Bitcoin itself does have a plan for improving scalability.

Even less than some

Bitcoin Cash launched and was instantly behind in terms of technological development. Cutting edge features and techniques being deployed in other cryptos like Ethereum, Monero, and Litecoin put Bitcoin Cash squarely at the bad of the pack. While Bitcoin Cash is focusing on public relations and marketing hype, Bitcoin (core) is talking about new features, such as using ring signatures, a feature of Monero that provides anonymous transactions on a publically accessible blockchain. Ethereum was the first crypto to offer “smart contracts”. Bitcoin has been talking about doing the same. Litecoin already has SegWit and Lightening Network, Bitcoin is getting ready to adopt the same. Let’s face it, Bitcoin Cash started at the end of the pack, and will likely continue to be behind the leaders because, it isn’t actually trying to offer anything new. It’s trying to be a Bitcoin replacement, and that just isn’t going to work.

Pump and dump schemes

Many Bitcoin Cash supporters were quick to conclude that Bitcoin Cash is winning when it’s price more than tripled in a matter of a day. This action saw Bitcoin fall significantly. The action was quick to come… and it was also quick to go. Within the next 72 hours, Bitcoin Cash had retreated back to around the $1000 price point, and Bitcoin saw new record highs. This is a text book example of a massive pump and dump scheme. (This is where influential market actors manipulate an asset so that it’s value increases, then sells the asset before anyone else catches on.) It’s easy to attribute this to someone like Roger Ver, but I’m not convinced it was him. He’s just one of the most public faces of Bitcoin Cash, so it’s easy to call him out as a target. I believe that Roger Ver is genuine in his support for Bitcoin Cash, even if I also feel he is wrong. I’m betting that the clear pump and dump that occurred was orchestrated by others, whom we will likely never fully know.



 

Will Bitcoin Cash survive?

Honestly, I have no idea. While I feel reasonably confident in my opinions expressed above, the reality is that the world is a complex place. I could be wrong. Or the battlefield could change tomorrow. (For example, if Bitcoin Cash announces some new technology or new technique that is actually unique and provides significant value, this would change the dynamics.) But today, as I see it, I do not think Bitcoin Cash has a purpose when there are so many other altcoins out there. Being “easy” to switch from Bitcoin to Bitcoin Cash is not unique, this is true for Litecoin as well. Bitcoin has over 20+ “clone-coins” which are “easy” to switch to, if you wanted. So again, what makes Bitcoin Cash unique? Why should anyone choose it over any one of the altcoins, such as Litecoin?

Full Disclosure

I am invested in many cryptocurrencies, including Bitcoin, Bitcoin Cash, Ethereum, Litecoin, and others. The content of this blog post are my opinions and are not meant to provide investment advice. Cryptocurrencies remain a highly speculative market, and as such, experiences extreme volatility. Tread carefully if you join in on the action.

Why China and Russia have had no real effect on Bitcoin and other cryptocurrencies

Whether you follow Bitcoin and cryptocurrencies or not, you’ve likely seen the headlines report on China’s recent crack down on Initial Coin Offerings (ICOs) and public cryptocurrencies markets.[1] Russia recently held a high profile conference with Ethereum creator Vitalik Bucherin, which was thought to be a huge boon.[2] But then Russia began to disavow cryptos, in  favor of their own national cryoto.[3] Many people reduced their holdings after this news broke and shouted dooms day epithets to anyone who will listen. This was followed by a handful of influential financial magnets (e.g. CEO Jamie Dimon, and others) publically denouncing bitcoin. The markets crashed by over 25% in a matter of days.

Now with the summary of recent events out of the way, I want to address at least part of the story: the part where China and Russia’s actions don’t really matter for Bitcoin and other cryptocurrencies.

Distributed means there is no central source of control

It is virtually impossible for any single authority (e.g. China or Russia) to exert full control over Bitcoin. Ignoring some theoretical problems which are technical in nature, as long as the Bitcoin network is secured by miner nodes all around the world, it remains distributed and highly resistant to singular attempts to control it. Even using access control techniques to restrict access to the Internet can be easily circumvented using VPNs, cellular networks, and internet protocols like Tor.

Ultimately, the real question in my mind is whether or not cryptocurrencies have become popular enough that people will continue to want them despite what their government does. If the demand remains strong, then cryptocurrencies will survive in these countries. And so far, it seems like that is the case. One key aspect of cryptos is that you can do peer-2-peer transactions, without any banks or central institutions involved. This is very similar to dealing in cash! Imagine if the government attempted to block you from trading $10 in cash with someone else? Basically impossible!

Loss of mineing farms is another’s gain

China made a big impact in the past several years by steadily increasing their mining share of the Bitcoin network, ranging from having 30% to as much as 70%[4] of the Bitcoin network hashing power. China has not cracked down on mining yet, but if they did, it would only open the doors for others to jump in. Russia, for example, has already begun courting miners who are seeking asylum from hostile governments.[5]

Mining would perhaps be less of a vacuum phenominon if Bitcoin was still a completely nascent technology. But now that the cryptocurrency is making headlines in newspapers and news shows around the world, people are paying attention. Stories of how lucrative mining can be are everywhere. The problem for individuals and small time mining operators is competition. But if that competition drops, say by 50% or more, it would most certainly create a vacuum effect, being filled quickly by opportunists.

Several countries have very favorable outlooks on cryptos

We see several examples of countries, with a money system in shambles, increasing Bitcoin and other cryptos at exponential rates. Venezula is a prime example. Basically, because their national currency has lost their people’s trust, people are turning to alternative means of value transfer. In these countries, a single Bitcoin can trade for 20-40% or more versus the more open global market. Before you get excited and think you see an arbitrage opportunity, just know that I’ve looked into it a couple of times, and unfortunately there are almost always barriers to entering these nascent markets.

Other countries like Japan, South Korea, and the United States appear to be open to having cryptos around, but they want to regulate it a bit more. Whether it’s for tax purposes, or money laundry prevention, the point is that several big player countries see a future with Bitcoin and other cryptos in it.

ICOs do need to be regulated

Initial Coin Offerings (ICOs) have emerged as a new and novel way for startups to “crowdsource” their funding. In essence, they work by creating “smart contracts” along with “tokens” on cryptocurrency networks that support these features, such as Ethereum. A smart contract is basically just a small software application that runs in a secure and reliable manner on a blockchain. These “tokens” are simply arbitrary units of value. Tokens are typically sold by ICOs in exchange for a promise of service (e.g. the token can be used to pay for the new service once it launches) or for speculation that the startup will succeed, and others will want the token in the future, thus increasing the price.

The problem is that without any regulation, these startups can basically form at the drop of a hat, and ICOs can be about as valuable as dirt. Of course, this is true if you invest in any startup, be it on a publically traded exchange, Kickstarter, or another way. You run a very high risk of losing your investment. But in most of these cases, you have someone you can rely on (like the Securities and Exchange Commission) to weed out the frauds and scammers. ICOs often do not have this.

Summary

This post focused on the (lack of) effect countries have on the future of bitcoin and other cryptocurrencies. While the markets might react sharply to negative news, these swings are emotional and temporary. If nothing else, I look at these dips as opportunities to buy into cryptos while they are lower. Year-over-year, month-over-month, cryptocurrencies have gained in value. This makes the long term prospects too good to pass up!