Feyyaz Alingan, the Founder of Blue Alpine Research, a Switzerland-based research firm focused on digital assets, has pointed out several “alternatives” to Bitcoin (BTC).
Alingan, an electrical engineering graduate from ETH Zürich, says that Ethereum (ETH) may be considered a Bitcoin alternative. He notes that Ethereum’s founders, including Vitalik Buterin, felt that the Bitcoin protocol’s “lack of programmability” was one of its downsides or disadvantages.
That’s why they reintroduced smart contracts (or programmable business logic). It’s worth noting that smart contracts weren’t “invented” by Ethereum founders. They were actually first proposed by renowned cryptographer and self-taught legal expert Nick Szabo in the 1990s.
Alingan writes that Bitcoin (BTC) and Ethereum have several issues including their high energy usage (because they use proof of work consensus). Both leading blockchain networks are also plagued with scalability issues, which means they’re only able to process between 5 to 15 transactions per second.
Alingan argues that Bitcoin and Ethereum are now “making room for different interesting altcoins (alternative coins) that allow increased speed and scalability” while using different types of consensus algorithms such as proof of stake, delegated proof of stake (DPoS), and many others.
According to Alingan, Stellar Lumens (XLM), Tezos (XTZ), 0x (ZRX), EOS (EOS), and Chainlink (LINK) may be considered Bitcoin alternatives – at least when it comes to diversifying a digital asset investment portfolio.
Stellar, an Alternative to Bitcoin?
Stellar (XLM) is a peer to peer (P2P) digital currency with a market cap of over $262 million, making it the 15th largest crypto-asset (according to CoinGecko data).
Last month, London-based SatoshiPay, a Fintech firm that aims to provide fast and affordable payment solutions, partnered with the San Francisco-headquartered Stellar Development Foundation (SDF).
SatoshiPay received a $550,000 investment from SDF’s Enterprise Fund. The funds will be used to support the Fintech firm’s future growth and product development.
Established in 2014 with offices in London and Berlin, SatoshiPay is reportedly one of the earliest adopters of the Stellar (XLM) platform.
Stellar is now one of the most widely-adopted crypto-assets, and even the popular Blockchain.com wallet added support for it. The wallet only supports a few other assets, which includes Bitcon, Bitcoin Cash, Ethereum, and the Paxos Standard Token.
However, Stellar still cannot serve as an alternative or replacement for Bitcoin (BTC) because it doesn’t have nearly the same network effect – meaning that the BTC network regularly processes billions of dollars in transactions per day while Stellar is handling less than $500 million every 24 hours. The BTC network has also been running without major technical issues since its genesis block was mined in 2009.
Meanwhile, the Stellar Network went down last year due to technical issues. The Stellar team claimed that the DLT-based platform went offline due to its nodes not being able to reach consensus. The developers of Stellar have introduced more features and functionality on the network, including the ability to issue tokens and create decentralized applications (dApps).
The core Bitcoin protocol doesn’t have these extra features, but it does one thing and does it really well. The BTC network was designed specifically to transfer value in a permissionless, decentralized manner. And, it’s been able to do that really well for over a decade, and no other DLT platform has been able to do that consistently for so long – while also onboarding a relatively large number of users (more merchants accept/recognize BTC than all others cryptos).
Chainlink and 0x (ZRX) Experiencing Increased Adoption, but are they Good Investments?
Earlier this month, Bamboo Relay, a 0x relayer, confirmed that it had integrated Chainlink Oracles for stop-loss order functionalities.
A stop-loss order allows users to provide specific instructions about when to buy or sell a stock or in this case cryptocurrency tokens. The tokens may be bought or sold when they reach a certain price, referred to as the “stop price.” If and when the stop price is reached, the stop order is converted into an actual market order and is executed as soon as possible.
0x is an open-source protocol for decentralized or non-custodial digital asset exchanges that has been implemented on the Ethereum blockchain. It provides a standard messaging format and a set of smart contracts that are used to conduct transactions after specific conditions have been met.
Many cryptocurrency protocols are now using both Chainlink and 0x. There’s no denying that these two projects are useful, especially Chainlink as it aims to address smart contract security issues which have led to many hacks and other technical problems. However, they’re not really Bitcoin alternatives because they’re completely different from Bitcoin.
0x is a protocol for implementing decentralized exchanges, while Chainlink enables secure communication on DLT networks. Bitcoin, on the other hand, is a way to facilitate decentralized value transfer. Because of these fundamental differences, these platforms are not alternatives or replacements for each other.
Even if we look at it from purely an investment point of view, we are investing in fundamentally different types of assets which may have their own unique addressable markets in the future. So, in their present form, they might be able to complement each other (at best), but not be replacements for each other.
EOS Is Two Years Old, but Still in Early Stages of Adoption
Brendan Blumer, CEO at Block.one, the developer of EOS, a leading platform for building decentralized applications (dApps), reminded his social media followers on June 2, 2020, that it’s now been two years since the EOS mainnet went live (during the summer months of 2018).
Last year, in June, Block.one announced Voice, a blockchain-powered social media platform that’s currently in its beta stages.
The company also introduced several other initiatives like Coinbase Learn. In July 2019, the EOS software, EOSIO 1.8, went through a hard fork or backward-incompatible upgrade.
EOS has seen steady development and adoption, however, it’s still in its early stages so it’s not mature enough as a blockchain network to be considered an alternative to Bitcoin. EOS is also a lot more complex than Bitcoin because its developers have launched it so that it can be used to deploy decentralized applications (dApps).
The core Bitcoin protocol only aims to transfer digital value, and doesn’t have such demanding design goals. Because of its simplicity and the length of time it has been in the market, BTC is far more established than EOS. Since they’re both fundamentally different cryptocurrencies, it’s also not fair to say that they’re replacements for each other.
Tezos (XTZ) Staking Is Quite Popular, but Needs More Work
Crypto exchange Coinbase recently introduced Tezos (XTZ) staking rewards for its US-based customers. The exchange will now be offering this option to its UK clients and certain European Union member nations.
The company said it would be staking XTZ digital tokens on behalf of its clients, and would also be distributing staking rewards by sending them directly to customers’ Coinbase wallets. Tezos has also been used to launch tokenized assets, but it’s all still relatively new compared to Bitcoin.
Tezos also aims to provide a lot more functionality than Bitcoin but currently has a much smaller network in terms of transactions processed and the number of active users. Even if the Tezos network matures and onboards as many users as Bitcoin, it’s still doing something totally different than Bitcoin. This means that they’re both not alternatives for each. In other words, it’s like comparing apples to oranges.
Bitcoin Dominance Stands at Around 65%
While Alingan has mentioned some high-potential and active cryptocurrency projects, they are most likely not alternatives to Bitcoin (BTC).
Bitcoin has, by far, the largest market cap (currently over $167 billion) out of all other digital currencies. It also benefits from enormous network effects, because the vast majority of crypto transactions involve BTC.
Moreover, BTC dominance stands at nearly 65% (at time of writing), meaning that its bigger than the market cap of all digital assets combined.
Ethereum (ETH), which is the second-largest crypto-asset, only has a market cap of $25 billion, which is merely a small fraction of Bitcoin’s market capitalization. Ethereum will also attempt to transition from proof of work to proof of stake based consensus, which is a very challenging technical upgrade. There’s no guarantee that the transition will be successful, which indicates that Ethereum may not be considered a reliable alternative to BTC in terms of investment diversification.
Ethereum also has an uncertain monetary policy, whereas Bitcoin’s supply has been algorithmically capped at 21 million. Because of these reasons, it’s difficult to accurately value Ethereum at this point.
Other distributed ledger technology (DLT) solutions like Chainlink, Tezos, Stellar, and EOS are also in their early stages of development and adoption. They face significant challenges and have not yet firmly established themselves in the nascent digital asset market.