Breaking ChatGPT’s FUD #2: Altcoins…
In this next part of Vlad Costea’s “Breaking FUD” series, Vlad takes on the 2nd “top threat” to Bitcoin according to ChatGPT. Why invest in Bitcoin when there are newer, shinier, and more advanced alternative cryptocurrencies? Well, as we’ve seen with the SEC suing Coinbase and Binance, they all are unregistered securities with dubious use cases.
This excerpt is from the e-magazine issue “BTCTKVR 3: Breaking FUD”, released May 2023. I’ll keep posting the rest of this e-magazine over the coming days.
“Breaking ChatGPT’s FUD #2: Altcoins
ALTCOINS GOING TO ZERO
According to ChatGPT, the emergence of new and more advanced crypto currencies could steal market share from Bitcoin. Generally, these alternatives to Bitcoin are referred to as “altcoins” – and they mostly comprise of modified Bitcoin clones that are neither original, nor “advanced”. Altcoins are essentially Bitcoin’s experimentation layer – parallel networks which test features that were first proposed on Bitcoin, but did not get enough support from the community or from developers. Since the Bitcoin codebase is entirely open source, anyone can copy it, modify it, change it to include new features, and then deploy an entirely new network which focuses on a specific use case.
The reason why the Bitcoin network can’t accommodate all use cases is best described by Zooko’s triangle – a trilemma model in which system architects must choose two of three fundamental qualities: security, decentralization, and user meaningfulness (in our case, scalability). Bitcoin is definitely secure and decentralized. However, its model doesn’t scale too well. If the block size was to get increased arbitrarily (as forks such as Bitcoin Cash did), then this upgrade would come at the expense of lower decentralization and therefore cause potential security threats.
A reasonable equilibrium must be maintained in order to make sure that the network doesn’t end up getting validated by computers in large datacenters (as is the case of Ethereum and other networks which store large amounts of data). In the case of Bitcoin, blocks can’t be larger than 4 megabytes- an arbitrary value which was deemed a reasonable compromise to enable more scalability without damaging the other fundamental qualities.
This is why altcoins exist: they take advantage of a limitation in Bitcoin, they identify a solution, and they deploy a new network to see what the free market thinks about it. Sometimes this experimentation is useful by providing empirical evidence on the various pros and cons of certain proposals, but most of the times these projects are deceitful about their tradeoffs by pretending to be 1000x faster or more secure than Bitcoin without simultaneously being decentralized.
As history shows, more than 90% of these projects fail. They rarely stick around for longer than a bull-bear market cycle and they lose relevance specifically because they don’t get the expected traction and new improved proposals come along. This is good news for scientific experimentation, but bad news for investors who believe in the hype and hold worthless bags.
There are technical, social, and economic reasons why these altcoins fail while
Bitcoin continues to prosper.
From a technical point of view, it’s the most reliable, secure, and decentralized network which attracts sustainable long-term investors. Bitcoin works well for its intended purpose, and its shortcomings can be overcome by building layers on top of it (such as Lightning network) or moving some of the activity on parallel chains (sidechains such as RSK, State chains, Drive chains, and Liquid).
The economic reasons why Bitcoin thrives concern the increasingly fairer distribution of wealth and the resulting greater adoption. Bitcoin had no premines, Satoshi never spent a single coin and most likely left his stash as a honeypot for hackers, and the monetary policy is very simple to understand. There are only 21million coins which get issued according to a well-timed and comprehensive inflation schedule that lowers rewards over time. Sure, you can argue that early adopters had easier access to BTC – to the point that they could mine with their laptop’s CPU or get free coins from Gavin Andresen’s June 2010 faucet. But at the same time, bitcoin had no monetary value at the time and it took a few years for markets to develop.
This argument leads to the social consideration as to why Bitcoin continues to prosper. First and foremost, Bitcoin had an immaculate conception and existed in a nascent phase for several years before big money came pouring in. Nowadays, in the middle of an entire blockchain industry which throws money at projects and demands for investor-centric pre-sale events, this feat is extremely difficult to pull off. Grin is one rare example of an altcoin that did everything right and remained pure- but it failed to get traction to the point where developers couldn’t get paid. And this is another big problem: expectations and the constant pressure that ideologically driven developers must endure while they know they could be making a lot of money elsewhere.
The first Bitcoin adopters had no financial expectations from the project, they just liked the idea of non-governmental digital money with no single point of failure. They built wallets, applications, and established traditions long before there was even a proper exchange system to trade BTC for USD. And they are also the ones who stuck around for purely ideological reasons, without caring too much about getting rich (even if they did get wealthy).
We should also talk about the wave of libertarian adopters who embraced Bitcoin between 2011 and 2014. They are the ones who built most of today’s businesses and wrote many of the metaphors that describe Bitcoin, from
“Bitcoin is the honey badger of money” to “Everything is good for Bitcoin”.
Their greatest merit is that of making it “safe” to be a bitcoiner: they fought the legal battles, lobbied to regulators, and made use of their narratives to explain to politicians why banning Bitcoin could be detrimental for the greater economic landscape of the future. And they did it long before holding BTC turned them into USD millionaires.
Then there’s the generation of Bitcoiners that fought to protect the integrity of the network during the fork wars. Attackers assumed that Bitcoin’s value can be diluted by creating dozens of modified copies which divide the users and take away some of the activity. They were wrong specifically because the social layer protected the original Bitcoin chain, kept the largest amount of economic activity on it, and therefore deterred both users and miners from supporting forks.
As of 2023, it’s very unlikely that another cryptocurrency would truly compete with Bitcoin. Ethereum can burn as much as they want of the supply, they won’t undo the harms of their premine of 70million coins and their financial policy will always resemble a central bank making short-term decisions for ever-changing goals. Monero can flaunt its superior privacy, but it can’t survive without XMR/BTC swaps which enable merchant adoption and acceptance in the greater economy. And if something radically better comes along, which uses an entirely different architecture that gets rid of the blockchain, it would take years for it to get to Bitcoin’s level of recognition and adoption.
A secure and decentralized Bitcoin whose scalability and privacy get upgraded in layers is very close to ideal money. However, it’s going to take a few more years until the technology gets polished to the extent that it becomes accessible to non-technical users who also don’t speak English. Which is enough time for bad actors to test the market with half-baked solutions that may indirectly damage Bitcoin’s reputation and slow down adoption.
Ultimately, Bitcoin is the culmination of three decades of research in cryptography and computer science. It’s an interesting marriage between game theory, technology, and economics which was never bettered. It’s the network which survived every wave of FUD and perpetually hit new all-time highs against gold and the US dollar. And it’s the currency which remained number one in terms of adoption and market capitalization for a decade and a half.
Today, nobody speaks about Peercoin, Vertcoin, and NXT anymore. Nobody still believes that DASH, Nano and Decred will replace Bitcoin. Today, we have coins with similar ambitions but different names – they will most likely follow the likes of Vertcoin into the graveyard of failed crypto experiments. The amount of people who truly believe that the politically-fragile Ethereum is a real contender is also small – let’s not forget that the Ethereum ICO raised BTC and was a financial event that mostly Bitcoiners attended and backed.
The longer Bitcoin exists and the more people learn about it, the more resilient it gets. And the fact that it has an immaculate conception, humble beginnings, and an organic growth makes it even harder to reproduce as a phenomenon. It takes the right historical context, the right technological innovation, and the fitting economic environment to create and launch something like Bitcoin. Which is why it will probably never get replaced by another cryptocurrency.
Sorry ChatGPT, but you and your programmers are once again wrong.
SCOREVlad 2
ChatGPT 0″
Vlad has laid waste to the fears ChatGPT has that altcoins/shitcoins will make Bitcoin obsolete!
I’m Charles Polanski and I seek to turn the Bitcoin-curious into Bitcoin investors and enthusiasts.
Thanks to Vlad for making this excerpt available to freely spread.Find him on Twitter: @TheVladCostea
“Your Bitcoin influencer’s influencer.”
Host of the Bitcoin Takeover Podcast
Writer of the open source @btctkvr mag.
Check out his work: http://linktr.ee/btctkvr