Today was indeed a monumental day for the crypto community in India as Supreme Court squashed the 2018 RBI circular as it fails the Test of Proportionality. This circular had prevented crypto exchanges from opening bank accounts to accept or make customer deposits. Reeling under this pressure a number of exchanges had shut their shop as they couldn’t accept deposits from their customers who wanted to buy/sell cryptocurrency. Now, following the SC order, we should witness a sea of new crypto exchanges come up in India that would allow direct purchase of coins.
This article is intended as a cautionary advice to people who want to venture into the cryptocurrency market following this ruling. I recommend that people stick with Bitcoin and try not to burn their fingers by getting exposure to altcoins like Ethereum, Ripple, EOS, Tron or others. Bitcoin is superior to all the other cryptocurrencies from a technical, monetary and development standpoint. Most cryptocurrency traders who trade these altcoins do so just to accumulate more Bitcoin.
For those of you who want to invest in cryptocurrency just to make more fiat money, Bitcoin still represents the best choice. Bitcoin will be undergoing a block subsidy halving in early May of this year. This event will effectively reduce the supply of new coins that hit the market every day by half, resulting in an upward price spiral. According to some supply/demand models like Stock to Flow (S2F), the halving should result in Bitcoin’s price touching $55,000 by early to mid-2021, a 6x increase from the current price. For those of you who want to invest for the technology rather than just money-making potential, you can read the below sections.
Bitcoin is technically superior than most cryptocurrencies in the market
Bitcoin is the most secure cryptocurrency out in the market currently. The proof-of-work consensus algorithm that governs mining in Bitcoin ensures that to launch any attack on Bitcoin, the attacker must expend immense amount of electricity. This cost to hijack exceeds the benefits that the attacker can derive from the attack, thus making it monetarily infeasible. Moreover, for the last 11 years in its history, Bitcoin has never ever faced an attack on its network. Although transaction on Bitcoin main network are slow due to a 10-minute average block interval, users can use Bitcoin’s Lightning Network implementation that achieves rapid transaction speed at minuscule fees without sacrificing the underlying decentralization.
This is not necessarily true for other cryptocurrencies like Ripple, EOS, or Tron whose consensus works in a more delegated fashion. Recently, we saw an attack on Steem blockchain that employs a Delegated Proof-of-Stake (DPoS) consensus similar to what is used in EOS, Tron or Lisk. IOTA coin which uses Directed Acyclic Graph (DAG) in its ledger, saw its users using the flagship Trinity wallet get drained out of $2.3 million worth of coins. IOTA network was shut down for days following this attack. Other not so popular cryptocurrencies like Bitcoin Gold, Litecoin Cash, Verge have faced a 51% attack on the chain.
While exploring the debatable topic of whether to invest in Ethereum, it is my opinion that people should avoid it. Ethereum prides itself to be a world computer that can execute contracts in a decentralized manner. However, when designing the smart contracts that executes based on events in the physical world, the contract relies on a third-party information source which is its point of failure. Decentralized applications (Dapps) built on Ethereum are better off if executed from centralized hosting service. Dapps make sense only if you want to host something where you don’t want law agencies to crack it down (imagine dark web, wikileaks etc.)
Bitcoin’s capped supply offer it a monetary advantage over others
Bitcoin’s total supply of coins is capped at 21 million. As Bitcoin tends to represent higher economic outputs, its value will continue to increase, and the purchasing power will go higher. Monetary assets like Gold or Silver derive their value to their scarcity in the nature. Bitcoin is even scarcer than Gold when you consider the current supply and what remains to be mined.
On the other hand, many other cryptocurrencies like Ethereum have perpetual issuance of coins at a fixed or slightly variable rate. This offers them no advantage over fiat currencies.
Bitcoin is the one of the most decentralized projects out in the world
When Binance was hacked in May 2019, attackers looted 7,000 bitcoins which was equivalent to $40 million. There were some rumors that Binance might try to reorganize the Bitcoin blockchain to exclude the transaction that made away with their bitcoins. However, the rumor was more of a professed fantasy rather than a depiction of reality. Reorganization of Bitcoin blockchain is extremely difficult and users can actually deny the reorganization. In Bitcoin, the power rests with the users as compared to the miners.
On the other hand, Ethereum faced a hack in 2016 that resulted in hackers draining $70 million worth of coins. Vitalik and other Ethereum developers hard forked Ethereum to return all the Ether taken from the DAO to a refund smart contract. This action, I believe, is the basic loss of the decentralization feature. Moreover, to make upgrades Ethereum has hard forked number of times and developers have to constantly update their contracts and software to keep it up to date.
EOS, Tron as described before operates more on a delegated fashion which does not provide the necessary decentralization that people desire out of the cryptocurrency.
Conclusion – Stick with Bitcoin
Based on the number of factors described above, one can conclude that Bitcoin offers the safest investment, with an attractive return on investment. Seasoned investors have realized this over the course of last two years which has resulted in the price of the altcoins dropping significantly (almost 70-95% for most coins) since 2018 as compared to the price of Bitcoin. The halving event in May will be the final nail in the coffin for most of the altcoins in the market as skyrocketing Bitcoin price will lead to investors flocking to this attractive asset at the expense of these altcoins.
About the Author: Ugam Kamat is a Bitcoin enthusiast and was one of the top writer on Bitcoin Stackexchange last year. Previously he was an equity research associate at JPM where he covered the US software industry. Ugam is a 2015 IITB graduate.
Disclaimer: Opinions expressed in the article are of the author, Coin Crunch may or may not agree with the same.