As rising prices inevitably bring newcomers to the space, I thought I’d construct a guide that could help “make sense of the noise.” This post aims to help readers understand the relative relationship between certain cryptocurrencies by detailing the context in which these projects were born, their high-level mission and their standing within the broader crypto community.
In many ways, Bitcoin shares Jay’s rags to riches story. Instead of the Marcy Projects, Bitcoin’s infancy can be traced back to a humble email list of cypherpunks and cryptographers. Here, a small group of enthusiasts dreamed of a money that would be native to the internet. They would release early cryptocurrencies like B-money or Bit Gold, but nobody could get it quite right. This was true until October of 2008 when Satoshi Nakomoto released his 9-page Bitcoin whitepaper. This is where the world would first get introduced to the concept of a blockchain.
Like Jay’s Reasonable Doubt, only a select few immediately recognized that a masterpiece had just been released. It would take until May of 2010 for someone to accept Bitcoin for physical goods (10,000 BTC for 2 pizzas). Bitcoin would undergo numerous booms and busts throughout the subsequent years but always emerge stronger and richer. It’s this longevity and ability to gain immense wealth that make Bitcoin the king. Think about it. Jay has songs on the Billboard charts at 51 years old. Think of how absurd that is. He also became Hip-Hop’s first billionaire. Bitcoin has outlived every crypto, was the first coin to reach a billion dollar market valuation, and still is the most valuable coin in the world.
Now it’s important to point out that while Bitcoin was/is a groundbreaking technology, it is not the most cutting-edge chain. In the same way, Jay Z is a really good rapper but that doesn’t mean he has the best catalog. There are several artists that I can listen to all day and Jay isn’t one of them. So, again, the key for Bitcoin and Jay is the longevity.
All this being said, Bitcoin inspired a generation of entrepreneurs and developers to build out the cryptocurrency ecosystem. Basically everything in crypto spawns from Bitcoin, either directly or indirectly. It’s reach and influence is simply unmatched and there’s no sign of it ever going away.
Ethereum = Kanye
“I’m living in that 21st century, doing something mean to it
Do it better than anybody you ever seen do it
Screams from the haters got a nice ring to it
I guess every superhero needs his theme music”
In the same way that Kanye initially made his mark by producing for Jay, Vitalik Buterin, the visionary behind Ethereum, got his start in crypto by writing articles on Bitcoin. In fact, Vitalik co-founded Bitcoin Magazine which was one of the early publishers focused on Bitcoin and digital currencies. Due to the magazine and his ability to simplify the complexities of blockchain technology, Vitalik quickly became popular in the Bitcoin community. The totality of Vitalik’s efforts during these Bitcoin Magazine days is analogous to Kanye producing “Izzo.” In short, he helped Bitcoin go mainstream.
But just like Kanye, Vitalik had ambitions to follow his own creative desires. In fact, Vitalik tried to build tokens known as “colored coins” on top of the Bitcoin protocol but found it too restrictive. He realized that while Bitcoin was powerful, only a general purpose platform could unleash a new universe of applications. This would lead him to author the Ethereum whitepaper where he laid out his vision for a new “world computer.” This computer would allow developers to program arbitrarily complex computation and leverage smart contracts to create decentralized applications.
While Vitalik’s whitepaper generated a lot of excitement, it was also controversial, at least for hardcore Bitcoiners. Like Ye, Ethereum got/gets a lot of hate. This is in part due to a perception that Ethereum tries to do too much. It doesn’t have the catchy one liner of “digital gold” like Bitcoin. While Ethereum is primarily a platform for decentralized applications, some people also use it as a form of money. Bitcoin maximalists want it to stay in one lane, the money lane, and then diss Ethereum for being an inferior money to Bitcoin. They’re the same people that say “Just stick to making beats, Kanye! You can’t rap. You can’t do fashion. You can’t do design.” And time and time again, the haters are proven wrong.
Despite the hate, nobody will ever be able to deny that Ethereum was a step-function shift towards a more decentralized and permisionless world. As of a few days ago, more than $17.5 billion dollars worth of assets (including wrapped Bitcoin) were locked on the Ethereum blockchain. It spawned a generation of smart contract platforms like Polkadot, Cosmos, and Tezos in the same way that Kanye basically influenced every rapper that came after him.
Polkadot = Early Drake
“But get it while you here, boy
’Cause all that hype don’t feel the same next year, boy
Yeah and I’ll be right here in my spot
With a little more cash than I already got
Trippin’ off you ’cause you had your shot”
Without Kanye, there’s no Drake. The leap from Jay’s street mafioso persona to a Canadian child-actor named Aubrey is just too big. You need the intermediate step that a Kanye provides. Someone’s got to get shit on for wearing pink Polos and releasing 808s and Heartbreaks. However, once that moment happens, there’s a Cambrian explosion of styles and the genre opens up. In doing so, you create a space for a potential behemoth.
The story of Polkadot follows a similar arc. Polkadot was founded by one of Ethereum’s co-founders, Dr. Gavin Wood. Gav served as the Chief Technology Officer for Ethereum leading major technological initiatives like translating Vitalik’s vision (the whitepaper) into a set of technical specifications (the yellow paper). After being a central architect and contributor to core Ethereum for several years, Gav would eventually embark on a new endeavor called Polkadot.
You can think of Polkadot as a higher performance Ethereum. In fact, the Polkadot architecture incorporates many of the features that were/are supposed to be incorporated in the long-awaited Ethereum 2.0 upgrade. A couple of these key upgrades focus on sustainability and scalability. In terms of sustainability, Polkadot aims to eliminate the huge amounts of energy required to secure Proof of Work chains like Bitcoin and Ethereum by implementing Proof of Stake consensus. In Proof of Stake, your “mining” power comes from pledging your tokens as collateral instead of through big mining rigs that consume a ton of energy (in aggregate, Bitcoin mining rigs consume more energy than some countries). When it comes to scalability, Ethereum 1.0 can only process ~14 transactions per second. Polkadot increases the scalability of the chain by dividing the blockchain into a bunch of mini chains (~100) and connecting those mini chains to a central chain. This is known as sharding and allows for the transaction throughput to increase to ~1,400 transactions per second per parachain. That’s an incredible improvement, and one of the many reasons why Polkadot is considered to be one of the “Ethereum killers.”
Despite the “Ethereum killer” title, it’s important to remember that Polkadot has only been live since May 2020 and so it’s still early days. We’ll have to wait and see if it can manage the transition from massive hype to sustained dominance as masterfully as the 6 God.
Ripple = Tekashi69
“Are you dumb, stupid, or dumb, huh?”
Controversial. Garbage. Trouble with the Feds. I don’t have anything else to say because I don’t have much respect for Ripple or Tekashi. Everything you need to know can be found in the lawsuit the SEC filed against Ripple on December 22nd.
Tether = Rick Ross
“Fuck with me, you know I got it”
You can’t claim the streets and then later have photos leaked of you working as a corrections officer. That’s a career ender or at least it *should* have been. However, Ross was able to escape this 2008 controversy and emerge even stronger releasing #1 albums and receiving numerous Grammy nominations. He continued to work with the most popular names in the rap game, scoring features with Jay, Drake, Wayne, and a slew of others. In short, your favorite rappers still held him down even though he was a somewhat of a fraud.
A similar thing happened with Tether. Tether attempts to reduce the price volatility typically associated with cryptocurrencies by maintaining a peg to the US dollar. These types of coins are often referred to as stablecoins. A common way projects maintain this peg is by backing each stablecoin in circulation with a dollar in a bank account. As the coin supply increases, a corresponding amount of dollars are added to the bank account.
Tether claimed to take this dollar-backed approach. However, as the supply of Tether’s USDT coin began to drastically increase and concerns over its parent company’s financial situation rose, doubts began to emerge regarding USDT being backed 1:1. These concerns were later validated in New York Supreme Court filings when Tether confirmed that only 74% of its USDT coins were backed. Like Ross’ “Officer Ricky” photos, this *should* have caused USDT to fall from a price of $1 to ~74¢. Yet, this never happened. The lowest USDT price has ever fallen to is ~96¢! Even more shocking, it’s emerged as the most popular stablecoin by market cap with ~$21B in circulation. Tether has also continued to integrate with top crypto projects like Compound, Uniswap, Curve and Balancer. Like Ross, it emerged stronger than ever and reminded us that sometimes the imitation is just as good as the real thing.
Disclaimer: I own some of the coins discussed in this article. Nothing within this post constitutes (or should construed as being) investment, legal, tax or other advice.