/ Ecosystem

Who Do You Trust With Your Money?

Hodor

Hodor

I blog about Ripple & XRP. FULL DISCLOSURE: All views are my own. I do not work for Ripple; I am not a professional financial analyst, and the majority of my crypto holdings are XRP.

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It's a uniquely un-asked question in crypto-currency.

Crytpo-anarchists would have you believe that no trust is necessary for investing in Bitcoin.  But that's not really true,  is it?  Although the goal of crypto-currency is to create a censorship-resistant, trust-less, decentralized medium of exchange, the actual creation falls far short.

Bitcoin is dependent on a centralized organization just like any technological creation based on computer code. After all, somebody has to update the code, right?  So we have to ask the question - who do we trust to maintain the code that our new-found digital money relies on?  The Bitcoin Foundation doesn't spend much time talking about code governance, because code governance for Bitcoin is an absolute mess, despite the fact that it has a market capitalization rivaling some Fortune 500 companies.

Bitcoin

Who are you trusting when you purchase Bitcoin?  The Bitcoin Foundation?  They have little say in what code is included in any updates from the Bitcoin Core team.  The Bitcoin Core team has seen some shakeup in members since its early days, and now it seems to be at the center of controversies with different BIPs and updates, forks, and questionable support from mining pools.

Enough Forks for Summer Picnicforks

One of the Bitcoin Improvement Proposals (BIPs) that was most controversial was the one responsible for Segwit.  Opponents to Segwit ended up creating a fork of Bitcoin called "Bitcoin Cash," which fragmented some of the mining base for Bitcoin.  The effect on the market leading up to the Bitcoin Cash fork in August was negative, to say the least.  Prices, after an initial surge in April and May, stagnated for months.
Bitcoin Gold
This fork received a lot of media attention, despite very little interest from miners due to the fact that its sole purpose was to even the playing field for hobby miners running GPUs (Graphics Processing Units), against those running ASICs (Application-Specific Integrated Circuit).  The Bitcoin Gold team has been met with a lackluster response so far, with Coinbase saying that it wouldn't support Bitcoin Gold:
"because its developers have not made the code available to the public for review."
The traditional Bitcoin community has also not received Bitcoin Gold favorably, pointing out that the developers responsible took an enormous pre-mine bounty for their efforts, despite earlier statements by the BTG team that Bitcoin Gold would not be pre-mined :  An estimated 200,000 Bitcoin Gold coins are now in the hands of the Bitcoin Gold development team. 2
Segwit2X
Segwit2X is now going to conduct a hard fork roughly around November 15th.1 Segwit2X is also known as the "New York Agreement," a deal brokered by Barry Silbert.3 The first part of this agreement has already taken place, and the benefits have already been realized by the Bitcoin community - slightly lower fees and improved transaction throughput.

The next phase of Segwit2X is a hard fork, which might create a new alt coin that is relatively un-supported.  Initially, it was thought that the "new Bitcoin" would be the version created as a result of the Segwit2X fork.  Now, it's looking more and more like that is in question, with many Bitcoin supporters saying that they do not support a hard fork during November - or any time in the near future.  The objections and reasons for opposition can be found here :  99bitcoins.com/who-supports-segwit2x-the-new-york-agreement

Bitcoin is Not Censorship Resistant

It's amusing to watch many Bitcoin loyalists point at XRP and yell "centralized" while not understanding that XRP is much more censorship-resistant than Bitcoin.  (By the way, XRP is not centralized, despite what you may have heard)ChineseFlag

Let's review what the Bitcoin community did in response to China outlawing Bitcoin - Renminbi transactions:  Nothing.

There was nothing they could do.  China shut down centralized exchanges in their own country, and even if there was a high-volume decentralized exchange, it is easy and straight-forward to identify Bitcoin transactions on any network, because they are un-encrypted.  Stopping Bitcoin transactions or even rewriting them in-transit can be done at the same points where Internet traffic is routed - at ISPs. 8

XRP Ledger transactions are encrypted - they are background noise on a network.

Bitcoin is Not as Decentralized as You Think

Most of Bitcoin mining is done currently in China - the same country that has shown the greatest interest in censoring the trading of the resulting coins!  The largest mining pools are all located in China due to the relatively cheap cost of electricity versus other parts of the world.  This trend can be seen on the following graph showing data from https://blockchain.info/pools: bitcoin_mining_distribution_by_countryUntitled

In the above diagram, the largest mining pools are based in China - F2Pool, AntPool, BTCC, BTC Top, and BW.

When a Bitcoin maximalist is quick to "throw stones" about centralization, you might want to remind them about the saying for people that live in glass houses.

Ethereum

Ethereum represents a unique and incredible innovation in the use of a blockchain - to allow the execution of code on a blockchain.  It immediately sparked a rush of interest in encrypted smart contracts from private industry - many large players dove into the project, eager to learn about how to apply smart contract logic to real-world business problems.  The native crypto-currency is currently ranked #2 in market capitalization.Ethereum_Symbol

While impressive, some independent researchers and traders have expressed some reservations about the long-term viability of Ethereum's status as a first innovator.

In one opinion piece, Tuur Demeester indicated4 that while Ethereum:

"prioritizes flexibility, it compromises on security, speed, and even cost."
What is his point about flexibility versus security?

Ethereum's flexibility comes with a large attack surface: Ethereum code published in the network can contain mistakes, bugs, and loopholes that allow for hackers and other hostile third parties to obtain others' tokens or value.  Yes, he provides several real-life examples where many have lost substantial amounts of money and market capitalization was adversely impacted.

He also quotes Peter Todd5, who argued that a well-publicized Ethereum attack on September 18th could have:

"effectively resulted in an accidental split into two independently operating chains."
This flexibility at the cost of network security is a definite cause for concern for anybody that has a material amount invested in Ethereum.  A possible instant dilution of their investment is enough to make any trader take pause when it comes to a long-term hold of ETH.

ICOs Will Result in Ethereum Being Targeted by Governments

ICOs have recently been called out by the United States' SEC and also China.  While some ICOs are legitimate, the entire fund-raising scheme has been colored negatively by scam allegations.

On which network do most of these ICOs happen?  Ethereum.

Because of its ability to support smart contracts, Ethereum has historically been the blockchain where most ICOs exist and operate - whether they are legitimate or not.  This factor may result in an unintended consequence - attention from regulators when it comes to blockchains where code can exist in a decentralized manner.

One article that discusses risks associated with Ethereum listed this factor under a category titled "Reputational Risk." 6

Ethereum's Code Governance - Controlled by One Person?

I've discussed this point in a previous blog entry that discusses the differences between the various top cryptos and their method of code governance.  Ethereum's code governance model seems to be highly influenced by the suggestions or guidance from Vitalik Buterin.Vitalik

While there is probably a very good reason to give a heavy weight to one person's input, it presents large organizations, corporations, and potential investors with a conundrum; a benevolent dictator controlling code updates might be beneficial for a small start-up, but what about when a crypto-currency network wants to graduate to mainstream usage?  What about when critical global transactions are dependent on its transaction validation algorithm?

An example is the switch of Ethereum to Casper - the "proof of stake" consensus algorithm.  Switching the consensus model of a network might seem like a small project when you are just coding on a local computer, but keep in mind that the Ethereum Foundation has plans to change midstream from a POW model of consensus to a POS model.  Something on this scale has never been done before, and don't let anybody tell you that it's not without risk - this is why Casper is still on the to-do list for Ethereum.7

XRP

Ripple is a US-based company.

Why is this an important point to consider?  A US-based company like Ripple is subject to some very stringent laws regarding securities trading and money transmission.  These include requirements that define how Ripple might interact with crypto markets and both institutional and retail crypto traders.  Other organizations like a non-profit foundation operate in more of a gray area that is under less scrutiny.  For example, the Ethereum Foundation is based in Switzerland; it makes me wonder if the location of the foundation wasn't carefully-chosen based on its ability to resist the authority of other countries where Ethereum might end up being bought and sold.Brad_Q_A

Ripple doesn't shirk its cooperation with governments, laws, or regulations.  In fact, it is now the premier company for helping banks to navigate through these tricky, uncharted waters of utilizing blockchain technology - while complying with regulations.

This positioning of Ripple provides a certain minimum level of assurance for XRP investors that the company is not only keeping an eye on things - but that it is helping craft meaningful legislation.9

Code Governance Made Simple

The technological minds behind XRP knew that code governance needed a decentralized pathway that mirrored the way that transactions were also validated.  This decentralized approach requires validators in the Ripple network to vote on proposed code amendments before the changes are moved into production.  This is known as the Amendment Process. 11

This seamless and well-defined methodology has resulted in 80 versions10 of the XRP Ledger throughout its history, as improvements and features can be added with great alacrity by the company to respond to opportunities.

The Digital Asset Worthy of Banks

The XRP Ledger has been running since 2012 and has now closed almost 34 million ledgers successfully.12 It's this level of dependability that banks are looking for, along with the incredible speed and scalability metrics that completely dwarf Bitcoin and Ethereum: sppeedUntitled scalable

These are the characteristics that distinguish it as a digital asset that truly has the potential to transform the way that money flows across borders.  Banks and other financial institutions are now in the process of adopting XRP usage in production applications - and sending money to other countries.

If banks and financial institutions trust XRP, then you can be sure that it has met their own internal risk thresholds as well.

XRP is Growing More Decentralized

The validation of XRP transactions happens via network validator nodes.  Ripple has made its gradual decentralization of the "trusted nodes" list one of their highest priorities, and now financial and business partners and customers are being vetted to become added parties to this list of validators.

Ripple understands how important decentralization of the network is to its customers and also potential investors; they've gone into detail about their plan, along with the steps and some benchmarks for readers to consider:  https://ripple.com/insights/how-we-are-further-decentralizing-the-ripple-consensus-ledger-rcl-to-bolster-robustness-for-enterprise-use/

XRP Transactions are Secure and Encrypted

Unlike Bitcoin, XRP Ledger transactions are encrypted when sent over a network.  This makes XRP Ledger transactions much more censorship-resistant than Bitcoin, and impervious to a random man-in-the-middle attack.

Crypto Day Traders are Not Impervious to Risk

Even day traders, who hop into and out of various crypto-currencies on a frequent basis can be vulnerable to these risk factors.  These traders typically need a safe place to park their reserves between trades.

While Bitcoin has typically served as a store of value, I predict that the constant stream of forks might change this rather quickly; other options such as XRP might quickly become the new digital "gold standard" after the irrationality of the market eventually corrects.

You can Trust XRP & Ripple

I've watched Ripple very closely since discovering XRP for myself in 2013.  This is a company that "gets it" in ways that most other crypto-currencies and digital assets do not.  They understand what it truly takes to create an enterprise-worthy digital asset, and all of the factors that will provide a competitive edge when it comes to bank adoption.

They understand the legal frameworks around crypto-currencies, and have thoughtfully hired very influential businessmen and women in addition to hiring the leading minds in cryptography.  When you think of Ripple, you should think of the people in the company, and take a look for yourself.

As for me?  I believe SWELL signaled the beginning of XRP's ascension to the number one spot in crypto-currencies.  Ripple is about to make history, and I own a part of that. xrp

Sources

  1. https://bashco.github.io/2x_Countdown/
  2. https://www.bitsonline.com/bitcoin-gold-scam-btg/
  3. https://99bitcoins.com/who-supports-segwit2x-the-new-york-agreement-and-the-upcoming-bitcoin-fork-explained/
  4. https://medium.com/@tuurdemeester/why-im-short-ethereum-and-long-bitcoin-aee5b1c198fd
  5. https://bitcoinmagazine.com/articles/the-long-history-and-disputed-desirability-of-alternative-bitcoin-implementations-1474637904/
  6. https://ethereum.stackexchange.com/questions/2108/what-are-the-risks-associated-with-using-ethereum
  7. https://github.com/ethereum/wiki/wiki/Proof-of-Stake-FAQ
  8. http://www.zdnet.com/article/hacker-hijacks-isps-steals-83000-from-bitcoin-mining-pools/
  9. https://ripple.com/insights/ripple-comments-occ-paper/
  10. https://xrpcharts.ripple.com/#/topology
  11. https://ripple.com/build/amendments/
  12. https://xrpcharts.ripple.com/#/markets/BTC:rvYAfWj5gh67oV6fW32ZzP3Aw4Eubs59B/XRP?interval=15m&range=1d&type=line

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Hodor

Hodor

I blog about Ripple & XRP. FULL DISCLOSURE: All views are my own. I do not work for Ripple; I am not a professional financial analyst, and the majority of my crypto holdings are XRP.

Read More