Skip to main content

Free Money: The Tech Secret Even Silicon Valley Doesn't Know

In July of 2015, Vitalik Buterin officially released the game-changing technology of Ethereum, an immediate competitor to its now-popular and relatively better-known counterpart Bitcoin. A cursory evaluation of the following chart might lead the reader to some wild conclusions, so continue reading to acquire a better understanding of the trajectory of this new-age abstraction of online currency that, despite its massive gains in recent weeks, hasn't remotely become a household name in even Silicon Valley, the tech capital of the world.


A variety of formal and informal polls suggest a lagging familiarity with the increasingly popular cryptocurrency giants. Those who claim awareness are most likely to recognize Bitcoin, while Ethereum has still flown largely undetected in even the heart of Silicon Valley. One might assume with a chart like this, with its major parabolic upswings and indefinite streams of free money, that awareness of the blockchain medium of exchange would have surged by now.


Beyond the philosophical discussion on cryptocurrencies' viability as money, a subject covered in a previous article, there may surely be some attractive advantages for the investor searching for some short-term exposure to the upside. This article will expose that reader to the merits of Bitcoin's greatest competitor and its eventual replacement atop the leaderboard of cryptocurrency marketshare: Ethereum.

Now, a far greater share of this planet has become at least acquainted with the name of Bitcoin, while some of those may possess a working understanding of its technology. Whatever the case, few people, if any, sitting beside you at the coffee shop have even heard of the name Ethereum, let alone the technology which separates it from the first player on the scene.

The foundation of the cryptocurrency market rests upon the popular belief in its future as money, particularly as a ubiquitous decentralized substitute for highly-manipulable fiat currencies around the world. The value-added work of Bitcoin and Ethereum spawns from its proof-of-work concept, whereby computers actively validate transactions by solving complex algorithms. These so-called miners, otherwise more technically identifiable as validators, are compensated in form of transaction fees and newly-minted coins for their added accountability to the forum of exchange.

Of course, Bitcoin not only made the first major splash on the scene in 2009, but it originally built and filled the pool. With their decentralized and pseudo-anonymous mediums of exchange, cryptocurrencies have become increasingly popular amongst free-market thinkers, self-described libertarians, computer programmers and money launderers.

Through its present insulation from unilateral currency manipulation, Bitcoin, Ethereum and the myriad minor cryptos enable a more pure peer-to-peer exchange channel absent the observable overhead of tax and its less predictable and more obscure brother of monetary expansion, beyond those built-in inflation features and transaction fees tied to each crypto variant.

With fixed inflation set respectively at 1.25 units per minute and 20 units per minute for Bitcoin and Ethereum, translating to roughly 4% and 11% at present supply, investors can assume a steady decline in inflation over the years and, assuming a continuation of real demand, increasing purchasing power per unit of account. This assumption, however, will surely be tested.

There is absolutely no doubt that the present technology is demonstrably valuable to users in the space; however, many surveyors of the crypto universe have cast plenty of doubts upon the actual application of the technology relative to its designed purpose as a medium of exchange. Assuming that the reader is wholly aware of these inherent risks attending the market, let us journey through the technical characteristics of Ethereum which distinguish it from the rest of the class and nearly guarantee its victory over Bitcoin across the next several months.

One of the greatest obstacles to Bitcoin's future viability is scalability, inherently limited by storage sizes of blocks, averaging 226 bytes per transaction, implicitly imposing a limit on the speed and quantity of transactions on the bitcoin platform. Today the cryptocurrency operates near a limit of 4 transactions per second, while its unconfirmed transactions in the queue often number in the tens of thousands, even striking 200,000 last month. Meanwhile its rival Ethereum boasts a maximum capacity of 14 transactions per second, keeping its number of pending transactions in the hundreds. Still, Visa makes all of this look like child's play with its limit of 56,000 transactions per second.

Consistent with its computational limits, Bitcoin's median transaction fee has more than sextupled from below $0.50 in April of this year to $3.04 today. Meanwhile, Ethereum's median transaction fee has remained around $0.13. To put this into perspective, Bitcoin's average transaction fee of $5 now equates to half of the daily personal income of 80% of the world.


Now, Ethereum has modified its proof-of-work model to limit the total costs of each transaction. Whereas the proof-of-work model relies upon the exhaustive application of resources, measured in computational effort denominated in units of gas, to validate transactions, the proof-of-stake concept mitigates the toil by relying upon a deterministic method of charging stakeholders with vetting responsibilities and passing these costs reductions to Ethereum transactors and raising the ceiling on the potential growth for each Ethereum unit.

So, while investigating the sea of options in the cryptocurrencies market, one will be best served by recognizing the scalability and costs structure of Ethereum relative to Bitcoin. These modifying characteristics found between these two cryptos will be borne out across the coming months, and those caught in the hull of Bitcoin will abhor their loyalty to their celebrated unsinkable ship.

Comments

Popular posts from this blog

America's Civil War: Not "Civil" and Not About Slavery

Virtually the entirety of South and Central America, as well as European powers Britain, Spain and France, peacefully abolished slavery — without war — in the first sixty years of the nineteenth century.  Why, then, did the United States enter into a bloody war that cost over half of the nation’s wealth, at least 800,000 lives and many hundreds of thousands more in casualties?  The answer: the War Between the States was not about slavery.  It was a war of invasion to further empower the central government and to reject state sovereignty, nullification of unconstitutional laws, and the states’ rights to secession.  It was a war that would cripple the South and witness the federal debt skyrocket from $65 million in 1860 to $2.7 billion in 1865, whose annual interest alone would prove twice as expensive as the entire federal budget from 1860. Likewise, it was a war that would witness a five-fold increase in the number of civilians employed by the federal government, as federal gove

Into the Wild: An Economics Lesson

There is a great deal of substance behind the Keynesian motif, “In the long run, we’re all dead.” If this is your prerogative, your axiom, we are destined to differ on matters of principle and timeline. Surely, any quantity or decided cash figure is relevant exclusively to the available produce yielded by its trade. The current valuation thereof, whilst unadulterated, corroborates a rather stable, predictable trend of expectations, whereas its significance wanes once reconfigured by a process of economic, fiscal or monetary manipulation.  Individuals, vast in their interests and their time preferences and overall appetites, are to be made homogeneous by an overarching system which predetermines the price floors, ceilings and general priorities of life. Of course, all of this exists merely in abstract form. However, the supposition proposed by those who champion the agenda of “basic needs” fails to complement the progress achieved by the abolition of presumed guilt by the sole mis

Cullen Roche's Not So "Pragmatic Capitalism"

In his riveting new work Pragmatic Capitalism , Cullen Roche, founder of Orcam Financial Group, a San Diego-based financial firm, sets out to correct the mainstream schools of economic thought, focusing on  Keynesians, Monetarists, and Austrians alike. This new macroeconomic perspective claims to reveal What Every Investor Needs to Know About Money and Finance . Indeed, Roche introduces the layman to various elementary principles of economics and financial markets, revealing in early chapters the failed state of the average hedge fund and mutual fund operators -- who are better car salesmen than financial pundits, Roche writes --  who have fallen victim to the group think phenomenon, spawning the nearly perfect positive correlation to the major indexes, and thus, accounting for tax, inflation, and service adjustments, holistically wiping out any value added by their supposed market insight.  Roche also references popular studies, such as the MckInsey Global Institute's report whi