At this stage, you’d need to have been living under a rock to have not heard of Bitcoin Processing Fees Skyrocket. 18,000, media attention is at an all-time high. What most people are a little uncertain on is what exactly Bitcoin is.
Simply put, cryptocurrencies are alternatives to standard monetary systems. They are a solely digital form of currency which rely on cryptography to secure transactions. Bitcoin is the original cryptocurrency and the most famous. However, a multitude of alternatives have sprung up on the market and are slowly gaining traction. We’ve compiled a list of some of the notable names in the alt-coin market below. 20,000 per unit and beyond like their famous predecessor.
Probably the second-biggest name in the cryptocurrency game, Ethereum is an alt-coin founded by the Ethereum Foundation, a Swiss nonprofit organization, in 2014. Unlike Bitcoin, which uses blockchain only to record transactions, Ethereum is an open platform which allows anyone to create or use decentralized apps using blockchain technology. It is best suited to applications which automate interaction between peers or which facilitate group action in a network. Based on Bitcoin, Dash is a cryptocurrency with a strong focus on payments. It aims to offer a portable, affordable, and user-friendly form of money that can be spent both online or in person. Transaction fees are kept to a minimum, and all transactions are secure. Zcash is a privacy-based cryptocurrency which launched in October 2016.
On the surface, Zcash shares a number of similarities with Bitcoin: Both currencies cap at a maximum of 21 million units, not to mention the strong resemblance between their respective supply models. But whereas Bitcoin records all transactions in a public ledger, Zcash is a cryptocurrency which endeavors to offer true anonymity. But wait, isn’t Bitcoin supposed to be anonymous because it’s not connected to your name? Well, while it is true that names are not used to transfer Bitcoin, it is still possible to trace it to a specific person, using the public ledger on the blockchain in conjunction with IP addresses.
Monero is yet another privacy-based cryptocurrency which is completely untraceable. All transactions and accounts are private and cannot be traced to a real-world or online identity. Unlike the previous entries, Monero is not modeled on Bitcoin. Monero claims to be the only cryptocurrency which offers complete privacy of seller, buyer, and amount in every transaction. If you’ve been paying attention, you’ll notice that the entry above, Zcash, makes the same claim. NEO has at times been called the Chinese Ethereum. The two projects share a lot in common: They have similar capabilities in terms of decentralized apps and smart contracts, and both are open-source and not for profit.
NEO, however, is backed by the Chinese government, unlike Ethereum, which is not backed by any nation’s government. NEO differs from Ethereum greatly in the programming languages it supports. Java, with plans to support Go and Python. Stellar was created in 2014 as an open-source network which allows payments between financial institutions. Stellar network to send money in US dollars to a friend in Australia, and they are able to receive that payment as Australian dollars. Lumens are used to pay fees in order to transfer other currencies.
Litecoin has been on the market since October 2011, two years after the release of Bitcoin. It is quite similar to Bitcoin, albeit with some key differences. The maximum amount of Litecoins that can be generated is 84 million, four times the maximum amount of Bitcoin possible. It also boats a reduced block generation time, meaning Litecoin is able to provide faster transaction processing speeds. Litecoin’s website includes a list of online merchants who accept payments using their currency. Currently, the list has over 80 retailers and is constantly expanding, offering users of Litecoin places to buy art, clothing, gift cards, and much, much more.
Ripple is a cryptocurrency which has a focus on providing a seamless, quick, and safe way to send money globally. Ripple’s cryptocurrency, XRP, can handle 1,500 transactions per second and is scalable to be able to handle as much traffic as Visa. That’s a whole lot of transactions. Payment settlement takes a grand total of four seconds—not too shabby compared to Bitcoin’s speed of up to an hour and Ethereum’s two minutes. Golem is an open-source, decentralized network of shared computing power. Golem as a supercomputer able to run almost any program. An example of this is rendering: Golem is able to undertake in minutes tasks that would traditionally take days.
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Likewise, it can undertake truly massive business analysis equations and predictions faster than currently possible and at a lower cost. Currently, Golem is still in its first stage of development, Brass Golem, in which it is able to be used only for rendering purposes. Over time, as more testing and development is completed, the network will expand to its full potential, possibly revolutionizing how we compute. Ah Dogecoin, the joke cryptocurrency of Reddit. Its logo is the face of a Shiba Inu dog, which the meme lovers among us will recognize as the the dog from the Doge meme. It is currently used primarily as a tipping service online, mostly for the huge message board website Reddit.
Tipping isn’t the only thing Dogecoin has been used for, however. Memorably, the Dogecoin community ran a fundraiser to fund a bobsled team to go to the Olympics and have also funded water wells in developing countries, alongside other charitable endeavors. Read more surprising facts about finance on 10 Things Rich People Do That You Don’t and Top 10 Tips for Achieving Financial Freedom. Follow us on Facebook or subscribe to our daily or weekly newsletter so you don’t miss out on our latest lists. Listverse is a Trademark of Listverse Ltd. Menu IconA vertical stack of three evenly spaced horizontal lines. That’s because as bitcoin has soared in popularity it’s become too expensive to use in small transactions.
The problem came to a head in early December, when Steam, the popular downloadable video game store, announced it would stop accepting bitcoin payments for games, citing the currency’s volatility and high transaction fees. Those fees can add up over many transactions, but they’re not what’s making individual bitcoin payments so costly. Walpole points the finger at bitcoin miners. Miners are the people or companies that record data in the bitcoin blockchain, the digital ledger that keeps track of all bitcoin transactions.
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Mining has become an expensive proposition. It requires high-powered computers that use lots of energy. Miners are typically in the business to make money. They’re compensated for their services in three ways. When they solve a particular puzzle and complete a block, they are awarded with newly created bitcoin. Its those fees that have made using bitcoin so pricey. Mining fees are skyrocketing The first type of fee miners collect are mining or transaction fees.
These fees in particular are surging. The surge in fees was a matter of supply and demand. 20,000, increasing numbers of people wanted to invest in the cryptocurrency. The upsurge in users and transactions increased the demand for miners’ services. At the same time, supply is constrained. The blockchain system that underlies the cryptocurrency can only process around 3 to 7 transactions per second. So at any given moment, a greater number of transactions were competing for a relatively small number of slots in the ledger.
But another, related factor was at work too. But they usually do, because the fees encourage miners to record their transactions sooner rather than later. The sooner you want a transaction written to the blockchain, generally the higher mining fee you’ll have to pay. The advantage of having a transaction recorded quickly is that the sooner it’s recorded, the sooner you can spend or sell the coins you’ve received — and the sooner a merchant will mark a deal as completed. That speed can be important when using bitcoin to buy high-demand goods, like concert tickets, which can sell out fast.
But speeding the recording of bitcoin transactions has been particularly important in a volatile market such as the one the cryptocurrency has experienced in recent months. With the price of bitcoin fluctuating by hundreds or even thousands of dollars in mere hours or minutes, there’s a big benefit to being able to buy and sell coins sooner rather than later — and many bitcoin traders have been paying up for just that advantage. The payment processors add the fee to the transaction total. Like mining fees, network costs fluctuate based on how busy the network is. Bitcoin’s price has fluctuated a lot over the last year, but overall has gone way up.
And bitcoin transaction costs have gone up in tandem with it. But the rise in bitcoin’s value and the jump in transaction fees aren’t as closely linked as they may sound. The price of bitcoin doesn’t have a direct impact on transaction fees. It’s not like miners are charging more or bitcoin users are having to pay higher fees just because bitcoin is worth more. Instead, all of the volatility in the price of bitcoin had led to more people buying and selling the cryptocurrency — which has meant a whole lot more transactions that need to be recorded.
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And more demand has led to higher fees. But volatility is affecting demand in a more important way. Because of those fluctuations, the value of bitcoin can change significantly in a short amount of time. When there are a lot of transactions taking place, it can potentially take days to record them all, during which time bitcoin’s value could have changed by thousands of dollars. Merchants risk losing money if they lock in a price with a customer and the value of bitcoin falls before the transaction is completed. That’s not a risk many merchants or bitcoin traders take lightly, so many have been willing to accept higher fees to speed the recording of their transactions.
Read more about the blockchain technology that powers bitcoin here. Get the latest Bitcoin price here. Supply Without Demand is a Dangerous GameI’ve seen the story of markets with a glut of supply but no natural demand play out before. Gas in 2008, shale gas was the hottest thing around. Some companies even starting buying rigs in the midst of the frenzy. Crews of labor would rent at 3 to 4x their normal rate. During the shale boom, landmen were making out like bandits.
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Under most leases, companies have the right to drill for a period of time, after which the lease expires unless there is a producing well on the property. Once the frenzy faded and natural gas prices fell due to a glut in supply, you can imagine what state companies found themselves in. Stuck with dead assets on the balance sheet, companies started drilling on leases at a loss in the hopes that they might eventually recover millions of dollars in leasing costs. In shale plays, the cost economics were significantly different.
Here’s the problem with toll roads. If someone builds a second toll road, then you either need more demand i. Companies spent all of their time focused on accommodating supply but didn’t think about long term drivers of demand. CAPEX investments operate on a different timescale than market fads. Cleverly, many of these MLPs signed multi-year contracts to cover costs. They created artificial demand using a financial contract.
The failure on the supply side was incomplete market data, or an inaccurate modeling of the supply curve. Statoil’s Sakhalin project, and the massive Queensland project. The failure on the demand side was speculating on future drivers on demand without any proof of demand. As an applied mathematician, I spent 2006 to 2012 building the models for the oil and gas demand curve. We assumed economic growth would continue at the same pace, and perhaps even accelerate.
Henry Hub is the onshore sale point for US natural gas. Let’s look at what’s happened to spot prices at this sale point over time. That’s what happens when you over-invest in supply without proving demand. And more importantly, let’s look at the companies who were built just to bring this supply to market. CHK was a sleepy energy company in Oklahoma until it became the hottest company in the industry, snapping up land, leases, and drilling rights across the US to bring shale gas to market.
Gas shit, and you’re asking when we get to the dope, super-awesome crypto stuff. Let’s take the lessons from one market and apply them to another. We have the exact same issue in tokenland. Everyone is so busy pumping out resources aka tokens that we have forgotten the fundamentals of supply and demand, long term risk management, and the dangers of buying options that are improperly priced. Production constraints are a short term phenomenon. Only real execution capability will stand the test of time, and sadly, real execution capability is in short supply in tokenland.
Assets they Believe will be ScarceI am increasingly skeptical of the idea that traditional venture investors are well suited to investing in the emerging crypto asset class. As I like to say, the shit rolls downhill. I’ve fallen into this trap myself, and have only recently begun examining what I actually mean when I say this. As a thesis, this sounds good.
But what does it actually mean in the context of crypto assets? I would argue that many infrastructure businesses today cannot or will not separate recurring revenue from price appreciation of the underlying assets, likely because a significant portion of revenue can be attributed to speculation rather than actual business growth. In a market where asset values are rapidly increasing, it’s easy to believe that investing in additional capacity is going to be profitable. Most infrastructure companies, like pipelines, operate on a toll or fee model. You can build all the pipelines you want, but if there’s no assets to pump through them, no one will earn a toll. We’ve seen many interesting ways cryptocurrency projects have tried to generate demand, or at least create the perception thereof.
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Tokenland has far too much financial capital. 10 million, likely because other projects are putting up far higher numbers. What we see is that market players are spending much of their time focused on finding new ways to deploy this supply, but not focusing much on long term drivers of demand. Again, investments operate on a different timescale than market fads.
Clever funds will sign multi-year contracts and earn millions in management fees. Token economics are supply and demand. We are pumping out shitloads of supply but we have zero evidence of natural demand. Let’s go back to the five factors driving capital investment decisions in Oil and Gas land. The ERC20 token standard makes it easy to produce a token, and getting it listed on an exchange can be coordinated with capital. Pay to list is a common practice.
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I have only seen one project ever offer supply and demand sensitivity modeling to its token holders. I have yet to see a project offer a detailed capital management plan to token holders. There is a bound to how quickly we can push supply onto an increasingly saturated market. What is the natural demand for a token or a cryptocurrency? Instead of focusing on the ICO or the fundraise as the goal, can we start to develop the body of thought around how natural demand fits into these tokenized networks? Can we develop new financial models for how we can measurably and reliably curate demand instead of blindly throwing money at ideas?
Instead of pushing tokens to market in an attempt to curate artificial demand, can we use natural demand to pull tokens to markets when they are needed? These are the types of questions I’m asking myself and all of the folks I hang out with here in tokenland. There may not be any answers, yet, but at least we can start asking better questions. The practice of risk management and the development of more robust analytical tools needs more attention.
I plan to spend more time focusing on translating portfolio management theory and financial risk management concepts to the world of cryptoassets so that I can get better at finding signal in this ocean of noise. Building blockchain protocols and a useable, resilient, sustainable cryptocurrency ecosystem will take a long time. I am incredibly impressed by all of the teams working to build a long term vision of how cryptocurrencies and tokens can create a new model for how distributed systems get implemented at scale. Every product or service has a natural consumption level. We just don’t know what it is until we launch it, distribute it, and promote it. We’re in the early days of untangling and understanding the dynamics of cryptocurrencies and tokens. Give Meltem Demirors a round of applause.
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