Bitcoin is on life support, ether plummets; What’s happening in blockchain-based cryptocurrencies?

Bitcoin is on life support, ether plummets; What’s happening in blockchain-based cryptocurrencies?

Apr 21, two thousand sixteen 9:16:34 AM

Last week, we had a bit of joy describing basic cryptocurrency blockchain technology functions using an X-Files analogy. This week, we’ll dive deeper into the blockchain based cryptocurrency fintech space (yes, we are excluding Ripple for now) to identify strengths and limitations of the blockchain application in banking and law.

How Blockchain/Bitcoin Protocol Actually Works

Last week’s example was meant to familiarize newcomers with blockchain basics on a plain conceptual level. However, to indeed understand the power of blockchain, one needs to understand the underlying mechanics. This is not an effortless task and requires significant background reading. Depending on your learning style and skill level, commence with Khan Academy’s introductory movie, Kaye Scholer’s presentation, and eventually progress to Michael Nielsen’s work. Mr. Nielsen does a fantastic job explaining Bitcoin protocols in detail and also provides a nice background link to Nick Szabo’s detailed description of “smart contracts”. Take your time to review these works and build your skill base. If you already understand everything herein, congratulations and proceed on.

Bitcoin History – Branding Issues and Other Limitations

At this point, you are very likely telling, “Ken, why do all this reading, if, as Mike Hearn proclaims, Bitcoin is dead?” Taavet Hinrikus of Transferwise also says bitcoin has failed. It is true; Bitcoin is running up against several limitations. Bitcoin is not widely accepted or used, has not gained significant market share as of late, has high fees, does not permit you to sleekly stir existing money, causes long transaction backlogs and delays, and is literally running out of space because of the current rule base and architecture limitations.

If those problems weren’t bad enough, Bitcoin also has a raunchy public picture problem. The Mt. Gox $460 million collapse (Bitcoin theft/loss) and closure of the Silk Road have contributed to the publicly held notion that Bitcoin is only used in the dark and seedy corners of the web by criminals, drug dealers, etc. Unidentified bad actors poisoned the well for the rest of the community. What could have been a utopian peer-to-peer distributed currency became a implement for criminals. The lack of central authority and inability to quickly track identity are enormous regulatory hurdles that need to be cleared. Regulators are fearful of criminal activity and see the above issues as reasons to shut down marketplaces, exchanges, and platforms. What is being done to address these problems?

Come in The Winklevoss Brothers

Tyler and Cameron Winklevoss are best known as the founders of the social networking platform, HarvardConnection, later named ConnectU. The brothers successfully sued Facebook for $165 million in 2004, claiming that Facebook stole their intellectual property. In 2013, the twins became interested in Bitcoin and built several ventures in the space including their latest venture, Gemini, a fully regulated Bitcoin exchange.

Gemini’s value proposition is derived from utter platform regulation (presently the only fully regulated exchange in Fresh York). Playing the long game, the twins believe that Bitcoin is here to stay and requires a fully semitransparent and fully regulated Bitcoin exchange platform to build trust with users over time.

In a latest SXSW two thousand sixteen talk, the brothers acknowledged problems with Bitcoin’s legacy pic issues and criminal associations; however, they think that these issues will be rendered mute in a regulated environment. Simply, it does not make sense for criminals to use blockchain based platforms because each and every transaction is recorded, published, and unchangeable. While it is theoretically possible to hack in and steal coins from an individual user account or wallet, there would still be a record of the theft and a record of the sale of the coin published in the distributed double-ledger. If the identity of each and every platform participant is registered, and, each transaction is recorded and unchangeable, any thief would be registering their crime and advertising it for all eternity…not the ideal criminal technology platform. Sunlight is a fine disinfectant and Gemini expects regulatory transparency to regenerate a trusted reputation for Bitcoin and the Gemini exchange moving forward.

To Ethereum And Beyond!

While Gemini hopes to solve a chunk of the cryptocurrency trust issue, Bitcoin still faces some big technical hurdles. Regarded as Bitcoin Two.0, Ethereum entered the scene aiming to address Bitcoin’s structural issues, add clever contracts, and improve platform clearing speed. Up until early April 2016, Ethereum was flourishing – in March passing a $1B market cap. The Ethereum associated cryptocurrency “Ether” was also growing rapidly. However, on the week ending April 15th, Ether took a massive tumble, ripping off 50% in value. According to market analysts, Ether technicals had been deteriorating for months but it is too early to tell what effect the market drop will have on future platform spectacle.

What is Ethereum?

Ethereum describes itself as a “decentralized platform that runs clever contracts; applications that run exactly as programmed without any possibility of downtime, censorship, fraud or third party interference.” As you may reminisce from the introductory links, wise contracts are, “computer protocols that facilitate, verify or enforce the negotiation or spectacle of some sort of agreement (e.g. a legal contract emulating the logic of contractual clauses or a financial contract specifying responsibilities of the counterparts and automated flows of value).”

Ethereum and Bitcoin both operate on blockchain which means that a user does not need to trust a third party to correctly maintain data that is contained in the blockchain.

Differences Inbetween Ethereum and Bitcoin

“While Bitcoin is created as an alternative to regular money and is thus a medium of payment transaction and store of value, Ethereum is developed as a platform which facilitates peer-to-peer contracts and applications via its own currency vehicle (Ether).” In fact, using Ethereum code, anyone can design and issue their own cryptocurrency.

Ethereum also differs from Bitcoin in two key technical ways. Very first, is clearance speed (aka Block Time). Bitcoin takes approximately ten (or more) minutes to clear transactions, Ethereum takes about twelve seconds. 2nd, Ethereum has its own Turing finish internal code. This means that given enough computing power and enough time, anything can be calculated. Bitcoin is limited in comparison.

As Ethereum grows in scale and computing power, it is evident that the transaction clearing speed improvements suggest a strong technological advantage (at a lower cost) that could soon disrupt banks and electronic payments/clearing platforms.


So, is Bitcoin dead, on life support, or in a fresh phase of regulated growth? Will Ethereum substitute Bitcoin, banks, lawyers, and electronic payment providers, or proceed its latest tumble? Most importantly, is cryptocurrency or the “smart contract” the blockchain killer app? Stay tuned.

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