First movers or fast followers — which has the advantage? When bitcoin was first proposed in 2008 it was revolutionary. For the first time people could trust in a currency without a bank or government behind it.
Fast forward to 2018 and bitcoin is well above 10,000 USD a coin. Over 87% of people have heard of bitcoin.We’ve crossed the chasm.
But bitcoin is almost a decade old. When bitcoin was conceived the app store was only just getting off the ground and portable DVD players were still used on long car trips. The technology of 2018 is leaps and bounds ahead of where it was a decade ago. Crypto technology is no exception.
There are now over 1500 cryptocurrencies newer than bitcoin. These coins are more efficient, faster, and offer features that bitcoin lacks. In the past month bitcoin’s percentage of the market has fallen from 56% to 33%.
This is not the first time first movers have been threatened by newer technologies. Altavista gave way to google. Myspace fell to Facebook. There is a history of first movers losing to innovative fast followers.
Bitcoin has done the difficult work of trail-blazing, and now the floodgates are open for a slew of modern competitors.
So if bitcoin is just the start of cryptocurrencies, what comes next? To understand what technologies could surpass bitcoin we need to understand where it is currently falling short.
Bitcoin and its blockchain have serious flaws
- Transaction speed
The bitcoin network can only handle 7 transactions a section. That means only 7 people worldwide can buy or sell using bitcoin every second. For comparison visa handles 24,000 transactions a second. Low transaction speed limits bitcoin’s effectiveness as a currency. It also hurts those who see bitcoin as a store of value. Exchanges go down and funds are stuck waiting hours (or even days) when too many people buy or sell bitcoin.
Network congestion leads to extraordinarily high fees. Fees at the end of December were $37 a transaction, more than the cost of a wire transfer.
2. Lack of privacy
Are you comfortable with the whole world knowing the value of your bank account? What about the whole world knowing where you send funds and who you receive them from? Bitcoin wallets are tied to address hashes (random sequences of letters). Once the owner of a wallet is identified all of their previous transactions and all of their future transactions are visible to anyone who downloads bitcoin’s ledger. This history can never be deleted or changed.
Bitcoin was designed as a digital currency. The technology allows only basic programming. This prevents bitcoin from being used in more complicated situations like for smart automatically executing contracts. Think of it like a calculator compared to a computer. Programmable blockchains (Ethereum being the most widely known example) have the potential to massively disrupt a wide array of sectors.
Newer coins are introducing amazing new technologies
Many of these coins are leaps and bounds ahead of bitcoins current capabilities.The following are some of the most impressive contenders:
Stellar Lumens (XLM) Pros: Insanely scalable. Great partnerships. Clear use case.
You’ve probably heard about Ripple amazing rally at the beginning of January. Stellar Lumens is the newer, 100% decentralized version of Ripple. Ripple’s CEO founded Stellar Lumens to address the flaws he saw in Ripple. It can handle 1000 transactions per second without breaking a sweat, and transfer millions of dollars for a few pennies. Its investors are none other than Y-Combinator’s CEO Sam Altman, and the CEO of Stripe.
RaiBlocks (XRB) Pros: Insanely scalable. Instant transactions. Zero Fees.
Raiblocks is an even newer coin — emerging only in the last few months. It uses a new form of architecture based on directed acyclic graphs that only a few cryptocurrencies have adopted. This makes it infinitely more scalable than blockchain applications. Their approach to development is to do ‘one thing well’. In this case they aim to be what bitcoin was meant to be: an instant and zero fee way of sending currency around the globe.
EOS Pros: Scalable and programable. ‘The Ethereum Killer’
EOS has been jokingly described as ‘Ethereum on Steroids’. The developers behind EOS claim that the EOS blockchain is fully programmable, will eliminate transaction fees and have the ability to process millions of transactions a second. Their block chain launches in April.
Bitcoin will have to drastically speed up development or be overtaken.
Bitcoin’s last major update, scheduled in November, was canceled due to lack of community support. The November update was meant to introduce Segwit2x, a means of increasing the number of transactions that could be recorded on each block. Without Segwit2x Bitcoin’s networks have grown increasingly slow.
The Lightning Network — Bitcoin’s now mythical response to scaling faces many unknowns before it can be implemented. More testing is necessary before it can foreseeably address some of Bitcoin’s shortcomings.
In the meantime, up and comers like EOS, XLM, and XRB are ready to outperform Bitcoin with their speed and functionality. We have yet to see if these second-movers will take the market. The only thing we can know for sure is that the entire cryptocurrency space is rapidly iterating. The cryptocurrency that ends up winning may yet to be created.