Why bitcoin is very different from all other altcoin "cryptocurrencies" - Part 3 - Bitcoin vs CBDCs - a detailed side by side comparison

Part 1 of this 3 part series introduced the high level of cyber crime taking place in the world of altocoin "cryptocurrencies". Part 2 of this 3 part series comparied Bitcoin and all other altcoin "crytocurrencies" to emphasize how bitcoin is indeed truly unique. While CBDCs are still in their infancy, this post compares in detail, the similarities and differences between Bitcoin and CBDCs:

Criterion	Bitcoin	CBDCs
Architecture/Issuer	Bitcoin has no central issuer. A peer-to-peer blockchain based network regulates bitcoins, transactions and issuance according to consensus in the network.	Reserve currency CBDCs such as the digital dollar or digital euro, non-reserve currency CBDCs such as the digital Singapore Dollar as well CBDCs of restricted currencies such as the digital Yuan have a two-tier architecture, where the central bank (Federal Reserve, ECB, MAS or PBOC) issues digital CBDC tokens to commercial banks (tier 1). Commercial banks maintain the digital wallets for user authentication, transaction authentication, user interface and define the smart contract languages to support the innovation and customization (tier 2)
Regulatory classification	Bitcoin is not a security according to the SEC as it was started by an unknown person or persons going by the pseudonym Satoshi Nakamoto and does not exist as a way to raise money for a specific project for profit thereby failing the Howey test. SEC chairman Gary Gensler classifies bitcoin as a commodity to be regulated by the CFTC.	CBDCs are by their very nature a security and considered equivalent to cash as an asset class.
Purpose/ Use Cases	Originally intended as an electronic peer-to-peer payment system that is based on cryptographic proof, instead of trust that would operate free of central control. Now used more as store of value or digital gold.	Intended as an electronic peer-to-peer payment system substituting person to person or person to business cash payments.
Regulatory oversight and Compliance	Bitcoin’s decentralized Blockchain architecture is specifically designed not to be controlled by a state, a central bank or any other central authority for regulatory oversight and compliance.	The two-tier CBDC architecture aligns closely with existing banking system customer service delivery models, compliance mechanisms for anti-money-laundering, countering the funding of terrorism (AML/CFT) laws. CBDCs avoid disruptive disintermediation through enforcement of regulatory and compliance rules ensuring financial stability.
Account Management and Identity Checking	Bitcoin miners delegate this task implicitly to Bitcoin exchanges which maintain a traditional account and business relationship with each individual customer to address the gap between cryptographic keys in Bitcoin and human identity-checking tasks required to ensure compliance.	In CBDCs, Central banks delegate the task of account management and identity checking to commercial banks.
System Operators/Miners	In the Bitcoin architecture, system operators (miners) receive rewards to incentivize them to follow the Bitcoin protocol.	In the CBDC architecture, Central banks do not choose the system operators (miners) in the open system but determine the inflation rate.
Cross Border Payments	Cross-border payments with Bitcoin do not require currency conversions, as it takes place outside the Bitcoin system where counterparties convert from/into domestic currencies. The absence of intermediaries brings cost benefits and efficiency with no risks from operational or financial failures of intermediaries.	For Cross-border payments with CBDCs of reserve currencies such as the digital dollar or digital euro, participants from partnering jurisdictions are allowed access to the digital dollar or the digital euro which becomes available to counterparties inside and outside of that jurisdiction enabling cross-border payments.For Cross-border payments with CBDCs of non-reserve currencies, access and settlement arrangements aiming to facilitate cross-border interoperability are established among multiple CBDCs from different jurisdictions (mCBDC), built on strong technological, market structure and legal frameworks between central banks
Smart Contract capabilities	A Turing-incomplete script language allows the creation of custom smart contracts on top of Bitcoin like multisignature accounts, payment channels, escrows, timelocks, atomic cross-chain trading, oracles, or multiparty lottery with no operator	It is not necessary for a CBDC to provide smart contracts in order to fulfill its primary role as a digital currency, and some CBDCs such as the digital yuan are unlikely to do so.

Why bitcoin is very different from all other altcoin "cryptocurrencies" - Part 2 - A detailed side by side comparison

Part 1 of this 3 part series introduced the high level of cyber crime taking place in the world of altocoin "cryptocurrencies". In this post, a detailed side by side comparison is provided below to illustrate how and why bitcoin is indeed very different from all other altcoin "crytocurrencies".

Criterion	Bitcoin	Altcoin "Cryptocurrencies"
Legal structure/ Issuer	Bitcoin has no central issuer. A peer-to-peer network regulates bitcoins, transactions and issuance according to consensus in network software.	All other cryptocurrencies are issued via an initial coin offereing (ICO) and are linked to a central issuer such as Ethereum foundation, Ripple, Algorand foundation among others
Regulatory classification	Bitcoin is not a security according to the SEC as it was started by an unknown person or persons going by the pseudonym Satoshi Nakamoto and does not exist as a way to raise money for a specific project for profit thereby failing the Howey test. SEC chairman Gary Gensler classifies bitcoin as a commodity to be regulated by the CFTC.	All other cryptocurrenecies having been issued through an ICO to raise money for specific projects for profit pass the Howey test. There is a strong likelyhood of all other cryptocurrencies being classified as securities by the SEC in the near future.
Purpose/ Use Cases	Originally intened as an electronic peer-to-peer payment system that is based on cryptographic proof, instead of trust that would operate free of central control. Now used more as store of value or digital gold.	Altcoins are often created to resolve some of the limitations of Bitcoin but similar to bitcoin intended to provide low cost, safe, secure payment system for transactions. Now used for different use cases from meme (Dogecoin), an open-ended decentralised software platform that supports smart contracts and the creation of distributed applications (Ethereum), to create a system of direct transfers (Ripple) to IoT environment (Iota).
Inflationary/ Deflationary aspects	Bitcoin is architecturally deflationary as the total number of bitcoins is capped at 21 million. Each bitcoin in theory will be worth more and more as the total number of issued Bitcoins maxes out.	Some altcoin cryptocurrencies with a hard maximum cap such as Binance coin, litecoin are deflationary. Ethereum had no hard caps and until 2021 was inflationary but an update mandated to burn some ethers whenever the network activity rises to make the cryptocurrency deflationary. Others such as Dogecoin with no hard caps are inflationary
Security, Scalability, Decentralization	Bitcoin sacrifices scalability for the sake of security encrypted with the SHA-256 algorithm and decentralization, and can be expensive at times of high demand. This also makes an attack over the Bitcoin network too costly or too impractical due to the cryptographic strength, and high number of nodes securing it through a decentralized mining network.	Altcoins are designed to address specific bitcoin limitations such as transaction speeds but are highly centralized -e.g. out of the 100 billion XRP, 20% are owned by the founders of Ripple and the remaining 80% were initially given to Ripple Labs. They use encryption algorithms such as ETHASH (Ethereum) which are less secure than Bitcoin and moreover use the less secure Proof of Stake consensus mechanism.
Network Availability	Bitcoin has the largest network comprised of tens of thousands of nodes and an unknown number of miners, with an unparalleled uptime built on top of the most secure database in history. Since 2013, Bitcoin has remained active and accessible without interruption.	Altcoins such as Solana have been subjected to assaults and have consistently experienced prolonged network unavailability.
Consensus Mechanism	Bitcoin uses the energy intensive yet super secure Proof of Work which prevents double-spending attempts and miners have direct authority within the network.	Most other Altcoins are moving to Proof of Stake,Proof of History or other mechanisms which cannot prevent double spend. Capturing control of the network is easy as it depends on staked capital leading to governance issues as users with more tokens can change the rules of the network.
Smart Contract capabilities	A Turing-incomplete script language allows the creation of custom smart contracts on top of Bitcoin like multisignature accounts, payment channels, escrows, timelocks, atomic cross-chain trading, oracles, or multiparty lottery with no operator	Most altcoins provide turing complete programming languages allowing full smart contract capability.
Adoption	Bitcoin could reach 10% adoption rate by 2030. It is already the most widely used cryptocurrency with the most number of users compared to altcoins.	The only altcoin that has a fair adoption rate is Ethereum but that too is at least 50% lower than Bitcoin's adoption.
Layer2 and Sidechains	Bitcoin has Layer 2 networks such as the lightning network to increase transcation throughput and lower costs as well as sidechains	Ethereum also has Layer 2 networks such as Polygon as well as sidechains but this is less common in other altcoins
Layer 3 applications	Chargeable events reportable on self assessment return	Any pension income taken is reportable under the foreign pension income section and as such 90% will be subject to tax at the member's marginal rate
Trustworthiness	The Bitcoin core layer one network with deep storage, and global root trust is very difficult or impossibly expensive to alter leading to its trustworthiness.	Depends on the local regulator e.g. In Gibraltar the Trustee is regulated by the Gibraltar Financial Services Commission
Antifragility	Bitcoin has survived external attacks, attempted bans from governments, and internal disputes over the direction of the protocol. Bitcoin has weathered massive price climbs and drops, and its volatility has declined over time. Bitcoin is the only cryptocurrency with over a decade of experience. The fact that Bitcoin has survived this long serves as a positive signal to many investors, developers, and former critics. Bitcoin’s protocol is enforced by the tens of thousands of decentralized nodes across the world, each verifying every transaction on the Bitcoin network. To change Bitcoin’s protocol as all nodes on the network must be simultaneously convinced to change their rules, this is simply infeasible.	Most altcoins with an identifiable issuer which are fairly centralized can be shut down by a government or regulators.

Why bitcoin is very different from all other altcoin "cryptocurrencies" - Part 1 - Rising cyber crime in "cryptocurrencies"

On August 29th, 2022 the FBI issued a public service announcement using analysis from blockchain analytics firm Chainalysis warning that between January and March 2022, cyber criminals stole $1.3 billion in "cryptocurrencies", almost 97 percent of which was stolen from DeFi platforms. The FBI warned criminals have exploited signature verification allowing Cyber criminals to take advantage of the complexity of cross-chain functionality and open source nature of Decentralized Finance (DeFi) platforms to steal all of the platform’s investments, resulting in millions in losses. The agency has also witnessed criminals exploiting smart contracts on a blockchain that don't let funds change hands unless certain rules are met, to extract millions. Crypto bridges which allow users to transfer cryptocurrencies from one blockchain to another, such as Nomad ($190 million stolen), Harmony ($100 million stolen), Ronin ($625 million stolen), Wormhole ($326 million stolen) account for the bulk of major crypto robberies this year. Earlier, Robert Reich, former US Secretary of Labor and professor at Brandeis University, published a video (see below) denouncing all "cryptocurrencies" as a Ponzi scheme. It must be pointed out that the bitcoin blockchain and to some extent some altcoin blockchains themselves are fairly secure, the cyber crime is taking place mostly at human touch points or at the edge where bitcoin or altcoin gets converted into USD or other fiat currencies such as exchanges or crypto bridges.



In August 2022 itself, net outflows from bitcoin-related products alone totaled $29 million according to Coinshares. In the past speculation on bitcoin was around it being a new technology, anti-fiat currency and an inflation hedge. Bitcoin as of late seems to be losing its investor appeal as it has lost over 70% of its value and has given away as much as 30% of its market share since 2021 to other cryptocurrencies according to Coinmarketcap. While Professor Reich bundled all cryptocurrencies together, it can be argued that bitcoin is very different from all other cryptocurrencies which arguably could be ponzi schemes. It all boils down to regulation and decentralization, few other "cryptocurrencies" can boast bitcoin’s level of decentralization and regulatory clarity, the most important aspects of blockchain technology. The SEC is very clear that bitcoin is not a security. All other altcoins will in all likelyhood be classified as securities in the near future by the SEC.

In Part 2, I will present a detailed side by side comparison between bitcoin and all other altcoin "cryptocurrencies" to show how bitcoin is very different as it's security stems from being fully decentralized with a turing incomplete script for smartcontracts.

Crypto friendly regulation from GCC Central Banks creates an oasis for fintech and crypto innovation from regulatory storms at home

The European Union’s Markets in Crypto-Assets Legislation is likely to effectively ban stablecoins USD Tether (USDT) and USDC by requesting stablecoins issuers to build up a sufficiently liquid reserve, with a 1/1 ratio and partly in the form of deposits which, USDT and USDC are unlikely to do. The legislations is also designed to make life tougher for crypto exchanges. In the US, regulators are trying to separate the bad actors in the crypto space — those actively committing fraud — from those who want to advance crypto and its market infrastructure, according to Dawn Stump, the former commissioner at the U.S. Commodity Futures Trading Commission (CFTC). The Central banks of GCC countries on the other hand have made huge strides in lightly regulating crypto assets.

The Central Bank of the tiny gulf emirate of Bahrain (CBB) enacted banking regulations for digital assets allowing cryptocurrencies as an official method of payment since 2019. The CBB regulation allows banks in Bahrain to work with exchanges so that customers can withdraw and deposit their money easily. CBB launched FinHub 973, a virtual platform to allow fintech companies to test their solutions through the regulatory Sandbox and connect with the hub’s global network for funding and business opportunities. FinHub 973 is all about supporting innovation in the sector and is a good example of the driving forces behind the region’s shifting fintech landscape. The Saudi Central Bank and Central Bank of the United Arab Emirates have been working together to learn how the two banks can adopt blockchain and digital payments. Saudi Arabia's Financial Sector Development Program (FSDP) launched the Fintech Strategy Implementation Plan in June 2022 to make Riyadh a global Fintech hub. In contrast to their Gulf neighbours, Qatar currently has a ban on cryptocurrency trade with the exception of security tokens in 2020. In most other countries, digital assets fall under the jurisdiction of securities regulators, not central banks.

In Saudi Arabia, the fintech sector generated approximately $157.2 million in venture capital (VC) investments in the first eight months of 2021, up staggeringly from $7.8 million in 2020 and $18 million in 2019. In 2022, the Saudi VC market witnessed a record funding of $584 million in the first half, a 244 percent increase in comparison to the same period in 2021. Saudi Aramco's Prosperity7 Ventures, a one-billion-dollar Venture Capital fund aims to build on this success by identifying ground-breaking companies with exceptional leadership in diverse industries deploying disruptive technologies with the ability to scale and transform.

Central Bank Digital Currencies - the Digital Euro and the Digital Dollar

In July 2022, the European Central Bank published a blog on the "key objectives of the digital euro". The blog co-authored by none other than Christine Lagarde, President of the ECB argued that a digital payment ecosystem such as the digital Euro without a strong monetary anchor would create confusion leading to financial instability as "it is crucial that we all still have easy access to central bank money, which is the foundation of our currency". In January 2022, the Federal Reserve came out with a highly anticipated paper on a digital dollar, taking a step in a process that could lead to Congressional action. This was followed in March 2022 by an Executive Order from the Biden administration placing the “highest urgency” on exploring a US CBDC and asks for an interagency report on all aspects of the future of money in the next 180 days. The Executive Order also advances US participation in cross-border experimentation of wholesale CBDCs. The ECB is analyzing how financial intermediaries could provide front-end services that build on a digital euro. The analysis expected to completed by October 2023 followed by the development of integrated services as well as carry out testing and possible live experimentation of a digital euro in a phase that could take around three years. Extrapolating this timeline guidance from the ECB, it would be safe to assume that a digital Euro will not be available before 2028 at the very earliest. The ECB is likely to drive large scale adoption of the digital euro once adopted and likely to increase the proposed amount of digital euros in circulation to 1.5 trillion euros to control the negative effects on financial stability.

The Fed also sees commercial banks and nonbank financial companies acting as intermediaries. Banks would issue and manage the digital wallets that people would use for payments and deposits. The US is the furthest behind when it comes to developing CBDCs among the G7 economies, according to the Atlantic Council.

Central bank digital currencies like the digital dollar and the digital euro are expected to be used for payment settlement. CBDCs pose tough competition to cryptocurrencies used for cross-border payment settlements such as Ripple (XRP) and to a limited extent Bitcoin (BTC). The underlying technology for both the digital dollar and the digital euro is based on concepts in cryptography and distributed or decentralized solutions such as DLT.

Happy 13th Birthday, Bitcoin! How much longer will you live?

Bitcoin was launched with the creation of the genesis block on January 3rd, 2009 and turns 13 years old this January 2022. Despite multiple obituaries having been written by Central Banks and financiers, bitcoin has gone through a tumultuous childhood and has now entered its teen years. The top bitcoin holders control a greater share of the cryptocurrency than the most affluent American households control in dollars, according to a study by the National Bureau of Economic Research. The study showed that the top 10,000 bitcoin accounts hold 5 million bitcoins, an equivalent of approximately $232 billion. In the last 13 years, Bitcoin has either been used as a store of value, to facilitate millions of dollars of ransomware payments in 2021 or in multiple other criminal enterprise to the extend that the US Government regularly auctions off Bitcoins seized from criminals as reported by CNBC.

Nevertheless, bitcoin does seem set for a robust youth with supporters ranging from Jack Dorsey, who believe that Bitcoin has the potential to change the world, to Michael Saylor of Microstrategy, who keep increasing the number of bitcoins added to their portfolio. Over a 100 million users worldwide use Bitcoin or other cryptocurriences even though over $ 140 Billion worth of bitcoin is lost to people who have forgotten or misplaced their keys.
As bitcoin approaches adulthood by 2027, it is likely that it would have finally breathed it's last under the pressure of increased regulatory scrutiny, a destructive carbon footprint, and competition from other more environmentally friendly "cryptocurrencies" at a fraction of its value that scale better, process faster with far more complex transactions. But, the youthful bitcoin will not have died in vain. For it has lit a fire under central banks to start thinking about issuing digital versions of their own Central bank Digital Currencies setting off a revolution to provide a low-cost payment option that everyone has access to, thereby increasing financial inclusion and in the long term potentially financial stability.

Increased regulatory scrutiny of Fintech in Commodities Trading may impact Smart Contracts and Cryptocurrencies significantly

Back in October 2018, Brian Quintenz, the commissioner of CFTC, in a speech in Dubai, questioned the use of smart contracts in Commodities Futures Trading within the CFTC’s jurisdiction asking: "is the method by which it is being transacted on the blockchain compliant with CFTC regulations? If the contract is a swap, is it being offered to retail participants? Is it a product that must be traded on an exchange? Does the protocol itself perform exchange-like functions by facilitating trading, thereby potentially implicating registration requirements?". While the commissioner acknowledged that many smart contracts operate entirely outside of the CFTC’s jurisdiction, the open question was “if a smart contract is violative of CFTC regulation, then who is subject to an enforcement action?” The answer, implicitly holds the developers of the blockchain and the general users responsible, as they are typically unable to assess or police the legality of each application of the blockchain. In 2018, the CFTC had issued a primer on understanding smart contracts and their potential use cases.

Similarly, Congressional scrutiny of cryptocurrencies is increasing regulatory pressure on stablecoins and other cryptocurrencies and have the potential to destabilize the global monetary system In an interview with Bloomberg in August 2021, John Paulson predicted that “Cryptocurrencies, regardless of where they’re trading today, will eventually prove to be worthless. Once the exuberance wears off, or liquidity dries up, they will go to zero.”. The selloff in Bitcoin on January 5th, 2022 as the Fed and other central banks pare back on excess-liquidity measures and prime the markets for higher rates in 2022 points to a vindication of Mr. Paulson's pediction. Barron's highlighted the selloff as another sign that Bitcoin is acting more like a tech stock than an inflation-fighting store of value–or digital gold, as its proponents argue.