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.

Commodities Lectures Series - Commodity Trading Companies vs Investment Banks and hedge funds vs - a new competitor - Commodity Producers

Without price transparency in physical commodities markets with clear and accessible reference commodities prices, physical commodities traders are in a powerful position to profit as they have a virtual information monopoly. Commodities Trading Companies such as Vitol, Trafigura, Glencore, Gunvor, Louis Dreyfus among others trade physical commodities taking advantage of this price opacity, investing in the physical and human capital necessary to transform commodities while simultaneously hedging their physical trades through financial (paper) trading on exchanges thus taking positions in the futures markets and the physical markets. Commodity trading firms do not tend to speculate on the outright direction of commodity prices, but instead aim to profit on the differential between the untransformed and transformed commodity specializing in (1) the production and analysis of information, buyers and sellers active in the market, supply and demand patterns, price structures (over space, time, and form), transformation technologies, and (2) the utilization of this information to optimize transformations in terms of space, time and form. Commodities trading firms attempt to identify the most valuable of these transformations, undertake the transactions necessary to make these transformations and engage in the physical and operational actions necessary to carry them out.

On top of physical trading, Commodity Trading Companies possess prop paper-trading desks. Using market intelligence coming from physical trading desks and ‘classic’ paper trading skills, these companies make profits on swaps, options and futures. They also use these paper trading books to hedge their physical exposure, which subsequently reduce their risk.These companies develop their own strategies and models - quantitative, computer-algorithm-driven or macro-driven similar to the models used in banks or hedge funds for derivatives pricing and market forecasting. They invest in physical commodities fundamental research to get an edge over their competitors and figure out where the market is going. They have on-site associates at origin and destination (offices in exporting and importing countries) to get a flavor of the local market as well as strong middle and back office for physical trading operations. They are highly skilled at managing their risks and know how to create sustainable and win-win relationships with potential buyers and sellers. Due to rising competition and change in business trends, these companies do invest at the source in mines, Exploration and Production (oil), and also transportation infrastructure such as ports. Vitol/Trafigura physically send ships to collect the cargo from the sellers, the miners and the refineries. Some like Glencore own mines (after buying Xstrata). Glencore is now a mining and trading company besides being a Commodities Trading Company. Trafigura is trading with no mining operations. It buys ore, concentrates or even refined outputs, ships them to the buyers. Trafigura model helps even for smaller operations.

Hedge funds on the other hand rarely trade physical form of commodities or take delivery concentrating only on financial or paper trading. Macro-focused hedge funds seek a hedge against an economic slowdown priced in by the market. Unlike many of their equity fund peers, commodities macro managers of the likes of George Soros and Louis Baconare are not dependent on rising markets for their gains. Rather, they look for volatility in commodities markets through 'Asset backed Trading' - a style of commodity trading which is used to seek and exploit market volatility in order to optimise the operational assets, inventory and future produce owned by trading entities. This is their core activity. However more sophisticated funds would also get into taking proprietary positions, market making and offer structured products to their clients. Hedge funds and Investment banks are beginning to exit the financial trading of commodities making daily price swings far greater than in previous years.

Financial trading is becoming an ever more important part of Commodities producers such as International Oil Majors Shell, BP, Total driven by fears that global oil demand could drop in the next few years as climate change concerns reshape society’s—and investors’—attitudes toward fossil fuel producers. The immense scale of the commodities producers' trading units gives them outsize clout. They have massive trading floors that mirror those of Wall Street’s biggest banks. Being a commodities producer gives an inherently bigger advantage with more reliable market information in trading strategy than commodities traders suchas Vitol/Trafigura. This is also the reason why in recent years, Vitol has started looking for refining and storage assets worldwide to control a bigger chunk of the supply chain. BP controls exploration and production as well, so BP obviously has advantage over oil traders who are unable to control costs associated with these projects and an oil company like BP will make more money when the production cost remains stable while prices rise. The problem for a crude oil trader like Vitol is to anticipate the price rise and buy oil from producers at sufficiently lower price to make a profit. Sometimes, the trading strategy for Vitol is so complex that the wafer thin margins made through a trade are actually made through minimizing on transportation costs of the oil instead of the oil price itself. On one occasion in 2016, for example, Shell bought roughly 70% of the cargoes of North Sea crude available for a particular month, triggering wild price gyrations while squeezing out commodities traders who privately complained to Shell. Commodities producers are also moving into the space formerly occupied by the commodities desks of Investment Banks. Shell, for example, in 2016 became the first nonbank to help the Mexican government hedge its exposure to the price of oil. BP's customers now include banks, hedge funds and private equity firms. Exxon is also hiring experienced oil traders to start making bets with the company’s money.