Life-compatible crypt: which cryptocurrencies will be relevant in 2019-2020

A lot of cryptocurrencies – more than 1500. And new ones constantly appear. According to VTsIOM, 74% of Russians are familiar with the word “bitcoin”. At the same time, only 2% of them acquired digital currency. Real use as a means of payment in comparison with fiatnymi currencies – a miser. What is the problem?

Let us examine three main problems of cryptocurrency: decentralization, confidentiality and controllability, and more precisely the possibility of reporting to regulators. And let's see which currencies have the characteristics necessary for use in the real world and, as a result, for long-term survival.

Decentralization

It is a little strange to discuss decentralization in the list of desirable qualities, since this is the cornerstone that underlies the idea of cryptocurrency . However, in the development process, the concept has undergone major changes.

In the original, a fully decentralized currency implies that everyone participates in ensuring the security of the system and receives a reward in proportion to the contribution. For this purpose, Bitcoin (BTC) and most serious cryptocurrencies use the Proof of Work system, which makes it impossible to change or forge a transaction history, preventing double spending of coins.

Yes, Proof of Work is a proven blockchain reliability system, but requires a large amount of electricity. In 2017, an average of 163 kW / h of energy was required to complete one transaction in the Bitcoin system. This is enough to fully meet the needs of a family of three living in a small one-story house for five days. Since the amount of resources required to calculate a complete block often exceeds the capabilities of a single person, miners are pooled and then divide profits in proportion to the resources expended. This leads to the fact that most networks are controlled by several large and influential pools. And this is nothing but centralization.

To determine the degree of decentralization of cryptocurrency, you need to look at the number of individuals who collectively control more than 50% of the resources that make the decision to create blocks. In English, this characteristic sounds like the number of entities in control of> 50% of the voting / mining power. The best from this point of view, the old currencies such as Litecoin and Bitcoin . Although even in Bitcoin there are only 4 large pools that together control more than 50% and theoretically they can agree and control the network, which means they can rewrite history, allowing double spending of coins.

There are alternative consensus schemes on the market. Some of them use “master nodes”, which make decisions about the formation of history. Others use schemes such as Proof of Stake , which determine the likelihood of a member creating a block depending on the number of coins he owns. Some solutions limit participation in the formation of blocks for a specific list of users (private blockchains). Unfortunately, all these decisions have a higher risk of collusion and corruption.

Confidentiality

In Bitcoin, as well as in other non-secure cryptocurrencies, information about participants and transactions is open and accessible to everyone. In theory, each user is hidden behind a pseudonymous unique address. It corresponds to a secret key, known only to a specific user and ensuring that only he has the ability to dispose of coins that correspond to this address. If desired, the user can even create any number of such pseudonymous addresses. And it seems that they have nothing to do with his personality ..

And what really. Alas, Bitcoin is not confidential and not even anonymous. Practice has shown that analyzing the network of transactions, it is quite simple to establish the identity of the owner. By sending a payment to an organization that has other data besides the address of the crypto wallet , for example, an online store that has your physical address, full name and telephone number, you disclose one of your addresses.

If you are not a miner , therefore, received these coins from someone else or transferred from another address. Tracing the entire chain and accumulating open information that is stored in the blockchain, over time, you can deanonymize an increasing number of addresses. Since information on the blockchain is by definition unchanged and stored forever, any identified person adds information and can be used to disclose others.

This is exactly what companies like Chainalysis, Elliptic, CipherTrace and others are doing. They constantly analyze blockchains and accumulate information about its users. Blockchain analytics supply this information to governments and other interested organizations, in particular banks and law enforcement agencies. But this information can be obtained not only by large companies and law enforcement agencies. Any programmer using free tools on the Internet can analyze the address and get information about the transactions of a particular user.

It is a mistake to believe that this does not apply to those whose activities do not go beyond the law. Who is ready to lay out in open access what, where, when and at what price buys or sells? Who is ready to provide access to an extract from your bank account? Both for the organization and for the common man this is strictly confidential information.

And only confidential cryptocurrencies solve this problem, they use methods that allow to avoid de-anonymization and do not store information about transactions in clear form. In this regard, ZCash , Monero , as well as coins of the new generation Beam and Grin will be relevant and in demand in the coming years.

Adjustability

There is no consensus yet on how to classify and regulate cryptocurrencies. In Japan, Bitcoin is considered “legal tender”, and in the United States “financial asset”. The most difficult issues that governments and international financial institutions face are related to taxation, the prevention of money laundering and the financing of terrorism. The first requires the completeness of information about a particular user, the second – information about the sources of funds.

Today, the regulation of cryptocurrency is carried out in two ways. Control central exchange points (exchanges) and control the movement of funds between users through companies such as Chainalisys. The lack of confidentiality in most cryptocurrency de facto allows you to track all transactions.

Of course, this scheme does not work with confidential cryptocurrencies. But what if there is no future without cryptocurrency? The cryptocurrency market needs a fundamentally different solution, a new technology that will allow owners of private cryptocurrencies to meet the requirements of regulators. Alternatively, the ability to close the transaction history is closed, access to which the user of a private cryptocurrency can provide to regulators by their own decision. And the first cryptocurrency that can do this, that is, to combine confidentiality and auditability, will be one of the most popular.

We mentioned such currencies as Bitcoin, Litecoin, Zcash, Monero, Beam, Grin. Does this mean that the rest of the coins will fall in price or leave the market? No, this will not happen in the coming years.

If we are talking about short-term investments and the desire to play a cryptoinvestor, you can safely invest in the top 20 coins by capitalization. Those who are looking for the potential of big growth and are ready to play for a while, should analyze innovative crypto-projects whose principles correspond to the needs of the real economy, and these are: fast transactions, confidentiality and the ability to report to the regulator, of course, at the request of the user.

Written by: Alexander Romanov, CTO Beam

Publication date 01/07/2019
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