Bitcoin was born out of the ideals of the cypherpunks, a group of early cryptographers with a shared vision that got together to explore what privacy could mean in the then-upcoming digital world – especially as it relates to money.
The cypherpunk movement was spun out, for the most part, of the work of Dr. David Chaum, a cryptography pioneer that brought the mathematical technology out of the hands of government bureaucrats and into the realm of public knowledge. His explorations of him kick-started an entire line of work, dedicated to finding how society could port peer-to-peer money – cash – to a digitized economy.
With a clear goal in mind, those mathematicians began crafting what a solution could look like through research and experimentation. Decades later, Satoshi Nakamoto would put it all together and add their own spin to arrive at Bitcoin, the first and only decentralized and trustless form of digital money.
As Bitcoin grew in popularity, alternative forms of what came to be known as a cryptocurrency – a currency that exists in the digital realm through the usage of cryptography – started to be created. While those coins were initially born to compete with Bitcoin, a whole new slew of projects later began to emerge with different value propositions while putting their own spin to the blockchain, consensus and cryptography that made Bitcoin work.
Nakamoto designed the Bitcoin protocol to leverage PoW, a consensus mechanism that relies on computing power and free competition to mint new BTC on Bitcoin’s blockchain. The bitcoin mining race, as it is known, comprises thousands of miners scattered around the world with a single objective – find the next valid block and receive bitcoin as reward.
The altcoins, however, have mostly drifted away from PoW in favor of other novel consensus mechanisms. The most popular alternative, PoS, allows participants to lock their holdings of the given project’s native token to become block creators instead of letting them compete with mining hardware and electricity to mine new coins.
While PoW brings real-world costs to miners, costs in PoS are merely digital and represent the amount of money spent to buy those coins being staked. The assumption with PoS is that staking those coins ensures miners have skin in the game and are hence encouraged to behave honestly, but there is no evidence that such commitment is enough of an incentive. Moreover, in cases where a strong devaluation happens as with LUNA, the network risks being hit with a governance attack and may find itself having to take totalitarian actions like halting block production of what was supposed to be a permissionless and unstoppable decentralized network.
The PoW-PoS dynamic is important also because it highlights the experimental nature of altcoins.
Instead of copycatting Bitcoin’s model – a strategy that has been proven unsuccessful time and again – new altcoin projects attempt to “innovate” by copying some parts of Bitcoin’s design and changing up others.
As a result, projects being launched today drift away from most of the ideals underpinning the cypherpunk movement that started decades ago. Such projects call themselves decentralized but for the most part they have a founding team that hardly ever drops its controlling position and can steer every decision that happens on the network.
With such a strong desire to innovate, “crypto” projects for the most part end up creating artificial problems that don’t exist so they can invent a novel solution.
Dr. Chaum and the cypherpunks spotted a clear problem in society: How will we have money in the digital age that cannot be spent twice without a centralized authority track keeping of balances? It took decades of research for many specialized scientists and mathematicians of different backgrounds to ultimately culminate in an elegant solution to this problem.
Today, however, cryptocurrency teams take but a couple of years from idea generation to a minimum viable product, not enjoying an organic growth in favor of huge amounts of capital that disproportionately favors insiders at the expense of the regular user.
