The crypto space has grown rather large when compared to what it looked like several years ago. Websites such as TradingView and CoinMarketCap allow traders and investors to see the list of all the coins that are still operational, and still considered ‘live.' According to these websites, there are currently over 2,100 altcoins on the market, waiting to be bought, sold, traded, or kept in a safe environment for future usage.
However, one big issue emerged after the US regulators started noticing the crypto trend, and that involves the SEC's claims that most cryptocurrencies are not cryptocurrencies at all. While the SEC claims that cryptos are actually securities, the question “What is crypto?” inspired others in the community to take a different approach to the problem.
What Makes Cryptocurrency — Cryptocurrency?
The first thing to consider is what defines a cryptocurrency? After all, what makes them different from currencies used in online games? Well, other than the fact that there is a huge lack of information regarding in-game currencies, there is also the problem of them being centralized, and owned by the company that owns the game.
Real cryptos, on the other hand, are decentralized, which is the entire purpose of their existence. Bitcoin, for example, has proven to be not only decentralized but also censorship-resistant. It managed to succeed in areas where other similar projects failed, like in finding a solution to double-spending, inflation, and alike. This is why Bitcoin is unique, and why it must be preserved.
But, what about other supposed cryptocurrencies? Are they more like Bitcoin, or more like fake money used in online games?
To understand that, we first need to understand what makes Bitcoin unique. For example, the project uses PoW to determine who will add the next block to its blockchain's ledger. This has allowed Bitcoin to be the first project to put the history of transactions in order without depending on a third party.
Other projects, such as E-gold and Liberty Reserve, attempted to provide their own versions of cryptocurrencies, but they were eventually shut down due to their vulnerability to hacking attacks. Bitcoin, on the other hand, proved to be a lot more resistant, with its network working similarly to BitTorrent's file-sharing protocol.
In other words, no one controls Bitcoin, and no single entity is issuing it. This is why Bitcoin is often called digital gold, as gold cannot be produced to meet increased demands.
Top Altcoins Are Not Like Bitcoin
As we have seen, one of Bitcoin's key breakthroughs was its ability for potentially-anonymous network participants to order transactions and prevent issues such as double-spending. With that in mind, it would make sense for all the cryptos that followed to use this as a base for their own further development. However, this was not the case. In fact, even some of the largest coins by market cap, which sit right below BTC itself on CoinMarketCap, do not meet these basic requirements.
Let's take XRP and Stellar (XLM) as an example. These are two projects that are quite far away from the example Bitcoin has set. They both run on systems that need an entity or a group to be chosen by the users. This group or entity would then be in charge of preventing problems, such as the earlier mentioned double-spending and alike. Furthermore, these entities are also not allowed to be anonymous in order to prevent the possibility of Sybil attacks.
As a result, both XRP and Stellar have the lists of their validators published for the public to see. The lists change, of course, as validators leave and new ones take their place. However, there is a clear lack of anonymity which would protect the network in case of a government crackdown. Furthermore, the level of the two projects' censorship resistance is also questionable.
Moves against cryptocurrencies were already made in the past. For example, back in 2011, when the US senators demanded a crackdown on Silk Road, they did not spare Bitcoin, and they wanted it gone as well, simply due to its connection to Silk Road. Luckily, they could not do much to damage it, but if something like that were to happen to XRP and XLM, the government would know exactly who to target in order to disrupt the networks.
As for their censorship resistance, this may remain true only until regulators gain a proper understanding of the technology. In other words, it may be subjected to change in the future, while Bitcoin's will remain constant.
Then, there are projects such as EOS, which have left the PoW model and replaced it with PoS. While this model is more energy-efficient, it is considered to be too centralized for the coins using it to be real cryptocurrencies. These three networks are also known for being more expensive when it comes to operating a node on them.
A similar problem was witnessed last year when Steemit — a platform fueled by the cryptocurrency Steem (STEEM) — announced that it would have to reduce its workforce due to the growing cost of operating full nodes.
And, not to forget about stablecoins such as Tether (USDT), which also faces similar issues, as it needs a trusted entity that would hold real-world assets of value, such as fiat currencies, gold, or something else that can give coins their value. While there are exceptions, even among stablecoins, the truth is that most cryptocurrencies do not follow the definition set in place by Bitcoin, which is why the question whether these are really cryptocurrencies, if they are so different from the first coin — the one that established the name ‘cryptocurrency‘ in the first place.