With the Bitcoin halving just weeks away, and …
With the global monetary system potentially facing an existential crisis …
Here’s where each stands today …
Rated “A” for Adoption and Technology, “B+” overall
Long-term Portfolio Allocation: 25%
A decade ago, Bitcoin created a decentralized monetary system and declared independence from any institution, both public and private.
Now fast forward 11 years; what do you see?
First, you see Bitcoin functioning as a fully digital payment system owned and controlled by absolutely no one.
Second, you see how that unique feature has propelled Bitcoin’s growth from zero to a worldwide asset currently worth approximately $121 billion.
Third, you see that new challenges have emerged … new blockchain technologies have been created to address them … never-before-imagined possibilities have burst onto the scene … and the crypto-asset industry that Bitcoin launched has moved far beyond the simple peer-to-peer payments it once aimed to revolutionize.
Nevertheless, you also see a world where Bitcoin continues to set the standard against which all other cryptos are measured. It continues to be a pivotal portal into the world of cryptocurrencies. And it’s far and away the most well-known.
Separation of Money and State
Ironically, many outside the crypto world have failed to fully grasp what makes Bitcoin unique. They seem to think that the only difference between Bitcoin and traditional currencies, such as the U.S. dollar or pounds, is that its digital.
Not true! In fact, approximately 91.7% of the world’s money also exists in digital form.
What truly makes Bitcoin unique is that, unlike traditional currencies, no government or central bank issues the money or controls its supply in any way.
No asset, whether digital or not, has ever performed that function in that way — with one possible exception: Gold.
But in modern times, that function for gold has been little more than a dream held by a minority — never a reality experienced by a majority.
Advocates of the Austrian School of Economics, libertarians like Ron Paul, now-forgotten organizations like the National Committee for Monetary Reform and many others pressed for a gold standard and a monetary system that never deviates from it.
But their proposals have fallen mostly on deaf ears. And today, monetary authorities have taken the world farther afield from a disciplined, gold-based system than ever before.
The concept of the gold standard was that, in a gold-based monetary system, the only way governments could create more money would be mining more gold and locking it away in an untouchable reserve.
They could never have pursued “quantitative easing.”
They could never have done what U.S. Fed Chairman Powell is doing today — buying bonds and printing money in UNLIMITED amounts, even as much as $4 trillion.
In theory the gold standard advocates were right …
A gold standard might have been a mechanism for effective money-and-state separation, much as it had been for thousands of years. But in practice, their theories were not executable thanks largely to a seismic change that has pervaded modern financial systems: Physical money became digital.
It lost its neutrality. And it became inseparable from central government control.
Result: Today, with a monetary system that's 91% digital, it’s almost impossible for money to remain a truly neutral asset. It’s too easily used as a tool for economic control, financial bailouts or geopolitical hegemony. It is continually used and abused by governments in their routine, or not-so-routine, exercise of power.
Unfortunately, the end result is that government-backed (“fiat”) money has begun to lose the very qualities that make money useful:
Government-backed money has lost its neutrality: If a government doesn't like what you do with your money, you could effectively be financially ostracized … cut off from using or even owning it.
Government-backed money is not borderless: Especially in today’s global economy, money needs to move freely across all jurisdictions. But government-controlled money is frequently used to undermine and defeat this quality.
Countries often impose currency controls, preventing all but the privileged few from sending their assets abroad. Others confiscate the assets of citizens and corporations. And even the community of advanced nations is not averse to weaponizing the global financial system they control; they use it punish wayward regimes with powerful sanctions.
Governments fail to limit the supply of money: A big factor that makes money valuable is its scarcity. But government-backed money has no intrinsic supply cap, not even a movable one. And with each passing year, the era when money-supply metrics (such as M1, M2 or M3) were a decision-making factor at Fed meetings fades further into history. Nearly everywhere, supplies are expanding without limitation … and with still-untold consequences.
Bitcoin was created to overcome all of these deficiencies. Moreover, it was created as an answer to a global debt crisis.
Consider this memorable remark written into the very first block of the Bitcoin blockchain: “The Times 03/Jan/2009 — Chancellor on brink of second bailout for banks.”
This phrase may sound a bit mysterious to you. But it’s quoting a headline in The Times of London about the British Chancellor of the Exchequer, ready to again bail out the banks, while ultimately threatening the future of traditional money.
To us, it’s a not-so-subtle message in a bottle, left behind by the creator of Bitcoin. He’s warning us of the inherent instability of our financial system. And he’s telling us that Bitcoin, or something like it, is urgently needed to restore sanity.
Rated “A” for Adoption and Technology, “B+” overall
Long-term Portfolio Allocation: 11%
While Bitcoin was the world's first public blockchain, Ethereum was the first major improvement.
It was the world's first blockchain platform that allowed others to build “smart contracts.”
In other words, Ethereum allowed developers to create virtually any application using the same technology that made Bitcoin so successful.
Thus, Ethereum is viewed as the world's first globally distributed public computer.
Ethereum proved its impact in this respect by reigniting a wildfire of enthusiasm for all things crypto in the heart of the 2015 crypto bear market.
From there, cryptocurrency prices blasted up to the speculative bubble heights of 2017. That epic surge was largely fueled by initial coin offerings (ICOs) that Ethereum made possible.
And now, we see significant progress has been made toward what’s being widely billed as …
This is a big deal.
Why? Because as I said, Ethereum is far and away the world’s most popular smart-contract platform. It’s where folks all over the world are scrambling to build the virtual economy of the future.
It’s so popular, in fact, that the network is routinely overloaded. Transaction times can sometimes become agonizingly slow. Transaction fees can often be exorbitantly expensive.
This is not a new problem. Demand for transactions on the Ethereum network first exceeded capacity back in 2017 — during the heyday of the last crypto bull market.
Then, starting in 2018, when all crypto prices fell out of bed, demand for services on most other smart-contract networks faded.
Not so on the Ethereum network! The number of smart-contract applications (dApps) built on Ethereum kept multiplying and continue to do so today.
Result: The Ethereum network congestion persisted. It has become a chronic ailment.
But, provided it can be fixed, that’s a good problem to have, right?
Chronic congestion on the Ethereum network signals vast and growing worldwide adoption, arguably the single most important factor in the long-term success of any cryptocurrency.
Developers and sponsors of other, competing cryptocurrencies often wish they could have the same “disease.”
But Ethereum users can only put up with annoying network congestion for so long … before they start looking for alternatives. So, this disparity between popularity and practicality could not last forever. Ergo the pressing need for an upgrade.
This is also the reason why Ethereum 2.0 is such a big deal. It's designed to fix the only major problem Ethereum currently has.
Ethereum founder Vitalik Buterin says that when Version 2.0 is fully implemented, the time required to confirm a transaction will drop from minutes to a meager three to six seconds — about as long as it takes to swipe a credit card.
Two major overhauls in the Ethereum code will make this possible …
Ethereum Overhaul 1. Sharding
A blockchain is a database. And as the name implies, the databased is made up of a chain of blocks.
Each block records a batch of transactions.
And each block is linked to the next block in the chain in chronological order.
The problem: If there’s just one single blockchain on which ALL transactions must be recorded, it can create a massive traffic jam.
Imagine a single-lane superhighway with new traffic trying to ramp in from all sides. One obvious way of solving the problem: Build more lanes.
The same applies to blockchain. A single chain naturally creates a hard upper limit to how much new information can be processed in a given interval of time. And when traffic is heavy, it creates big bottlenecks.
So, one solution to making the processing faster, is to run a bunch of parallel blockchains at the same time. Each processes its own sets of transactions. And each one shares that work across the group.
Ethereum Overhaul 2. Proof of Stake
One of the key reasons Ethereum has not been able to scale up to meet booming demand was that it essentially copied Bitcoin's Proof-of-Work approach.
With Proof of Work, “miners” compete to solve a complex cryptographic puzzle. Then the winner gets to write a new block of transactions to the blockchain and claim the reward for doing so. This mining requires faster and faster computers, consumes massive amounts of electricity and … takes TIME!
But in Version 2.0, Ethereum switches from the laborious and sluggish Proof-of-Work method to a much faster and efficient Proof-of-Stake approach.
It’s kind of like a lottery system.
If you’re participating on Ethereum 2.0, each token you hold (ETH) resembles a lottery ticket. The more tokens you have, the better your chances of being chosen to write a new block to the blockchain and claim the reward.
Transitioning to Ethereum 2.0
All very exciting. But don’t expect instant gratification.
Upgrading a public open blockchain — especially one as popular as Ethereum — is an epic undertaking, akin to overhauling motorcycle engines while careening down the highway.
Now, however …
Ethereum developers have finally revealed their roadmap to Version 2.0, and it’s remarkably elegant in its simplicity.
The main idea: The existing Ethereum network won’t actually be “upgraded” at all. Instead, Ethereum 1.0 will continue as before. And developers will release the first iteration of Version 2.0 right alongside it. None of the current Ethereum users will get a black eye if they decide not to switch.
Over time, the two Ethereum overhauls will go live. And as subsequent iterations of Version 2.0 are released, other cool stuff will be introduced, which we don’t have the space to cover here.
Bottom line: We have already upgraded Ethereum's Technology grade once. And as we get more clarity on how all this will play out, further upgrades are very possible.
Rated “B+” for Adoption and Technology, “B-” overall
Long-term Portfolio Allocation: 8%
Cardano is one of the most complex of all the cryptos we rate. Like other third-generation cryptos, Cardano aspires to be a new and improved version of Ethereum. But instead of relying on Proof of Work, it uses a variant of Proof of Stake called “Ouroboros.”
But what most sets it apart from the crowd is the way developers are going about building it out.
They avoid majestic pronouncements and hype.
They submit serious papers at international cryptographic conferences and get them peer-reviewed.
They upload detailed videos on how each new feature is to be implemented, clearly disclosing any challenges.
They provide an ETA for actual deployment on the live network, and only then do they add the feature to ADA's comprehensive roadmap.
All in great detail.
Obsession with Crypto Quality
The reason the Cardano folks insist on building out their platform so slowly and methodically is simple: They place top value on getting stuff right the first time.
Compare that to teams that are hell bent on rushing new features to market ... sitting back … and waiting to see what breaks down under the stress of real-world usage.
The latter may be a tolerable strategy for software confined to non-mission-critical applications like gaming. So, video games go dark for a few hours in the midst of a system crash, right? No major damage.
But that's hardly true for the serious use-cases to which Cardano aspires to provide: Critical infrastructure to the global financial system.
When other people's money is at stake, “maybe good enough” is very bad. Needless to say, a system crash half-way through multi-billion-dollar transactions would be absolutely unacceptable.
Building Fail-safe Systems Takes Time
Especially with cutting-edge technology like blockchain, you have to expect the unexpected — technical glitches that no one ever thought about before hand. That's why Cardano insists every piece of work must pass muster at multiple stages of review. If there’s a single failure anywhere along the line, developers might have to start all over again. From scratch.
That said, Cardano developers are often disarmingly open and transparent about what they’re struggling with. To get a sense of how meticulous they are, consider for example …
- The detailed Cardano roadmap, or …
- The long sessions on founder Charles Hoskinson’s YouTube channel
- This video from the early stages of the project, when Hoskinson explained what they wanted to build and why, not to mention …
- Their solid documentation.
A Magnet for Genius
Virtually everything about Cardano is of much higher quality than most other cryptocurrencies. These famously high standards, in turn, attract top-level mathematicians, engineers and computer scientists. For them, it's a chance to work side by side with the best of the best.
Of course, it’s not the only crypto that boasts bright people. But no other crypto we know of comes close to marshalling the same level of brain power as Cardano. And this is reflected in one of the highest Technology scores of all the cryptos we rate.
In many ways, Cardano is setting new standards for what distributed ledger technology should look like.
Weiss Ratings does not accept any form of compensation from creators, issuers or sponsors of cryptocurrencies. Nor are the Weiss Cryptocurrency Ratings intended to endorse or promote an investment in any specific cryptocurrency. Cryptocurrencies carry a high degree of risk. The SEC, CFTC and other regulators have expressed concerns with the volatility of the market and the actions of sponsors of specific cryptocurrencies. Be sure to review their official consumer alerts such as the public statement on cryptocurrencies by the SEC.