Features that Bitcoin, Ethereum, Cardano and Solana offer us and how to actively participate
A sneak preview for the reader: we will talk about Bitcoin, Ethereum, Cardano and Solana.
In the field of cryptocurrencies mentioned above, there is a lot of talk about freedom, sovereignty and decentralization. The maximalists or sympathizers of each project attack with the items in favor and try to avoid the items against, generating much debate on the concepts on which I will elaborate.
Why do I claim that Bitcoin is the "purest" blockchain?
Bitcoin was created, according to its whitepaper, as an alternative to a flawed and corrupt economic/financial system, based on existing technologies but assembled and consolidated in such a way that the resulting puzzle generated a synergy far greater than the mere sum of its pieces.
That was just the beginning...
As we already know, its creator, Satoshi Nakamoto, faded away and the project continued to grow stronger with each attack to such a level that today its presence is global. Technical criticisms, improvements, problems, solutions and evolution arose. Beyond its performance as a currency, what this "new wheelachieved was to give rise to thousands of different projects, many still existing and many others disappeared. However, avoiding the technical, the following question arises: speculation?
See the gleam in a person's eye when they realize an asset has gone up sharply (for example 10,000% in less than a month), without being pejorative, denotes the level of ambition and the things they imagine, their ideals and so many other things inherent to each individual. And what about speculation? The first thing you know about bitcoin is the price, this is the most usual thing, but there are many others who are looking for a shelter against inflation and, after a lot of research, we find a variety of attractive projects to take refuge or invest capital.
Do our ideals correspond to our choices or do they "adapt"?
This is a difficult subject to digest for many people because, given the case, a person can adapt his ideals to different situations, such as the ideal of freedom or sovereignty without going very far. And these ideals, whose concepts are usually very subjective, do not correspond in most cases with people's actions. We could say that we lack coherence. “The main goal is to make money", I read in an article that talked about these issues, and I consider that in many cases this is correct, but not in all cases. We are going to leave this topic here but will return to it after we elaborate on the following.
I was saying before that the creator of Bitcoin (be it a person, group or any other entity) disappeared, and left the seed planted for what we know today to grow. After Bitcoin, Ethereum arises, with solutions for the problems that Bitcoin does not solve, and that it did not intend to do, and smart contracts are born. This new blockchain obviously incorporates complexity on a par with the solutions it offers. Later on, other projects such as Ripple, Cardano, Tron, Solana, and thousands more were born, each with its own mission in addition to offering solutions, benefits, advantages and supply policies, among other features.
Returning to the subject of one's ideals, I ask: should we be aware of our choices and be coherent with those ideals, or do we leave that coherence for when we have "enough capital" and the longed-for economic peace of mind?
I believe that in order to make a decision it is necessary to know what we are getting into, beyond what we can see of prices, know about trading, analyze market sentiment, inflation and other economic-financial issues. That is why I am going to list the main features and compare different projects so that our choice is based on, at least, what we know today.
Decentralization: it seems a simple concept but it is more complex than that. We could say that there are levels or degrees of decentralization, and these degrees of decentralization are finding their point of reference when analyzing each of these projects, I mean, thanks to these analyses, we could list or enunciate different degrees or levels to measure such decentralization.
Bitcoin, for example, has a high level of decentralization and it is also very easy and inexpensive to collaborate to increase this level. Without going any further, I have set up a Bitcoin node on a Raspberry Pi 2 B+ mini computer using only 5 volts (a cell phone charger), an external hard drive and, of course, patience and internet. Bitcoin Core, the main program or application of the Bitcoin network, can be downloaded in minutes and run on almost any computer with 500 GB of free hard drive space. Depending on the internet connection, we will have in about 8 to 30 hours a 100% functional node validating transactions on the Bitcoin network, in addition to the wallet itself where we can store bitcoin and make transactions. If we wanted to do the same with Ethereum we would need approximately $350 per month on an AWS server. For Cardano, the ADA network, with a medium-performance computer we could run a node with Daedalus and we would have a complete copy of the blockchain. With this we would verify our own operations, but not those of the main network because for this we must implement a block producer node and a relay node that connects to the network and processes transactions and, eventually, could produce a block and receive rewards (but we will leave this for later). For the Solana network we need a high-performance node, which costs around 6,000 dollars for the most basic one and 12,000 dollars for one with the recommended hardware.
It could be said then that the most "decentralizable" network is Bitcoin since with little cost and effort we would have a validator node collaborating in the network, giving it more strength and security.
Running a node is not enough, we need to talk about mining. Regarding this issue, in Bitcoin we need special hardware or ASIC, whose costs today, to be competitive in the network, exceed 10,000 dollars for each piece of hardware (Antminer S19). We could also relay on an old Antminer S9 at much lower cost and, obviously, with less efficiency. In Ethereum with about 5,000 dollars we could start mining profitably and, according to current prices, we could have a return on investment between 12 to 36 months. So far we are only talking about equipment but costs associated with power consumption, cooling, hardware maintenance and physical wear and tear must be taken into account. In addition, as networks grow, the hardware becomes less efficient in relation to the computational power it offers to compete with the rest of the miners. These mining equipment are necessary to validate transactions according to the PoW consensus method (proof of work), a method used by Bitcoin and Ethereum, however other projects offer more efficient methods in relation to energy consumption and computing power as we will see below.
Cardano, in turn, implements the PoS (proof of stake) method instead of PoW. The advantage is that it is cheaper in terms of electricity and hardware, so validating transactions is not as expensive as Bitcoin and Ethereum but it comes with other requirements. The first requirement is that there must be Stake Pool Operators, SPOs from now on. SPOs are those who basically represent their delegators. To make this clear: a person or entity (any wallet itself) can delegate their ADAs to any pool they wish, this will potentially generate a passive return to the delegator in the form of rewards in ADAs (and possibly some other network token), but this will depend on how many ADAs the pool as a whole has delegated.
And this is where the issue of Cardano, SPOs, and speculation needs to be finely tuned.
To implement a delegation pool in Cardano requires an investment of about $200 to $500 per month, maybe more, depending on how many "relays" nodes we want to make available to the network. Once the pool is active it is necessary to get delegators, i.e. wallets that delegate their ADAs to our pool, but two questions arise (in principle):
Why would anyone want to delegate to our pool?
How to attract delegators to our pool?
The first question concerns issues such as speculation and ideals. If as delegators we seek a pool with a mission that matches our ideals we could forego the rewards for delegating our ADAs (we would forgo a potential passive income of approximately 4.5% per year) and at the same time we would be supporting the mission or project that the pool represents. Now, if what we are looking for is to generate profits, then we will surely prefer a pool with many delegated ADAs to try to ensure this passive income (which is distributed every 5 days). The point is that when a pool generates rewards for its delegators, this pool receives a reward of 320 ADA every 5 days and, depending on the configuration of the pool, a percentage of the rewards of its delegators, a value between 0% and 100% (this percentage can be changed by the SPO without notice and is activated when a new cycle or epoch starts). A high percentage of rewards retention is very common in private pools or in pools that airdrop their own institutional tokens.
One detail to keep in mind is that if a pool is saturated (with more than 67 million delegated ADAs) then it will not generate as many rewards as a non-saturated pool, this is due to Cardano's network policies to discourage delegation to highly saturated pools and encourage decentralization. It is important, for these two reasons, to monitor the pool where we delegate from time to time, at least at each epoch change, a change whose frequency is 5 days. We will discuss the issue of saturated pools and pools with few delegated ADA (or low "staking"), a little more later.
The second question points to something more banal like marketing. This is where, as pool operators, we try to see what need we could satisfy for potential delegators interested in delegating to our pool and how we attract them, and this is where I see a controversy because, the better known the pool is, the more delegators it will attract and this will generate such revenue to be able to run more marketing campaigns to attract even more delegators. This incentive, free market, game theory and speculation stuff puts the network to the test in terms of ideology. Let's be clear, there are many people who have an interest in making money, and having the infrastructure and fame they can incorporate a second pool, attract more delegators and so on. So Cardano's decentralization, supposedly, runs risks to maintain its degree or level. But this is for a chapter that I will develop in the near future.
We move on to Solana, another network that relays on PoS but, to implement a node, apart from the heavy outlay involved, we will also need to give a guarantee, in SOL tokens, that the pool will compete honestly in the network. So, apart from the initial 6,000+ dollars we need for the Solana node, the pool operator must lock in 5,000 SOLs which, with a quote of around 100 USD, gives a value of 500,000 dollars locked in, leaving many potential operators out of competition. In addition the network charges operators for each epoch (this frequency varies between 2 and 3 days) 402 SOL, so if the operator does not get at least 50,000 SOL in staking he will be losing money day by day.
In short, not many of us have the possibility of collaborating and promoting decentralization in an organic, by which I mean avoiding investing in advertising campaigns and focusing more on classic dissemination through social networks and "mouth to ear"), a little more later.
Do not trust, verify
Another issue to address is the source code of each network. Bitcoin is open source. This means that anyone can download the recipe of how the network is built, evaluate it, get to know it thoroughly, find possible vulnerabilities, propose patches and improvements, and even build their own network and cryptocurrency based on this code. If an improvement proposal is accepted by the maintainers of the source code, it is implemented and the software is updated but this does not mean that the entire network automatically implements such improvements or updates.
What does this imply?
Let's assume Bitcoin has 100,000 active nodes, all with Bitcoin Core software version 0.22, and the new version 0.23 incorporates certain changes but not all nodes operators agree with this update. Let's imagine that only 25%, or 25,000 nodes, accept these changes, so those nodes download and implement the update. If that update would not be compatible with version 0.22 then the network would be forked between those who prefer version 0.22 with its rules and those who have version 0.23 installed. Something similar happened a few years ago and thus Bitcoin Cash, a fork of Bitcoin, was born. That is the power of decentralization, if we do not all agree with the same rules we do not belong to the same network, so then we belong to Bitcoin or to Bitcoin Cash, following this example.
Ethereum, Cardano and Solana are also open source, but the complexity of the source code is proportionally related to the performance of each network, so they are more difficult to maintain and modify. Nodes will be more difficult to upgrade and will take longer to do so, perhaps even requiring specialized personnel in technology areas, support areas, test environments and, therefore, a larger infrastructure.
The last question to analyze is about the trust generated in people by the "visible face" of each project. We already accept that Satoshi Nakamoto no longer exists and perhaps the mystery of his identity will never be revealed, hence the ideal of purity of this network. In Ethereum we see Vitalik Buterin, in Cardano Charles Hoskinson and in Solana two people: Anatoly Yakovenko and Raj GokalWhat would happen if any of these people dies, is arrested, commits fraud or faces any other situation that affects his reputation positively or negatively? We don't know, we would guess that it would cause the price of the network token in question to fluctuate drastically. As I was saying earlier: it relays on trust. The market would perhaps bypass the person and focus on the project. Maybe it's the other way around. We all know who Elon Musk is but few know his work in depth and no one can predict the behavior of a particular individual.
What can we do then?
Choose the network, token, cryptocurrency, project or ideology that suits us according to our interests and ideals, thinking ahead but living the day. If we can or want to participate, there are hundreds of projects to analyze, new technologies and concepts (DeFi, Web3.0, Metaverse, NFTs for example), many of which are within reach of our economic and/or technical possibilities.
Bitcoin gives us the possibility to have a validator node at low cost. The profitability analysis of its mining is a separate issue. In simple terms it could be as profitable as it is risky. Its security is very strong, it is the first successful project of its kind and has very high potential. Due to the characteristics of its network, it is more comfortable as a store of value than as a currency for everyday use, hence its nickname "digital gold". Bitcoin has the largest market capitalization and is, in general, the trend-setter in the overall cryptocurrency market. So much so that this world is divided into two: bitcoin and the rest, the so-called altcoins (or alternative currencies).
Ethereum was the first to provide smart contractscapability, an efficient network in terms of speed with the trade-off of higher fees for each transaction or smart contract execution. Controversial issues are pre-mining, full supply, the new token burning policy and the postponed launch of ETH 2.0. Mining is perhaps more profitable than risky but it also depends on the capabilities of the network and the token price. Ethereum today is second in terms of market capitalization.
Cardano offers, as of today, smart contracts, low energy consumption and accessibility for our own validator nodes. Being PoS based, the feasibility to collaborate with this network by implementing Block Producer nodes is within the reach of many people, considering the conditions, costs and risks involved as detailed above. Its scalability promises be extremely high with the future implementation of Hydra and, in this network, transaction fees are extremely low. Cardano is currently the sixth largest in terms of market capitalization..
Solana has transaction parallelization, which gives it the ability to process around 500,000 transactions per second. It also has smart contracts and, in terms of network efficiency, we must point out that Solana suffered total blackouts but this has not lowered it from the podium of the 10 networks with the highest market capitalization, in this ranking Solana is currently seventh.
There is a great diversity of projects such as Ripple, Polkadot, Polygon, Avalanche, Terra and so many others that the choice is becoming increasingly difficult. The best thing about this new technological universe is that we can try and use whatever we want until we find what pleases us. There are many red pills and only one blue pill, and how deep we go is up to us..
This post was translated from the original published on Cointelegraph en Español: https://es.cointelegraph.com/news/main-blockchains-decentralization-control-power-democracy-energy-cost-and-other-factors