The official symbol of the Monero project.

The time when cryptocurrencies were simply referred to as “Bitcoin” is quickly becoming a relic of the past. Even in conversations with the layman, talk of Bitcoin or cryptocurrency are now met with immediate mentions of Ethereum, Litecoin, and other altcoins. The period when Bitcoin was symbolic of decentralization, privacy, and rapid transactions has passed and with every advancing month disagreement grows over what Bitcoin should be, including debate over what its creator originally envisioned and the relevance of that vision to the future course of the project.

The dwindling Bitcoin market share

The last few years have seen an explosion in the number of available altcoins, including tokens built upon cryptocurrency platforms, and with that booming number of options comes a critical new feature to the cryptocurrency space: choice. With choice, however, comes the responsibility of choosing which currencies to use, buy, sell, and hold. Although newcomers may be tempted to simply look at prices, market cap, and graphs, users should now be asking themselves what distinguishes each coin from its peers?

What makes this task exponentially more difficult is that the list of a coin’s features can often be a moving target: any serious immutability Ethereum could have touted became weaker after the DAO fork, Bitcoin’s strength of low transaction fees, at least in comparison to traditional payment systems, and once-reasonable transaction times have instead become liabilities, and even Litecoin’s initial claim to quick confirmation times and low fees no longer seem so special with the rise of Ethereum and zCash, among others.

So, with a rapidly-changing industry and too many options to be fully knowledgeable about… how does one choose which coin’s ecosystem to participate in? There is a simple answer: the project’s values and niche.

Although Bitcoin’s early community may have emphasized anonymity and decentralization, the burden that comes with being the first popular cryptocurrency has almost necessitated a gradual migration toward legitimacy, with trade-offs being made to help mass adoption. In short, the values embodied by Bitcoin and its community are becoming increasingly vague. To compound the issue, the scaling debate has made future changes to its the codebase uncertain and timelines very much dependent upon internal politics: instead of a clear vision for Bitcoin there is a now a fractured one.

What values does Bitcoin represent and what is its niche at this point? There no longer appears to be a clear answer.

Our second example is Ethereum: a platform with its own currency, Ether, touted as a “programmable blockchain”. Although Bitcoin has the potential for many of Ethereum’s basic programmable features it was not the priority and for this reason Vitalik Buterin created his own project with a focus on decentralized applications. The Ethereum Foundation’s mission statement, although brief, offers a more focused vision than anything the Bitcoin community has declared since Satoshi’s white paper. With Ethereum’s Metropolis phase currently under development it is doubtful that any other project catches up to it anytime soon with regards to raw potential and extensibility.

Ethereum founder Vitalik Buterin (picture c/o Ethereum.org)

Bleeding edge technology has historically been a sector for high profit margins but also high risk. The DAO attack was a sharp reminder that new features and code, if not thoroughly tested, can be disastrous and in a sector where large sums of money are involved there will always be attacks on the Ethereum network and its applications. Is this an indictment of Ethereum? No, and possibly the contrary, as the community has already learned some hard lessons about risk code quality that will forever be branded in the back of their minds.

The DAO fork and the Ethereum community’s welcoming of traditional bank involvement may give immutability advocates and users looking to escape the current banking system pause, but the neither of those have been promoted much as features of the platform (at least not in a long time). If you are most interested in programmable money and smart contracts, or even a currency with large adoption, then Ethereum may currently be the crypto for you.

Which brings be to the third example, mentioned in the title of this article: Monero.

Initially forked from the Bytecoin project and named Cryptonote v 2.0, Monero’s white paper author “Nicolas van Saberhagen” (likely an anonymous pseudonym similar to Satoshi Nakamoto) proposed the fork to Bitcoin’s protocol at a time when murmurs of Bitcoin’s linkability flaws were being confirmed by reports of government agencies using network analysis to catch Bitcoin users engaging in illicit activity. A flaw had been identified in Bitcoin’s armor and the lack of emphasis on fixing this flaw sent a clear message to the public that while privacy was one of Bitcoin’s features… it was certainly not its priority.

CryptoNote v 2.0 white paper, precursor to Monero

The constant balancing between user demand for privacy and regulatory legitimacy in the crypto space has always been a tense one, which is why Monero’s de-facto spokesman Riccardo Spagni’s (aka @FluffyPony) forthrightness about the project’s intentions to offer a tool capable of subverting government regulation and taxation is likely to divide the cryptocurrency community’s opinions. But that’s just it: by focusing on a niche, the Monero community can put its resources toward that specialty while other projects engage in the fool’s errand of trying to be too many things at once. As the saying goes: a jack of all trades is a master of none.

Imagine you want to accomplish a task, likely a financial one, and the long list of available cryptocurrencies is your toolbelt. For every step in the task there will be a specific tool that is best for that step. If you were building a house and needed to hammer a nail you wouldn’t use a rubber mallet nor a screwdriver… you would use the hammer. If the next step is to apply paint then you use a paintbrush, and the paintbrush and hammer are typically separate tools. With cryptocurrency, for private transactions you would use a privacy-focused currency, and to get in and out of fiat you would use a bank-accepted currency like Bitcoin. As long as there is high demand for privacy in the cryptocurrency world then the coins with the best privacy features will be in demand.

Monero already has several privacy features enabled which make it more attractive to privacy advocates. For example, the balance of public addresses are not viewable, by default, to any users unless given a view key by the owner of said address. Additionally, the protocol generates new stealth addresses and de-links them from the recipient’s wallet address, again by default, making it more difficult to link one’s identity to their transactions. While similar features may be available or in-development on other projects, very rarely are they enabled by default or made the focus of the development teams.

Example of random Ethereum address’s balance being visible via Etherescan.io

Although Monero appears to be the coin most tightly related to privacy, those privacy features have recently been called into question by prominent individuals from competing projects. Monero advocates may get defensive at such claims but frequent audits should be encouraged rather than silenced. The past half-year specifically has seen Monero’s developers respond professionally to flaws in the Monero protocol. In a niche like security, which is known to follow a Red Queen pattern, the reactivity and proactivity of its community are more critical to the currency’s long-term health than the presence of protocol shortcomings at any given moment.

Targeting users looking to escape the long arm of the government is undoubtedly a risky strategy, but it is also a lucrative one. Many cryptocurrency users initially became aware of Bitcoin because of its use in the black and gray market. Although current estimates differ, most experts put the aggregate GDP of the global black market in the $1-15 Trillion range, on the order of magnitude of the national economy of the United States ($14 Trillion) and several orders of magnitude greater than the current crypto space. Granted the very nature of the black market has historically been done through cash, but with recent government efforts to phase out cash and move toward electronic-based financial systems… there is a good possibility that one or more cryptocurrencies will be able to position themselves to capture a significant portion of this market.

Screenshot from AlphaBay, a darknet market, with Bitcoin, Monero, and Ethereum being accepted as payment for cocaine

When publicly discussing topics like illicit substances, prostitution, and especially tax evasion the participants typically have a severe case of “Doth Protest Too Much”, somewhat predictably considering modern governments are known to surveil their subjects. Despite one’s protests, history has taught us that tax avoidance does not discriminate, it is human nature to want to keep control of one’s money, and in fact the current U.S. President has described the practice as “smart”.

At a time when many of the world’s largest corporate entities are trying to push their mobile devices into the hands of users in developing nations, the illicit activity niche seems absolutely ripe for the picking. Considering the high stakes of engaging in black market activity, you can bet that users will often want to use the currency that best protects them from the prying eyes of their government. With a growing list of possible features that any currency can implement, it would reason that the project that makes privacy its top priority will be best positioned to capitalize. Will it be Monero? The market will decide.

Special thanks to the users on the #monero and #ethereum IRC channels for their feedback in writing this post.