Why I switched some Bitcoin into Ethereum & Monero
April 4, 2017
Recently I decided to switch some bitcoin into the crypto-currencies Ethereum and Monero. In this blog post I detail the reasons why I decided to switch some of my crypto holdings.
On March 11 there was a rumor of a Bitcoin exchange traded fund going online. This would allow investors to buy a fund (Symbol: COIN) that would hold Bitcoins for them. The rumor itself sent Bitcoin to new all time highs of $1,350 per bitcoin.
However, the SEC rejected the exchange traded fund and immediately afterwards the price of bitcoin plummeted although it later stabilized around the $1,200 range.
The following week Bitcoin dropped again on rumors that Bitcoin would experience a contentious hard fork. There has been a strenuous debate in the Bitcoin community about the size of blocks on the block-chain. Currently blocks have a maximum size of 1 Megabyte and this limits the amount of transactions that the network can handle. When enough people try and use Bitcoin at the same, the network becomes clogged, and transactions can take a long time to go through.
The rise of the alt-coins
When bitcoin dropped in price again from this developer controversy, the alt-coins saw an incredible run-up in price. Money shifted out of Bitcoin into other crypto-currencies such as Dash, Ethereum, Monero, and many others.
For a long time I assumed Bitcoin would be king. It accounted for over 80% of the market cap of all crypto-currencies and had the network effect of being the biggest and well known. However during this “Flippening” as it got called online, the “Bitcoin dominance” dropped to 65%. This was a warning sign to me that my thesis on Bitcoin being king may be wrong and I should diversify my crypto-currency holdings some.
My first order of business was to research what other crypto-currencies showed promise. One thing I was looking for was a strong development community headed by a knowledgeable leader. Bitcoin has suffered in the past year because the main developer, Satoshi Nakomoto, is a complete unknown. Because Bitcoin’s creator is anonymous, the project has stalled from a lack of leadership, even fracturing into competing development teams with different visions.
I had followed Ethereum for awhile as it was second in market cap and headed by Vitalik Buterin who is a well known developer. The Ethereum community is quite strong with an active Reddit and Stack Exchange where questions get answered quickly. Ethereum seems to have a lot of positive momentum behind the project, unlike Bitcoin. Another factor is that Ethereum is a massive decentralized computer where users can submit code to the blockchain. This is an incredibly promising idea for decentralized apps, and Ethereum was definitely on my list to invest in.
The second coin I choose to invest in was Monero. I heard about Monero a few times as it began seeing use when the Bitcoin network got clogged. Monero is an anonymous currency meaning it’s impossible to track who sends the coins. Additionally I heard a podcast with one of the main Monero developers who seemed very knowledgeable about Monero and other cryptos.
I researched Monero more and liked what I found. They also have an active Reddit and Stack Exchange, and the community is very positive about developments. There’s nearly 100 contributors to the project and it looks to be growing.
How to make the transition
There are two big difficulties with switching between different crypto-currencies. The first one is how to backup your coins with the new wallet so that your investment will be secure in the future. This requires a knowledge of the security of the crypto and how the wallet files work, along with the recovery process. Secondly, it requires the actual transfer of bitcoins to receive the Ethereum and Monero in my case. I used the service ShapeShift to make the switch.
To test a new crypto-currency I like to make two separate wallets on two different computers and make sure I can send back and forth to each wallet. This way I make sure I understand how the protocol works, how a transaction works, and what potential pitfalls may result. Additionally, I make sure to backup the wallet in a safe way which only I know how to unlock.
Monero works with a command line interface and I did the installation on my Linux machine. First you have to run a file called “monerod” which synchronizes with the Monero block-chain. It took one and half days to get the full block chain! The block-chain records every transaction that has happened on the Monero network, so a long wait time was to be expected.
Next you run the “monero-wallet-cli” which is the file to start a new wallet. I created a new wallet (backing it up as well) and played around with options a bit. After I was comfortable with the tools I did a first transaction switching from Bitcoin to Monero. I started with a very small transaction at first, to make sure the money would show up properly. Overall, I liked how the Monero tools work.
Next with Ethereum I also attempted to download the full blockchain. I waited for two days and the blockchain was only a little bit over halfway complete and it made my computer completely useless while it was downloading. Searching online I asked on the Stack Exchange for Ethereum why it was so slow. I learned that most people are downloading with a “fast” option which only downloads the block headers rather than the full contents of a block. You can think of this like storing a pointer, versus storing the contents of an array.
The setup for Ethereum was more difficult than I expected so it left some questions about how new users will interact with Ethereum. I also tried some different light weight clients for Ethereum on a Windows machine, but encountered a few issues there, so decided to stick with the official wallet on Linux.
How much and when to transfer?
My transition to these other crypto-currencies is gradual and I plan to keep it that way. I am buying in at different price points to lower the risk, and to learn more about the technology as I go.
So far the Ethereum that I bought at $50 an ether stands at $43. Losses like this are to be expected in a dynamic field like crypto-currency where money is moving around quickly. Hopefully in some years all the coins will be worth more including Bitcoin.