About fake cryptocurrencies Ethereum, ERC20, Tron, Ripple, USDT

Often the principle of cryptocurrencies is usually given by the example of Bitcoin. This is the first of the cryptocurrencies. The complexity of understanding how cryptocurrencies work can be overwhelming for those unfamiliar with the field. Unfamiliar terms and lack of context prevent newcomers from understanding how bitcoin works, let alone other cryptocurrencies. Without a proper understanding of how cryptocurrencies work, you could miss out on great investment opportunities and lose money instead.

Bitcoin (BTC)

Bitcoin is actually a clean and clear implementation of the principles necessary for a cryptocurrency: openness of transaction history, ability to check the source of money along the chain, clear rules for the appearance of money, clear rules for creating new transactions.The process of mining new blocks is the only way to create new coins, and the rewards received decrease according to the logarithmic law. These restrictions ensure that no more than 21 million bitcoins are issued in total. Financial transactions require a certain balance to be successful. Thus, any outgoing money must match the incoming amount. To spend, the transaction must be signed with a private key. A simple scripting language allows to do multisig and all sorts of other useful things, including creating new currencies (tokens) based on bitcoin blockchain (omni layer, that’s how USDT lives). In blockchain technology, no single node acts as a leader. Instead, all nodes participate in determining the next block. When there are multiple choices, the branch with the most calculations is accepted, as this ensures consistency and accuracy.Own node can be run by any user, the source code is open.

Unfortunately, most people don’t really understand how cryptocurrencies work and the potential they offer, despite their complexity. The typical user does not distinguish between cryptocurrencies stored in a distributed blockchain or on a specific website. For them, it can essentially be thought of as “stored somewhere online. “When you make a financial transaction on a website, it’s usually easier to dispute the payment or hold the responsible party accountable. This is not the case with blockchain transactions – because money can be “lost” online, there is no one to go to and complain about it.Users who buy bitcoins don’t keep private keys for themselves, but mostly delegate it to third-party sites, so it really doesn’t make a difference for them. Even if they do store it, first they generate that key somewhere and then download it. It is clear that it is not completely their key. As a result, rumors about “bitcoin hacking” spread, with money going to hackers and similar tales. On the other hand, smart and reputable people explain that blockchain and cryptocurrencies built on it are reliable and correct, and there is no reason not to believe them.

This naturally led to the appearance of fake cryptocurrencies, which supposedly use the same technology, but give preference to their creators, i.e. are not so decentralized. The users don’t care, but the creators benefit. The most common of these fakes is Ethereum.

Ethereum (ETH)

Morningstar first evaluated a security on the Ethereum blockchain

In the zero block of the ether, 72_009_995 Ethers is distributed at 8903 addresses, this is more than all the total rewards for mining blocks (at first there was 5 Ether for the block, then they made 3 Ether, now 2 Ether) for all the time. Once again: more than half of the entire broadcast, which is now available, was distributed in the zero block at the start of this cryptocurrency, and a smaller part appeared as a result of mining blocks. Try to google this fact in the description of this cryptocurrency – most likely nothing will come of it, it will not be advertised, and even hides.

Explorers either show their existence, but do not allow the details (Etherscan.io, Blockchair.com), or they do not show them at all, as a result of which the history of transactions at the address looks strange: only waste, but a positive or zero final balance. This information acquires special piquancy in combination with the declared transition plans with Proof-off-Work to Proof-OF-Stake, i.e. Changing the consensus algorithm with “rights is the one who has done more calculations” on “the right is the one who has more money.”

The presence of such a flying block led to the fact that this cryptocurrency, in principle, could not be as open and transparent as bitcoin, otherwise this story would be immediately visible to everyone. And if in bitcoin to determine the address of the address it is enough to calculate the amount of UTXO (inexplicable transactions outputs), then on the air this is much more complicated: you need to view all transactions at the address (spending and receipt), but this is not enough: the balance may change as a result of the smart contract ( “Internal Transactions”), and this is a binary code in the body of the transaction.

As a result, even having launched my own node, I can’t see the history of operations at some address (even my own), I need to contact third-party sites working on my own software for this, i.e. Trust them: “There’s Not Currently Any Way to this using the Web3 API. […] Blockchain Explorers Like Etherscan Obtain Internal Transactions”) ” “The TRUBLE I SEE with this is that this centralizes that Data. If I Creat That Data, How Know I DIDNIT FACE ITENTARITA AUT A WAYA TO BOTHER ITTHE Index ITTEX ITHDEX ITHDEX . ‘ I Know How to Decentralize The Storage (IPFS), But Not to Decentralize the Indexing Calculation.

There is no place to request the history of address balance changes, because it is simply not stored anywhere: the node stores only the state (each address balance), and the blockchain stores the checksum (hash) of this state, and the transactions themselves, in the form of binary code.

Ethereum smattercontracts

Etheric smattercontracts are a separate song. It is essentially no different than executing some binary file on your computer, its code is not open, and the logic of operation is unknown. The fact that it is in a blockchain and not on someone’s website does not fundamentally affect anything, except the psychology of users who trust the word “blockchain”. Which is, in fact, what is required. The ERC20 standard defines “recognizable” function signatures like “transfer so many tokens from so-and-so address to so-and-so”, but ERC20 does not regulate what other functions this smart contract can have (for example, “take all tokens from all users”). The smart contract code, like the code of a normal program, can be opened by the author, but this is a matter of goodwill.

Open-source smartcontracts are certainly more trustworthy – to the same extent as regular open-source programs. But do many users care that Chromium and Firefox are open source, while Chrome and Safari are closed source?

Since purity and elegance of technical implementation were not the goal when Ethereum was created, these qualities have suffered greatly compared to bitcoin in ethereum. Here are a few examples.

A bitcoin transaction can have multiple inputs and multiple outputs. As a result, I can, for example, give each of my counterparties a separate address to transfer money to me, see when one of them has paid, and when I need to pay myself, I can pay from several of those addresses simultaneously. And generate some new address for the change. This results in a certain degree of anonymity: whoever I paid does not know how much money I have in total at other addresses, how many clients I pay, etc. Tracing the history of each of the inputs of the transaction in which he received money from me will not give him any interesting information.

A transaction has one input and one output on the air. To pay someone, if I don’t want to pay in multiple installments (that’s what a transaction is), I need to first collect enough money at one of my addresses and then pay it out, and the change stays there as well. The transaction history of the address from which the person received the payment from me will give a lot of information about me.

And it’s not only about privacy. Holding the payment, I put a public key to the blockchain for this address. Obtaining a private key to public is currently unreasonable, but with the advent of quantum computers everything can be. Bitcoin, as I said, is going to the new address (this is how it is recommended to do), and at the addresses from which the payment occurred, i.e. whose public keys are published in the blockchain, there is already nothing, there is nothing to hack.

The rules for the appearance of new coins in Bitcoin are laid down from the start – it is previously determined, starting with which blocks will be made “halving” (reducing the reward for the block doubles), so it is laid down in the code as many bitcoins will be released. The situation is different on the air: the size of the bonus is prescribed by Constant in the code, and the code needs to be regularly updated, and some updates change the size of the award. A change in the node algorithm with a loss of compatibility in Bitcoin leads to the box, in fact creates another cryptocurrency. Because buying bitcoin, I express confidence in the algorithm and the starting block (chain). On the air, this is the standard “upgrade” process, which should regularly use all nodes, otherwise they will simply fall out of the network, losing compatibility. Buying air now, I don’t know what protocol this currency will work tomorrow, i.e. I express confidence in an open protocol, algorithm and starting block, and there are again no decentralization in specific people who will produce updates.

Transaction Commission

The transaction fee (gas) is a separate hell. It is made up of two components: the price of “gas,” and how much gas is spent. The price of gas is set by the creator of the transaction on the basis of how quickly he wants his transaction to be confirmed and the current “market price” – this is roughly like bitcoin. But how much gas will need to be spent on a transaction is not known in advance, the sender does not know. Even the same function of the same smart contract can require different amounts of gas, not only because of possible branching, but simply depending on the amount at the addresses at the time of its inclusion in the blockchain. Therefore, the sender sets the maximum amount of gas he is willing to spend, and how much is actually spent will only become clear when the transaction becomes confirmed. Consequently, it’s hard to spend all the money available at an address: the commission is taken from the same address, and if you set a large max_gas, there will still be change, and if you set a small one, it may not be enough.

For the same reason, Ethereum does not allow “spend unconfirmed”, which is so convenient and familiar in bitcoin. That is, if there is a transaction to receive money, I can create the next transaction to send that money somewhere else without waiting for the first transaction to become confirmed. If it is cancelled, the second transaction will automatically be cancelled as well. Or they will both be confirmed. You can’t do that over the air, because until the transaction is confirmed, you don’t know how the balances on the addresses will change as a result of it. For example, if I have an address with tokens but no ether, I can’t spend those tokens because I have to pay a fee, and that’s from the address from which the tokens are sent. Accordingly, I must first send ether to that address, and then send tokens from there. And I can’t send these two transactions in a row – no, I have to wait for the first transaction to be confirmed before sending the second.

Where did the idea of this unpredictable gas even come from? In bitcoin, the fee is set in proportion to the size of the transaction in bytes. This makes sense: the block size is limited, and you can include either one large transaction or ten small ones in its place. In ether, gas is determined by the number and complexity of operations in a smart contract, which is illogical: although the mining node must perform that smart contract to include the transaction in the blockchain, the amount of those calculations is completely incomparable to the calculations of the actual block hash needed for proof-of-work. They are different units of measure, like meters and kilograms. And it is more profitable for a miner to include “expensive” smartcontract transactions in a block than cheap simple transfers, because he will then get more reward. So much for the idea of the miner generating more profit. And in order for simple transactions to be confirmed too, they need to be set higher gas_price – and as a result we’ll come to the fact that we count the market fee per transaction (given its size), then divide by the estimated expendable gas, and the result is written in the gas_price field. Nonsense, right?

But the situation is even more comical. Why register a smart contract at all, why can’t data be written into a normal transaction? This is exactly how omni layer works on top of bitcoin blockchain, and USDT was launched on it. After all, it’s just a matter of interpretation, and nothing stops us from agreeing and treating certain data in eth-transactions as forwarding some tokens, paying a minimal gas for it. There is only one reason why a smart contract might need to be registered: if it sends ether to someone, i.e. those “internal transactions” that cause so many problems and ruin the structure of the blockchain. A normal ERC-20 smart contract (of which the majority is a simple implementation of another currency or token) does not send ether using a smart contract (although it does not prohibit it), i.e. no registration is needed for them, and no additional gas needs to be paid. In other words, by paying gas for smart contract transactions, we pay not for the distributed execution of this smart contract by miners and not for data storage in the blockchain, but only for the algorithm used. We run our own slightly modified algorithm on the same ether blockchain – and voila, we get tokens without additional gas, just like the omni layer in bitcoin. Moreover, we do not need this software to be run by all nodes or even a noticeable part of them – it is enough to be run by token owners, i.e. it can be just a wallet.

This list could go on for a long time, but it is not that important anymore. What is important is that Ethereum is a fake cryptocurrency that parasitizes the ideas of decentralization, distribution, and openness implemented in Bitcoin, but perverts these ideas for the business interests of its creators.

Ripple XRP, Tron TRX, Tether USDT

Their essence is similar. They declare decentralization, distribution, everything. Is it possible to raise your own node – yes, no problem, here are the sources, anyone can raise it. But on closer examination it turns out that this node does not participate in the consensus, but only receives information about transactions from other nodes and sends their transactions to other nodes. If you dig deeper, you can find information that it is possible to raise a mining node, you need to get other software, pay someone some money and apply for consideration. That is, these currencies are not decentralized administratively or technically (a new mining node is manually connected to the network). The question of how money is distributed in such a situation is no longer important: it is clear that, in any case, full control over the emergence of coins, as well as the consensus mechanisms, is in private hands. This rejection of decentralization fundamentally simplifies consensus issues – a new block can be accepted by a simple majority of nodes without costly proof-of-work signature calculations, while the issue of new coins generation falls away – they all initially belong to the currency owner and are issued only by him (or trusted nodes, which is essentially the same).

There has been a shift in terminology to please business. Initially, only “real” decentralized currencies were called cryptocurrencies with fully open and uniform appearance of new coins, as in Bitcoin, Litecoin and the like. Then a cryptocurrency began to be called Ethereum, which, however, hid “features” of the starting issue. Next, cryptocurrency became smart contract tokens, living in ether blockchain, even with closed code (i.e. with unknown rules). Then the proud name “cryptocurrency” began to be worn by any currencies using blockchain, decentralization ceased to be obligatory. And finally, blockchain is no longer necessary either: Ripple does not have it, but just essentially any electronic money began to be called a cryptocurrency.

Special mention should be made of stablecoins like USDT. These too exist in a distributed blockchain as if they were real cryptocurrencies, but the difference is that there is an owner who can create new coins in arbitrary amounts. This owner declares that he issues new coins in exactly the amount of real money paid to him, keeps this real money in a safe, and thus guarantees that these coins can always be sold at the rate of 1:1 to USD. For users, the predictability of the rate is more convenient than the high volatility of bitcoin, and the magic words “cryptocurrency” and “blockchain” evoke more trust than just someone’s electronic money like perfectmoney.

It is quite obvious that the blockchain in this case is nothing more than an open registry, and the owner has full control over the currency. The exchange rate is held stable insofar as it can be prevented from rising by additional issuance, but if it starts to fall, the owner is unlikely to compensate for it with too much infusions, he will simply run out of money. After all, hardly anyone really believes that they really keep all the money they receive in the safe and do not spend it. Although such a declaration can probably be beneficial in terms of taxes, it turns out to be a zero profit.

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