Bitcoin

Bitcoin is synonymous with blockchain technology for most newcomers because it has the first-mover advantage. It uses the SHA-256 algorithm for encryption. Other key reasons include limited supply (capped at 21 million coins), increasing scarcity due to lost/locked wallet addresses, higher mining costs, network security, and it is the ultimate symbol of decentralization. On the flip side, it has higher network fees, scalability issues, and little to no utilization apart from making value transactions and serving as a store of value in the long term. Bitcoin is non-fungible, which means one can trace the coin's transaction history through a public ledger. It is mined by ASICs. Transparency allows each node to check the blockchain and prevents double-spending. It uses Proof of Work (Pow) for securing it’s chain, but makes it less environmentally friendly. This has been a major drawback for bitcoin.

Ethereum

Ethereum emerged as an alternative to Bitcoin in 2015, introducing its native token called Ether (ETH). It utilizes the ethash algorithm for encrypting blocks within its blockchain. Unlike Bitcoin, Ethereum is a platform with Turing Completeness and supports Smart Contracts, which are written in the solidity programming language. These contracts enable developers to deploy decentralized applications (dApps) on the Ethereum blockchain, effectively incorporating the benefits of blockchain technology into real-world applications.

Several advantages of Ethereum are its support for various decentralized finance (DeFi) applications, flash loans offered by different decentralized exchanges (DEXes), arbitrage opportunities, and Non-Fungible Tokens (NFTs). A key drawback associated with Ethereum is its limited throughput. Additionally, with its current shift to the Proof of Stake (PoS) consensus mechanism, Ethereum becomes susceptible to regulatory pressure, unlike Bitcoin. This vulnerability arises because a significant number of validator nodes are hosted on servers controlled by Amazon Web Services (AWS).

Another drawback is the dominance of whales within the Ethereum ecosystem, where early adopters of ETH hold significant influence. Moreover, the transparent and open-source nature of Ethereum makes all its transactions visible to the public.

IOTA

The distributed ledger technology (DLT) of IOTA, known as the Tangle, allows the secure, feeless, and safe exchange of both value and data. The technology behind Tangle is known as Directed Acyclic Graph: a uni-directional, non-looping, and immutable storage mechanism. It is more oriented toward the Internet Of Things (IoT) and has low resource requirements: even low-power devices such as phones, drones, and laptops can use Tangle’s Proof Of Work (POW) algorithm, hash cash-light, to validate transactions. IOTA has no fees, allowing micro-transactions, as it converts any device, making a transaction, into a validator: by making it validate two previous transactions. Another key advantage is being able to process transactions in parallel. This approach allows IOTA to circumvent scalability issues that plagued other block-chain-driven networks. Theoretically, more users, more transaction speeds: the complete opposite of Ethereum and Bitcoin. Unlike Eth, each node doesn’t have to have a copy of the complete blockchain for validation, only a small portion of Tangle will suffice. A key drawback of IOTA has been the lack of infrastructure to deploy smart contracts. But with the launch of Shimmer Testnetwork, IOTA is hoping to address this key issue.

Another major drawback of the IOTA network is Its centralization around one master node called the Coordinator.
“The Coordinator is a client that sends signed messages called milestones that nodes trust and use to confirm messages. Messages in the Tangle are considered for confirmation only when they are either directly or indirectly referenced by a milestone that nodes have validated.1”

According to the IOTA foundation, this is a temporary solution and will be removed in the future with the IOTA V2 update: Coordicide. 2

However, according to the original consensus mechanism, proposed in IOTA white paper, the required majority of transactions should always come from honest network participants. In other words, without miners, IOTA has no constant stream of honest hashing power. Therefore, to succeed with IOTA V2, honest miners should have to send continuous transactions, regardless of whether they are using the network or not.
Anyway, the degree of centralization was evident, in its current form, when the network was shut down by the IOTA foundation, in 2020, after their desktop client “Trinity” wallet was hacked.

(I am not a financial advisor and this is my personal opinion. This is not financial advice and is only for educational purposes.)

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Older Articles:

1) The Looming Storm: Understanding and Overcoming the Next Financial Crises (Part 1)

2) The Looming Storm: Understanding and Overcoming the Next Financial Crises (Part 2)

3) The Looming Storm: Understanding and Overcoming the Next Financial Crises (Part 3)