Dash

chart-21
DASH Percentage Increase Compared to the Average (Bit20 ETF) Starting in 2017

Dash – a fork of Litecoin – includes the features of Litecoin (limited supply, 2.5 minute block times, proof-of-work (POW) validation system) along with the ability to transact instantly, via an instant send feature, and anonymously, via a private send feature, and to vote on updates to the network. This is implemented through a two-tiered validation system. The first tier involves the traditional mining/POW system from Bitcoin, Ethereum, Litecoin, and many others. The second tier includes a network of Masternodes which are required to maintain a minimum of 1000 DASH. Each node that maintains this minimum is deemed a Masternode that participates in confirming transactions instantly, anonymizing transactions by mixing public keys so you don’t know who the sender or receiver are, and voting on updates to the network. In exchange, the Masternodes receive rewards of about 2 DASH to every Masternode per week.

Pros: Contains many of the benefits of Bitcoin including decentralization, immutability, and limited supply; two-tiered system allows for very fast (~ 1 second) and/or private transactions for users willing to pay an additional fee as well as governance where Masternodes can vote on updates to improve the network (e.g., such as increased block sizes to improve scalability); fungible – due to the anonymity associated with the private send features, unlike Bitcoin where coins used in illegal transactions may be “marked”  

Cons: Two-tiered system can lead to centralization as the cost to operate a Masternode of 1000 DASH is prohibitive to most; several competitors in the daily transactions space (Bitcoin Cash, Litecoin, Nano) and in the privacy coin space (Monero, Zcash, ByteCoin); private send feature does not fully anonymize transactions and they can be traced to previous transactions that were not anonymized; attempts to address multiple problems (transactions speed, anonymity, etc.) with one coin, whereas multiple coins focus on each of these problems individually and arguably in a better way

Analysis

To perform an objective analysis, each cryptocurrency is rated based on the following factors: (1) validation method; (2) leadership; (3) community participation in development; (4) transaction volume and market capitalization; (5) industry participation; (6) security; (7) usability; (8) technical features; (9) growth; (10) legal risks; and (11) estimated time of arrival.

Validation Method

Dash uses the same proof-of-work (POW) system as Bitcoin to validate transactions, but a different mining algorithm in X11.[1] Originally, miners could run X11 on CPUs but hashing power has increased considerably and now requires ASICs. As described above, Dash has a second tier made up of Masternodes that perform decentralized governance by voting on updates, mix transactions to anonymize them, and instantly validate transactions within a second as opposed to about 2.5 minutes to validate a transaction via the first tier POW system.[2] Masternodes receive 45% of the block reward (currently 5 DASH per block), miners obtain another 45%, and the remaining 10% goes to the treasury system for development.[3] Each Masternode has 1 vote for updates to the network. If a threshold number of Masternodes vote in favor of the update then it is enacted.[4] In other systems like Bitcoin and Ethereum, updates to the network are made through a fork where the chain splits into two. Miners effectively vote for the update by continuing to validate transactions from the old chain or moving over to the new chain. However, this voting occurs after the fork, so the developers can add an update which does not end up being enacted if the miners continue to devote computing resources to the original chain. In Dash’s Masternode governance system, updates are voted on before they are added into the protocol.

Leadership/Community Participation

Dash is led by its creator and lead developer Evan Duffield and the Dash Core Team, a company made up of about 30 employees. Duffield has received some criticism for the release of Dash where almost 2 million coins were released due to a bug when the code was forked from Litecoin.[5] Although Duffield claims that the community did not want him to relaunch or perform an airdrop, some suspect he did this on purpose to ensure he would have a significant portion of the coins. In this manner, he could control the network through the use of Masternodes by running a large percentage of them and voting for his own proposals and against proposals that did not directly benefit him.[6] To be fair no one knows how many Masternodes are owned by Duffield or members of the Dash Core Team.

Transaction Volume and Market Capitalization

Dash is 13th in market cap (~4B) with a transaction volume of about $130M per day.[7]

Industry Participation

A few online retailer and businesses accept Dash such as Dash Video Casino, Organic Contraband Coffee, and a few other small companies.[8] Additionally, it can be purchased through several exchanges, such as Bittrex, Binance, Bitfinex and many others. There are also Dash ATMs in select locations throughout the world.[9] However, Dash has yet not received widespread acceptance and may only be used at very limited locations.

Security

In terms of security, Dash has many of the same advantages and disadvantages as Litecoin. Some argue that the second tier of Masternodes leads to additional security vulnerabilities, because the large cost (1000 DASH) of running a Masternode prohibits individual users or small entities from participating.[10] Thus, only large entities may be able to run Masternodes which can lead to centralization. On the other hand, currently there are over 4700 Masternodes running on the network and while some speculate that the Masternodes are owned by a few entities, it seems more likely that there are at least a thousand owners.[11] Accordingly, it is unlikely one company can take over the network or a hacker can attack one company that owns thousands of Masternodes and gain control.

Usability

Like Litecoin, Bitcoin Cash, and NANO, Dash is intended to be used for day-to-day transactions. With the advent of the instant send feature, transactions can be completed in less than a second which allows for very fast cash like transactions. Additionally, Dash can be used with an element of privacy due its private send feature. There are many reasons why someone would want to transact privately. For example, on the Bitcoin network hackers and thieves may identify the wallets with the largest number of coins and target them.

Technical Features

As described above, Dash has many of the same features as Litecoin. The main difference is its second tiered network of Masternodes that performs decentralized governance and instant and/or anonymized transactions. Decentralized governance allows for the Masternodes to vote on updates to the network (where each Masternode has 1 vote) before they are implemented into the protocol. For example, Dash has dynamically increased block sizes through these updates during periods of high transaction volume.[12] Though this seems to be more efficient than alternative mining systems which fork the code to perform an update, critics argue that a user or company, such as Evan Duffield or the Dash Core Team could control the voting power and thus, the network by owning enough Masternodes. Furthermore, unlike Monero the transactions executed by the private send feature are not fully anonymized. For one, they can be traced to previous transactions that were not anonymized. Additionally, the private send feature is a coin mixing service based on CoinJoin. The coin mixing service breaks down transactions into specific dominations of 0.01, 0.1, 1, and 10 DASH, mixes the denominations with similar denominations from other users and includes several outputs to each person’s wallet at a different address called a change address.[13] Though the senders are anonymous in this implementation the transactions are not. Other privacy coins such as Monero utilize Ring Confidential Transactions to anonymize the transactions themselves.[14] Therefore, while Dash does include privacy features there are some vulnerabilities addressed by competitor privacy coins.

Growth/Legal Risks

Being in both the daily transactions and privacy coin arenas, Dash has many competitors including Litecoin, Bitcoin Cash, NANO, Monero, ZCash, and Bytecoin. Nevertheless, Dash does set itself apart via its two-tier system that allows for decentralized governance and by providing both privacy and daily transactions features in one coin. If only a small percentage of altcoins survive in the long term as many have predicted, Dash may be one of them since it implements multiple features.

Estimated Time of Arrival

Dash launched in 2014 and is now fully developed and ready for use. However, the Dash network has not been tested to the same extent as Bitcoin’s.

ETA: Now

Conclusion

The two-tiered network sets Dash apart in a unique way and allows for even more features to be implemented through its decentralized governance. Nonetheless, as Dash has not yet shown it is the best at any single feature (e.g., daily transactions, privacy), users may prefer coins that can focus on and perfect individual attributes within cryptocurrency over one that addresses several.

[1] https://www.ccn.com/pros-cons-x11-algorithm/

[2] https://github.com/dashpay/dash/wiki/Whitepaper

[3] https://en.wikipedia.org/wiki/Dash_(cryptocurrency)

[4] https://steemit.com/crypocurrencies/@jabba-q/dash-decentralized-governance-or-centralized-tyranny-of-the-few

[5] https://en.wikipedia.org/wiki/Dash_(cryptocurrency)

[6] https://steemit.com/crypocurrencies/@jabba-q/dash-decentralized-governance-or-centralized-tyranny-of-the-few

[7] https://coinmarketcap.com/currencies/dash/

[8] https://www.dash.org/merchants/

[9] https://discoverdash.com/listing-category/atm/

[10] https://medium.com/@EricRSammons/the-dash-masternode-network-a-response-to-critics-202bcdb68f7a

[11] http://178.254.23.111/%7Epub/Dash/Dash_Info.html

[12] https://cointelegraph.com/news/as-bitcoin-rejects-2mb-blocks-dash-prepares-to-implement-them

[13] https://coincentral.com/top-privacy-cryptocurrency-race/

[14] https://blockgeeks.com/guides/monero/

Tether

chart-20
Tether Percentage Increase Compared to the Average (Bit20 ETF) Starting in 2017

Tether (USDT) is a stablecoin pegged to the US dollar meaning that one Tether coin (tethers) will always be worth roughly one dollar. Unlike other cryptocurrencies which experience wild price swings and extreme volatility, each Tether coin is supposed to have a stable ($1) value. To accomplish this, Tether utilizes a proof of reserves system to maintain a one-to-one reserve ratio between the tethers and US dollars. This means that if 1 million tethers have been issued, Tether Limited, the company who created Tether, must maintain $1 million. To issue new tokens, Tether Limited must receive the same amount in dollars, and when account holders cash in their tethers, Tether Limited plans to remove the cashed-in tethers from the supply (i.e., destroy the tethers). To prove they are maintaining the proper amount of reserves, Tether Limited claims they will subject themselves to regular audits and publish the bank balance which will be matched up against the number of tethers in circulation. The number of tethers in circulation can easily be verified on the respective blockchains in which they live (e.g., the Bitcoin blockchain, the Ethereum blockchain, etc.), but account holders have to rely on Tether Limited to regularly subject themselves to audits and publish bank balances.

Pros: Substantially reduces price volatility compared to other cryptocurrencies; users get the benefits of cryptocurrencies and blockchain technology (increased security and lack of censorship due to immutability and decentralization) with the stability of fiat currency

Cons: TETHER MAY NOT BE MAINTAINING THE APPROPRIATE RESERVES – they have yet to publish the results of an audit and recently fired the accounting firm, Friedman LLP, that had been working on the audit. If Tether is not in fact maintaining the appropriate fiat reserves, Tether’s value may plummet to close to zero; founded by Brock Pierce the former child actor who was recently removed from the EOS project amidst allegations of a shady past; Tether seems to have a little too close of a relationship with the cryptocurrency exchange Bitfinex – both companies share two of the same operators   

Analysis

To perform an objective analysis, each cryptocurrency is rated based on the following factors: (1) validation method; (2) leadership; (3) community participation in development; (4) transaction volume and market capitalization; (5) industry participation; (6) security; (7) usability; (8) technical features; (9) growth; (10) legal risks; and (11) estimated time of arrival.

Validation Method

Tether coins are issued both on the Bitcoin blockchain via the Omni Layer protocol and the Ethereum blockchain as an ERC20 token.[1] There have also been talks of adding Tether coins on the Litecoin blockchain. In any event, the validation method for each of these blockchains is a proof-of-work (POW) system. This requires validators known as miners to solve a cryptographic riddle which is difficult to compute but easy for others to verify.[2] Therefore, mining requires a large amount of computing resources and electricity. The Tether transactions validated by the miners are then recorded on the Bitcoin blockchain or other blockchain. The link in the footnote below is an example of a Tether transaction record on the Bitcoin blockchain.[3]

Leadership/Community Participation

Former child actor Brock Pierce founded Tether. Pierce is a very controversial character and was recently removed from the EOS project amidst allegations of an unsavory past.[4] If this isn’t bad enough, Tether has an unusually close relationship with cryptocurrency exchange Bitfinex. The two companies share multiple operators in common, Phil Potter and Giancarlo Devasini.[5] This intimate relationship with an exchange leads to several concerns calling into question the entire legitimacy of the cryptocurrency. For example, some believe that Tether Limited is not maintaining close to the appropriate amount of cash in US dollar reserves, and is instead issuing unbacked tethers and selling them on Bitfinex for bitcoins. Bitfinex/Tether can then obtain Bitcoin by “printing” currency.[6]

Transaction Volume and Market Capitalization

Tether currently has the highest transaction volume of all cryptocurrencies at about $2 billion. However, its market cap (~2.3B) is closer to fifteenth.[7]

Industry Participation

Several exchanges have begun to accept Tether including Bitfinex and many others. On the other hand, retailers have not started to accept the coin and it is very limited in where it may be used.

Security

In terms of security, Tether has many of the same advantages and disadvantages as the blockchain it lives on, such as Bitcoin, Ethereum, etc. However, the proof of reserves system requires that users trust a third-party (Tether Limited) to maintain the appropriate amount of reserves. Therefore, there is an element of centralization to the Tether protocol, and if Tether Limited is hacked, robbed, or loses the fiat reserves in any other way, then the value of each Tether coin may decline significantly. Unfortunately, Tether is currently facing allegations that it has been printing coins without maintaining the corresponding amount of US dollars in reserves. Firing their auditor amidst these allegations did not quell anyone’s concerns.[8]  Accordingly, the entire value of the Tether network (which should be the value in US dollars it has in reserves) has been called into question.

Usability

Tether can be used for several different purposes, including as a store of value similar to Bitcoin. Because Tether is a stable coin users don’t need to worry about volatility when storing their life savings. Tether can also be used to purchase other cryptocurrencies. Typically, investors or traders prefer to buy cryptocurrencies at specific price points. For example, a buyer may want to purchase Cardano when 1 ADA is less than $0.10. However, ADA may only be purchased with Bitcoin or Ether. To buy Cardano at the moment 1 ADA drops below $0.10, a buyer must store a certain amount of Bitcoin or Ether with the exchange she is using to purchase Cardano. Bitcoin and Ether are extremely volatile and the value of either may drop significantly as the buyer waits for ADA to drop below $0.10. Accordingly, by storing Bitcoin or Ether on an exchange and waiting for ADA to reach a selected price point, the losses the buyer suffers from a drop in value of Bitcoin or Ether may offset the opportunity to purchase ADA at a lower price in fiat currency. Tether, on the other hand, should remain approximately the same value as it is stored on the exchange and therefore, the user does not have to worry about this problem. For example, if the buyer stores 1 Ether on the exchange when it is worth $1000 and ADA is worth $0.20, and the price of Ether dips to $200 when ADA reaches $0.10 per coin, the buyer can purchase 2000 ADA.  On the other hand, if she stores 1000 tethers on the exchange worth $1000, the tethers should continue to be worth $1000 when ADA reaches $0.10. As such, she can buy 10000 ADA or 5 times the amount she could have bought if she instead stored Ether on the exchange. Tether could also be used for daily transactions (e.g., for a cup of coffee), especially when it’s executed on top of a daily transactions blockchain such as the Litecoin blockchain to limit transaction fees and confirmation times.

Technical Features

Tether was originally on the Omni Layer protocol, a protocol designed as a second layer on top of the Bitcoin blockchain that allows Bitcoin to create tokens that represent currencies.[9] As a result, Tether shares similar technical features with Bitcoin: decentralization, immutability, and transactions validated by miners in a POW system broadcasted to the network on a public blockchain. Tether also issued an ERC20 token on the Ethereum blockchain through a series of smart contracts enabling interoperability of Ethereum-based protocols and DApps.[10]

Growth/Legal Risks

Unfortunately, as a stablecoin Tether does not have the potential for massive growth associated with other cryptocurrencies. The best-case scenario is that each Tether coin remains around $1. The value of the Tether network as a whole can go up as more tethers are purchased and issued to users. Currently, the market cap is around $2.2B and if price stability becomes a necessity for cryptocurrencies it could reach close to $1T. Nonetheless, there are substantial legal risks as Tether Limited has not released the results of an audit. If Tether Limited does not have the appropriate amount of cash in US dollars to back up the number of tethers issued the price of Tether may take a dive.

Estimated Time of Arrival

Like Bitcoin, Tether is currently in use and has been paired with many other altcoins on several exchanges. Tether plans to expand to different blockchains such as the Litecoin network.  Further plans for expansion include compatibility with a hardware wallet such as TREZOR and with the Lightning Network.

ETA: Now

Conclusion

Tether seems to be a great concept allowing for the benefits of cryptocurrency utilizing blockchain technology (e.g., immutability, decentralization, enhanced security, etc.) without the volatility of its competitors. Nevertheless, Tether has not been implemented in a way that is fully decentralized as it requires its users to trust Tether Limited to maintain fiat reserves. Thus far Tether Limited has not been able to show that they have held up their end of the bargain, and this coin is too risky at the moment without knowing whether and to what extent Tether Limited is holding onto US dollars.

[1] https://tether.to/tether-update/

[2] https://en.wikipedia.org/wiki/Proof-of-work_system

[3] https://blockchain.info/tx/233b9b6ffdead31bb712e36e9357a8f4559c7d42e609228b6a9ec028506e6c3a

[4] https://steemit.com/cryptocurrency/@fortified/brock-pierce-or-is-billionaire-bitcoin-board-member-founder-of-tether-and-alleged-pedophile-a-covert-cia-asset

[5] https://www.financemagnates.com/cryptocurrency/news/analysis-bitfinex-tether-still-close-comfort/

[6] https://qz.com/1149772/the-murky-relationship-between-bitfinex-and-tether-is-raising-suspicions/

[7] https://coinmarketcap.com/currencies/tether/

[8] https://arstechnica.com/tech-policy/2018/02/tether-says-its-cryptocurrency-is-worth-2-billion-but-its-audit-failed/

[9] https://www.omnilayer.org

[10] https://blog.ethfinex.com/announcing-the-erc20-tether-c84cc33f076f

Monero

chart-19
Monero Percentage Increase Compared to the Average (Bit20 ETF) Starting in 2017

Many people (including dark web users) were under the impression that Bitcoin was anonymous. However, some members of Silk Road found out the hard way that because transactions are publicly recorded for everyone to see, users can be traced through their IP addresses.[1] Monero addresses this issue by creating a privacy coin that masks the sending address, the receiving address, and the amount for every transaction on the network. Monero also uses a different hashing algorithm, CryptoNight, designed to be suitable for an ordinary PC and does not require a GPU or ASIC for mining. This reduces the costs of mining and allows for more users to participate, thereby increasing the decentralization of the network.

Pros: Anonymous transactions; fungible – due to its anonymity all Monero coins are the same, unlike Bitcoin where coins used in illegal transactions may be “marked;” increased decentralization with mining algorithm that can be run on a CPU; dynamic block sizes improve scalability and prevent the network from slowing down during periods of high volume

Cons: Anonymous transactions can be used for nefarious purposes (buying and selling guns, drugs, etc.); dynamic block sizes come with increased security risks as nodes may become expensive to operate and transactions are larger for Monero than other cryptocurrencies due to the extensive amount of encryption to anonymize the transactions; unlike many other cryptocurrencies that are deflationary, Monero is subject to inflation; difficult to use (e.g., there are no hardware wallets for Monero); vulnerable to a 51% attack if a mining pool or anyone else controls over 50% of the mining power

Analysis

To perform an objective analysis, each cryptocurrency is rated based on the following factors: (1) validation method; (2) leadership; (3) community participation in development; (4) transaction volume and market capitalization; (5) industry participation; (6) security; (7) usability; (8) technical features; (9) growth; (10) legal risks; and (11) estimated time of arrival.

Validation Method

Monero uses the same proof-of-work (POW) system as Bitcoin to validate transactions, but a different mining algorithm in CryptoNight.[2] CryptoNight is considered to be ASIC resistant as the algorithm can run on a CPU instead of a GPU or ASIC. The algorithm is actually better suited for a CPU due to the amount of RAM it requires, and this was designed specifically so that each CPU could perform mining and have voting power in the Monero protocol. By contrast, the mining algorithms employed by Bitcoin, Ethereum, and many others perform better on GPUs and/or ASICs, and only a small group of miners can afford the hardware necessary to validate transactions on these networks. Nonetheless, almost half of the hashing power on the Monero network is controlled by 3 mining pools[3] making it vulnerable to a 51% attack.

Leadership/Community Participation

Though several of Monero’s developers remain anonymous, we are aware that the platform is led by developers David Latapie and Riccardo “fluffypony” Spagni.[4] In addition to the lead developers, Monero has over 240 contributors working on improving the network.  Software updates are added on OpenHub on a regular basis.[5]

Transaction Volume and Market Capitalization

Monero has less than 1% of the transaction volume of Bitcoin (~$32M in transactions per day). Nevertheless, Monero is in the top 15 in market cap (~$2.6B) for cryptocurrencies.[6]

Industry Participation

The coin has gained acceptance at a few retailers, including from several musicians such as the Backstreet Boys, Weezer, Mariah Carey, and Lana Del Ray.[7] Additionally, Monero can be purchased through several exchanges, such as Binance, Poloniex, Bittrex, and many others. Still, the platform has not yet received widespread acceptance and is limited in where it may be used.

Security

In terms of security, Monero has many of the same advantages and disadvantages as Bitcoin. One of the main distinguishing features is the ASIC resistant hashing algorithm (CryptoNight) which was designed to combat centralization. However, dynamic block sizes and the extensive amount of information in each transaction may limit the number of miners who can run a full node on the network, so there is a bit of a trade-off there.

Usability

Monero is intended to be used in a very similar manner as Bitcoin, but with the assurance of privacy due to anonymized transactions. Although it may appear on its face that Monero was designed specifically with nefarious or illegal transactions in mind for use on the dark web, there are many reasons why someone would want to transact privately. For example, on the Bitcoin network hackers and thieves may identify the wallets with the largest number of coins and target them. Additionally, as the technology progresses further, it may become easier and easier to identify the owners of each wallet and people may not want everyone to know the amount of Bitcoin or other cryptocurrencies that they own.

Technical Features 

Monero uses advanced encryption techniques to anonymize the sender and receiver of a transaction, while still allowing miners to verify that the sender had enough Monero to send to the receiver and allowing the receiver to spend the received amount of Monero in a later transaction.[8] This is accomplished by generating one-time private and public keys for the receiver and a one-time ring signature for the sender that is a combination of the actual signature and several decoy signatures. For example, when user A sends Monero to user B, the ring signature may consist of user A’s signature and 4 decoy signatures. Additionally, in the Bitcoin protocol and many other decentralized ledgers, each user has a public key and a private key. A user signs transactions using the private key. On the other hand, in the Monero protocol users have two private keys (a private spend key and a private view key) and two public keys (a public spend key and a public view key). When user A sends Monero to user B, user A uses a combination of user B’s public spend key and public view key to generate a one-time public key. User B then employs her private spend key to retrieve the coins. Some additional privacy features are also implemented in the protocol, such as hidden transaction amounts, and hidden internet traffic through the invisible internet project (I2P). Monero does allow users to make transactions transparent to a selected auditor, for example.[9]

Growth/Legal Risks 

Monero’s main competitors are other privacy coins, such as Dash, Zcash, and ByteCoin.[10] Currently, Monero is recognized as the leader in privacy coins due to its popularity amongst dark web users although Dash has a larger market cap. As mentioned above, Monero has an unlimited supply although the block rewards gradually drop until they reach a fixed amount of 0.6 XMR per block starting in 2022. This will lead to about 1% yearly inflation.[11] It is also worth noting that Bitcoin could implement privacy features for example, using a second layer protocol that sits on top of Bitcoin’s blockchain. Due to Bitcoin’s advantage over Monero in networking effects, users concerned with privacy could go back to Bitcoin driving down the demand for Monero. In fact, the Lightning Network by Lightning Labs[12] implements some privacy features although they are not as strong as Monero’s.[13] Participants opening and closing channels on the Lightning Network record transactions on Bitcoin’s blockchain which does not include the added privacy features.

Estimated Time of Arrival

Monero was launched in 2014 and is now fully developed and ready for use.

ETA: Now

Conclusion

As the emerging leader in privacy coins, Monero has a bright future particularly if users come to expect a level of privacy in their transactions. On the other hand, Monero has a significant amount of competition from the other privacy coins and its association with the dark web seems to taint the currency. The demand for privacy in cryptocurrency transactions for the average user in the future is unclear, but Monero has positioned itself well in the event that this feature becomes a necessity.

[1] http://www.sciencemag.org/news/2016/03/why-criminals-cant-hide-behind-bitcoin

[2] https://en.bitcoin.it/wiki/CryptoNight

[3] https://blockgeeks.com/guides/monero/

[4] https://cryptoinsider.21mil.com/interview-with-monero-lead-developer-riccardo-spagni-fluffypony-second-layer-solutions-fee-market-cryptocurrency-education/

[5] https://www.openhub.net/p/monero

[6] https://coinmarketcap.com/monero

[7] https://www.profitconfidential.com/cryptocurrency/monero/monero-list-businesses-accept-xmr-currency/

[8] https://whitepaperdatabase.com/wp-content/uploads/2017/09/Monero-whitepaper.pdf

[9] https://blockgeeks.com/guides/monero/

[10] https://coincentral.com/top-privacy-cryptocurrency-race/

[11] https://getmonero.org/resources/moneropedia/tail-emission.html

[12] https://lightning.engineering

[13] https://www.investinblockchain.com/lightning-network-effect/

EOS

chart-18
EOS Percentage Increase Compared to the Average (Bit20 ETF) Starting in 2017

EOS is an Ethereum competitor founded by Dan Larimer (who also created BitShares and Steemit) and Brock Pierce (a former child actor who played a young Gordon Bombay in the Mighty Ducks). EOS plans to be a blockchain operating systems for running decentralized applications (dApps) on the platform with large aspirations of confirming millions of transactions per second as opposed to about 10-20 per second for Ethereum. Additionally, the EOS protocol requires the receiver to pay the fees, so that the companies who own the applications rather than the users are responsible for the cost of storage and bandwidth each time a user runs a dApp. EOS founder Dan Larimer explained that this system more closely resembles current websites and applications, where users do not have to make micropayments each time they click “Like” or post something on Facebook or Instagram, for example. Currently, EOS is selling their tokens through an ICO on the Ethereum platform while the EOS platform finishes its development and testing phases. Therefore, as of now the tokens have no purpose. Once those phases are complete, EOS tokens will be exchanged for EOS coins on the EOS platform which will be used in a delegated proof of stake system (DPOS) described below for companies to pay for the storage costs of their dApps.

Pros: Similar to Ethereum with extremely high transaction speeds (~ millions of transactions per second); delegated proof of stake validation method increases transaction speed and significantly reduces computing power necessary to run the network compared to proof of work used in Bitcoin, Ethereum, and many other decentralized networks; uses parallel processing to increase transaction speeds even further; executes Turing-complete smart contracts in a platform for developing dApps; no fees for users to execute smart contracts, developers bear the costs of storage and bandwidth requirements; smart contracts can be frozen or fixed

 Cons: Still in the conceptual phase and the tokens currently lack a purpose – EOS has not started to even test the network and plans on a long testing phase before releasing its smart contract functionality to the main network; unlimited supply where block producers receive new coins each time they produce a new block. Accordingly, unlike many other cryptocurrencies that are deflationary EOS is subject to inflation; founder Dan Larimer has a reputation for starting projects and leaving in the middle; very high transaction speeds can lead to centralization

Analysis

To perform an objective analysis, each cryptocurrency is rated based on the following factors: (1) validation method; (2) leadership; (3) community participation in development; (4) transaction volume and market capitalization; (5) industry participation; (6) security; (7) usability; (8) technical features; (9) growth; (10) legal risks; and (11) estimated time of arrival.

Validation Method

Unlike Bitcoin, Ethereum, and many other cryptocurrencies, EOS uses a delegated proof-of-stake (DPOS) system, via Graphene technology, to validate transactions rather than the more common proof-of-work system.[1] In a DPOS system, token holders vote on block producers which validate subsequent blocks, where the token holders’ votes are weighted in proportion to the number of tokens they own. In this manner, token holders (which may be application developers) can be in control of a percentage of storage and bandwidth in the EOS network in proportion to the number of tokens they own. In other words, a company who owns 1% of the EOS tokens can use 1% of the bandwidth and storage capacity.[2] This way companies can anticipate the amount of bandwidth and storage they need to run their applications and can purchase the corresponding number of EOS tokens. To produce blocks, the block producers receive a reward from the EOS network in the form of newly minted coins making EOS an inflationary currency.[3] Moreover, a block is produced every 3 seconds[4] and unlike other decentralized systems that produce blocks sequentially, the EOS platform plans to allow for several blocks to be produced at the same time (in parallel).[5] This is how EOS can achieve a confirmation rate of millions of transactions per second. While parallelization would allow for thousands of dApps to run on the platform, this concept is merely theoretical at this time. EOS still has extensive testing to do before it can demonstrate such a high level of scalability.

 Leadership/Community Participation

As mentioned above, EOS was founded by Dan Larimer – a controversial figure in the cryptocurrency community.[6] Although he founded other decentralized platforms, such as Bitshares and Steemit and is responsible for creating Graphene technology for a DPOS system, Larimer is known for leaving projects without fully seeing them through. On the other hand, Larimer insists his company block.one causes him to have a higher level of professionalism than his past projects.[7] Former child actor and co-founder Brock Pierce was recently removed from the project amidst allegations of a shady past.[8]

Transaction Volume and Market Capitalization

EOS has the 6th largest market cap (~4.3B)[9] and a daily transaction volume of over $260 million despite requiring substantial development before the tokens are converted into EOS coins and used in a staking system.

 Industry Participation

Although a few dApps have indicated an interest in migrating to the EOS platform, as EOS is still in its very early stages, the majority of companies seem to prefer Ethereum at this time.[10]

Security

In terms of security, EOS has many of the same advantages and disadvantages as Ethereum. In some instances, staking can lead to increased centralization as only a small number of users will have enough tokens to win a block reward. An attack directed at one of those accounts could severely disrupt the network. Additionally, the extremely high transaction rate can lead to expensive data storage costs, and as a result, only a small number of block producers may participate in the network. Therefore, EOS could become highly centralized.

Usability

Currently, the EOS token has no purpose or use. Once the EOS platform is released to the public, the EOS tokens will be converted to EOS coins used in the DPOS system.[11] Token holders with a large number of EOS coins can control a significant amount of the bandwidth and storage in the network. This way a large application such as a decentralized version of Facebook can store all of its users, posts, likes, etc., on the blockchain by maintaining a large number of EOS coins.

Technical Features

To perform DPOS, EOS uses Graphene technology developed by Dan Larimer and used in the decentralized networks BitShares and Steemit. Transactions are feeless and instead, block producers receive newly minted EOS coins for generating the blocks. Furthermore, EOS plans to have block producers operating asynchronously and in parallel to further increase scalability. By identifying groups of transactions that are unrelated to each other, producers can generate two blocks at the same time that do not depend on each other. EOS also plans to include a “constitution” as a smart contract laying out the terms of service for participants in the network.[12] This may include the jurisdiction and choice of law for dispute resolution. Another interesting feature in the EOS platform is the ability to freeze or fix issues with smart contracts.[13] Smart contracts in Ethereum cannot be changed once they are recorded on the blockchain which is problematic when code is known to have bugs which may not be discovered even after extensive testing. In the DPOS system, producers may simply stop confirming transactions for a particular dApp and EOS even allows for smart contracts to be updated on the platform.

Growth/Legal Risks

EOS has potential for growth as development proceeds further. Eventually, EOS may compete with Ethereum as the platform advances further in its development and testing phases and a functional version is released. Nonetheless, EOS at the moment appears risky as it is very early in the development phase, and it’s unclear whether the platform will be able to deliver all that it promises.

 Estimated Time of Arrival

Although EOS tokens can be purchased through the token sale as well as exchanges, the tokens have no purpose until they are converted into coins on the EOS platform. Currently, EOS seems to be somewhere in between the conceptual/development and testing phases and EOS plans to perform extensive testing before releasing the platform.

ETA: 2020

Conclusion

A blockchain operating system capable of confirming millions of transactions per second could support a very large number of dApps running on its network, and would allow for almost any website/application to become decentralized. While these concepts make EOS sound very attractive, there is still a lot of work to do for them to deliver on these promises. Also, the EOS tokens that are currently available have no purpose until they are converted into EOS coins and used in their staking system. Thus, EOS is a risky proposition at the moment.

[1] https://github.com/EOSIO/Documentation/blob/master/TechnicalWhitePaper.md#atomic-transactions-with-multiple-accounts

[2] https://en.wikipedia.org/wiki/EOS.IO

[3] https://steemit.com/eos/@bbrewer/10-things-you-should-know-about-eos

[4] https://www.nichemarket.co.za/blog/eos-coin-eos/

[5] https://coincentral.com/what-is-eos/

[6] https://www.coindesk.com/eos-unpacking-the-big-promises-behind-a-possible-blockchain-contender/

[7] https://www.coindesk.com/eos-unpacking-the-big-promises-behind-a-possible-blockchain-contender/

[8] http://fortune.com/2018/03/16/john-oliver-eos-brock-pierce-scandal-cryptocurrency/

[9] https://coinmarketcap.com/currencies/cardano/

[10] https://eosforum.org/t/eos-dapp-collection-12-listed-currently/309

[11] https://coincentral.com/what-is-eos/

[12] https://github.com/EOSIO/Documentation/blob/master/TechnicalWhitePaper.md#atomic-transactions-with-multiple-accounts

[13] https://www.youtube.com/watch?v=MUZWZj1pu94&feature=youtu.be

IOTA

chart-15
IOTA Percentage Increase Compared to the Average (Bit20 ETF) Starting in 2017

IOTA differentiates itself in many ways from other cryptocurrencies, but its primary distinguishing features include: (i) instead of using a blockchain to record transactions, IOTA utilizes a Tangle (described in more detail below). This alternative data structure allows users to transact with zero fees. Instead, when executing a transaction a user is required to confirm two previous transactions on the Tangle; (ii) IOTA is intended for machine-to-machine transactions such as the transfer of IOTA from machine A in exchange for data or memory storage capabilities from machine B; (iii) while blockchains are more secure than traditional computing systems, they are vulnerable to an attack from a quantum computer. IOTA, on the other hand, uses Winternitz signatures when signing transactions which are quantum resistant. On a related note, IOTA also has very fast transaction times compared to other cryptocurrencies. Each transaction performs its own proof-of-work as it is executed and a subsequent transaction then validates the previous transaction and one other unconfirmed transaction which can be performed very quickly.

Pros: First cryptocurrency intended for the Internet of Things; feeless transactions which enable micropayments; fast confirmation times (~a few seconds); quantum resistant; utilizes a Tangle rather than a blockchain which is less memory intensive and designed to scale

Cons: Unproven and untested – still in the beta phase, IOTA is currently working on a smart contract platform, but it has not been released for testing; uses a coordinator to confirm transactions meaning that at this time it is not decentralized (IOTA does plan to shut down the coordinator when the network reaches higher transactions volumes); the platform is not user friendly and wallets are difficult for the average person to use; the Internet of Things is still in its infancy and IOTA is years away from being integrated consistently in a machine-to-machine economy

Analysis

To perform an objective analysis, each cryptocurrency is rated based on the following factors: (1) validation method; (2) leadership; (3) community participation in development; (4) transaction volume and market capitalization; (5) industry participation; (6) security; (7) usability; (8) technical features; (9) growth; (10) legal risks; and (11) estimated time of arrival.

Validation Method

As described above, IOTA departs significantly from other cryptocurrencies and does not use a blockchain to record transactions. Instead, the coins are recorded in a Tangle which is a form of directed acyclic graph (DAG) that requires users to confirm two previous transactions (called “tips”) to issue a new transaction.[1] The user checks to make sure the two transactions do not conflict with each other and then attaches the transaction to the Tangle by having it reference the two previous transactions.[2] The user must also perform a proof-of-work (POW) for the new transaction to prevent attackers from spamming the network. As a transaction receives additional approvals from subsequent transactions, it is accepted at a higher level of confidence each time. The transactions are weighted and the weights increase with each subsequent transaction that directly or indirectly references the transaction, so the earliest transactions have the highest weights. Once a transaction achieves a certain weight, it is confirmed with a very high confidence level and does not risk being removed from the Tangle. Importantly, transactions are confirmed faster as more transactions are added to the Tangle.[3] This is the opposite of a blockchain where the network has issues with scalability. By contrast, the Tangle actually performs better as the transaction volume increases. However, because the Tangle is currently in its infancy and the transaction volume is relatively low at the moment, IOTA uses a central coordinator to help confirm transactions which is essentially training wheels for the protocol.[4] As currently implemented, the IOTA foundation is in control of the transactions on the network, and thus, they are not decentralized. IOTA does plan to remove the coordinator shortly but it’s unknown when that will be.

Leadership/Community Participation

The IOTA Foundation is led by David Sonstebo (a serial entrepreneur), Dr. Serguei Popov (the author of the whitepaper, a mathematician, and professor), Sergey Ivancheglo (former lead developer of Nxt coin), and Dominik Schiener.[5] Between the four of them, this team has extensive experience in the field of cryptocurrency. However, the development team has received a great deal of criticism for creating their own cryptographic hash function (which has since been removed),[6] exaggerating the extent of their partnership with Microsoft,[7] and handling criticism poorly.[8]

Transaction Volume and Market Capitalization

IOTA has cracked the top 10 in market cap but recently ranks closer to 15 at ~3.3B.[9] With a daily transaction volume of less than $30 million, IOTA has a much lower volume than the other coins in the top 10. As IOTA still requires a significant amount of development and testing (deploying a smart contract platform, removing the coordinator), transaction volume is likely to increase as the protocol progresses.

Industry Participation

In December, Robert Bosch teamed up with IOTA and one of Bosch’s partners joined IOTA as part of their advisory board.[10] More recently, IOTA partnered with the International Transportation Innovation Center (ITIC), where ITIC plans to use IOTA in a “smart city” environment.[11] Volkswagon also announced a partnership with IOTA to use the coin in smart cars for exchanging data and ordering good and services. While a few large companies have invested in IOTA, the cryptocurrency still has a long way to go to being utilized extensively in a machine-to-machine economy. Additionally, these partnerships are in their very early stages and the protocol has not yet been implemented in any Bosch, Volkswagon, or ITIC products.

Security

Unlike almost all other cryptocurrencies, IOTA is quantum resistant meaning that it isn’t vulnerable to an attack from a quantum computer.[12] While this isn’t an issue right now, a fully functioning quantum computer could compromise the security of Bitcoin, Ethereum, and many other decentralized ledgers.

Usability

Although IOTA can be used for daily transactions due to its ability to process micropayments quickly and at no cost, it plans to corner the market on M2M transactions. While the smart contracts platform has not been developed, the founders envision IOTA being used in a machine-to-machine economy, where devices exchange data, energy, and other resources.[13]

Technical Features

The main feature of IOTA that distinguishes it from the rest is its use of the Tangle instead of a blockchain to record transactions. Users rather than miners perform a POW and then confirm two previous transactions referred to as “tips.” Many in the cryptocurrency community have questioned who is going to validate transactions on the Tangle without receiving fees or a block reward. The IOTA foundation responds to this by suggesting that large companies who want to send and receive free micropayments will be incentivized without any additional reward or fee.[14] IOTA is also quantum resistant by using Winternitz signatures to sign transactions. Furthermore, the cryptocurrency plans on deploying a smart contracts platform to allow for the automated exchange of data between devices, but this is still in development.

Growth/Legal Risks

IOTA has plenty of potential for growth as development proceeds further. Nonetheless, the success of IOTA is strongly tied to the growth of the Internet of Things and the need for a machine-to-machine economy. If the Internet of Things does not grow as expected or companies do not want their devices to exchange data IOTA may lose its purpose. On the other hand, this seems unlikely as the IoT is projected to grow significantly in the next few years.[15]

Estimated Time of Arrival

Although IOTA is readily available on many exchanges, a significant amount of development is still necessary before this coin becomes viable. Currently, the training wheels have not come off for the Tangle, the light wallet is not user friendly, the smart contracts platform is still in development, and IOTA’s partnerships with device manufacturers are in their early stages prior to implementation in consumer products.

ETA: 2022 

Conclusion

IOTA departs significantly from other cryptocurrencies making it exciting and unique with vast potential. Still, there is still a lot of work to do to build the platform. At this time, IOTA is an experimental technology with creative solutions to common problems found in cryptocurrency. Nevertheless, its unique solutions allow IOTA to stand out from the rest and if the development team can follow through on its promises, IOTA can be one of the strongest cryptocurrencies in the future.

[1] https://iota.org/IOTA_Whitepaper.pdf

[2] http://untangled.world/iota-consensus/

[3] https://steemit.com/iota/@iuliuspro/iota-tangle-seems-to-be-the-next-crypto-evolution-the-bad

[4] https://medium.com/@norbert.gehrke/iota-the-misunderstood-coin-c6c94678ec99

[5] http://untangled.world/iota-founders/

[6] https://www.forbes.com/sites/jeffkauflin/2018/01/03/iota-rose-464-in-2017-but-buyer-beware-experts-have-major-security-concerns/#411e247d5faa

[7] https://cryptovest.com/news/iotas-partnership-with-microsoft-is-exaggerated/

[8] https://medium.com/@norbert.gehrke/iota-the-misunderstood-coin-c6c94678ec99

[9] https://coinmarketcap.com/currencies/iota/

[10] http://www.businessinsider.com/robert-bosch-bets-on-iota-2017-12

[11] https://www.prnewswire.com/news-releases/iota-partners-with-itic-to-build-a-global-alliance-of-smart-mobility-testbeds-300580423.html

[12] https://iota.org/IOTA_Whitepaper.pdf

[13] http://untangled.world/cryptocurrency-without-blockchain-built-outperform-bitcoin/

[14] https://medium.com/@norbert.gehrke/iota-the-misunderstood-coin-c6c94678ec99

[15] https://www.forbes.com/sites/louiscolumbus/2017/12/10/2017-roundup-of-internet-of-things-forecasts/#3975f5761480