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/

Litecoin

chart-16
Litecoin Percentage Increase Compared to the Average (Bit20 ETF) Starting in 2017

Litecoin – a fork of Bitcoin – has been dubbed by creator Charlie Lee as the ‘silver’ to Bitcoin’s ‘gold.’ That is, Litecoin does not intend to compete directly with Bitcoin. Instead, Litecoin aspires to be the industry leader in the daily transactions space. Litecoin shares almost all of the same characteristics as Bitcoin. The main differences are that Litecoin has shorter block times (2.5 min compared to 10 min for Bitcoin), a larger supply (84 million to 21 million for Bitcoin), and uses a different mining algorithm (Scrypt instead of SHA-256). By using shorter block times, the Litecoin protocol is designed to increase transaction speeds and decrease fees compared to Bitcoin. While shorter block times expose Litecoin to greater security risks, Charlie Lee explained he is willing to sacrifice a little on security to increase speed for daily transactions. He further surmised that Bitcoin needs to have the highest level of security to store users’ savings. Litecoin could then operate like cash, where it’s acceptable to sacrifice some security for increased convenience when users are transacting in small amounts and a security breach would not result in financial ruin.

Pros: Contains many of the benefits of Bitcoin including decentralization, immutability, and limited supply in addition to improved scalability due to the 2.5 min block time; fast confirmation times (~a few seconds); low transaction fees (~$.20 per transaction); first cryptocurrency intended for daily transactions

Cons: Decreased block time comes with increased security risks; several competitors in the daily transactions space (Bitcoin Cash, Dash, Nano); if Bitcoin solves its scaling problem there may not be a need for an additional cryptocurrency for daily transactions; 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

Litecoin uses the same proof-of-work (POW) system as Bitcoin to validate transactions, but a different mining algorithm in Scrypt.[1] Originally, miners could run Scrypt on CPUs but hashing power has increased considerably and now requires ASICs. Because blocks are generated every 2.5 minutes rather than every 10, Litecoin experiences a much larger number of stale blocks and orphaned chains than Bitcoin.[2] This means that miners find blocks which are not added to the blockchain, because another block has its chain extended first. Additionally, the shorter block time leads to an increased number of blocks, making data storage expensive. Between the expensive data storage and likelihood of finding orphaned blocks (where miners do not receive a reward), only a few miners participate in the Litecoin network.[3] Thus, Litecoin mining is centralized (only three mining pools control over 50% of the hash power: LitecoinPool.org, Antpool, and LTC.top), making it vulnerable to a 51% attack.

Leadership/Community Participation

Litecoin is led by its creator Charlie Lee, a former Google engineer and MIT grad.[4] Mr. Lee has a strong vision for the future of Litecoin. As the first major adopter of the Segregated Witness (SegWit) upgrade, Lee is a strong proponent of the Lightning Network as an off-chain solution. He envisions Litecoin and Bitcoin using the Lightning Network for atomic swaps to exchange one coin for the other.[5] Although the Lightning Network may allow Bitcoin to scale to the point where it can perform its own daily transactions, Charlie Lee believes Bitcoin Lightning Network transactions will be more expensive than Litecoin Lightning Network transactions. As such, he sees a scenario where users who want to transact in Bitcoin convert to Litecoin, transact in Litecoin, and convert back to Bitcoin via an atomic swap to reduce transaction fees.[6]

Transaction Volume and Market Capitalization

Litecoin has about 1/10 the transaction volume of Bitcoin (~$400M in transactions per day). Even though confirmation times and transaction fees are significantly lower for Litecoin, the network has not been fully tested. Nevertheless, Litecoin does have the 5th largest market cap (~$9B) of all cryptocurrencies.[7]

Industry Participation

Recently Alza, a major European online retailer, announced that it is accepting Litecoin.[8] RE/MAX London also accepts Litecoin as a form of payment. Additionally, it can be purchased through several exchanges, such as Coinbase, Bitstamp, Binance, and many others. However, Litecoin has yet not received widespread acceptance and may only be used at very limited locations.

Security

As mentioned above, Litecoin is not as secure as some other cryptocurrency such as Bitcoin, due to its relatively short block times. Charlie Lee also intimated that he would be willing to increase block size as well to increase transaction times, despite further security risks. He explained that for Litecoin some vulnerability is okay, because he does not envision users having large amounts of Litecoin at any given time.[9] Instead, he sees users keeping their savings in Bitcoin and converting small amounts to Litecoin for daily transactions, like withdrawing cash from an ATM. Even so, some studies have shown that reducing block times to as little as 1 minute have little negative impact on security.[10]

Usability

As the silver to Bitcoin’s gold, Litecoin is intended to be used for day-to-day transactions including micropayments.[11] Lee explained, “Bitcoin can be used for like moving millions of dollars between banks, buying houses, buying cars. It’s really secure. Litecoin can be used for cheaper things.”[12] While this idea makes sense in theory, it is yet to be seen whether Litecoin can maintain low transaction fees and fast confirmation times when the network is flooded with billions of transactions per day. It appears that off-chain solutions like the Lightning Network or solutions that do not require a blockchain are better suited to handle exponential increases in transaction volume[13] and micropayments. But, Lee envisions a world where Lightning Network complements Litecoin and increases its value rather than destroying it.

Technical Features

As described above, Litecoin has almost all of the same features as Bitcoin. The main differences are block times of 2.5 minutes, a limited supply of 84 million coins as opposed to 21 million, and Scrypt for its hashing algorithm.[14] Whereas Bitcoin’s mempool had been reaching close to 300 MB of unconfirmed transactions in January, because of its shorter block times the amount of unconfirmed transactions for Litecoin is typically under 1 MB.[15] Additionally, Litecoin was the first major cryptocurrency to adopt SegWit, meaning it has been testing the Lightning Network for longer than many others including Bitcoin.

Although Litecoin has some similar drawbacks as Bitcoin Cash (increased security risks and mining centralization), Litecoin has been around much longer and isn’t trying to compete directly with Bitcoin.[16] Additionally, Litecoin embraces off-chain scaling solutions like Lightning Network, whereas Bitcoin Cash appears to believe it has the best solution to scaling. 

Growth/Legal Risks

Litecoin’s main competitors are other cryptocurrencies that intend to be used for day-to-day transactions, such as Bitcoin Cash, Dash, Nano, etc. Despite the fact that there are many competitors in this space, Litecoin was the first to market, and has room to grow as the demand for cryptocurrencies that can perform day-to-day transactions and micropayments increases. Additionally, Litecoin has a limited supply although it has 4 times as many coin as Bitcoin. As the number of Litecoin left to mine decreases, Litecoin’s value should go up.  On the other hand, if Bitcoin can address its scaling issues Litecoin may lose some of its advantage in this niche market within cryptocurrency.

Estimated Time of Arrival

Litecoin was launched in 2011 and is now fully developed and ready for use. However, the Litecoin network has not been tested to the same extent as Bitcoin’s, and we won’t know for sure how well Litecoin can handle daily transactions until its required to confirm hundreds of millions or even billions per day like a credit card company.

ETA: Now

Conclusion

Litecoin has strong leadership with a well thought out vision for the future, and a concrete plan to make that vision come to fruition. Nonetheless, it is unclear whether gold and silver can co-exist if and when off-chain solutions are widely adopted.

[1] https://www.coindesk.com/information/comparing-litecoin-bitcoin/

[2] https://www.coindesk.com/lower-bitcoin-block-time-scale/

[3] https://www.litecoinpool.org/pools

[4] https://twitter.com/SatoshiLite

[5] https://www.youtube.com/watch?v=U2KP8koYC3s

[6] https://segwit.org/my-vision-for-segwit-and-lightning-networks-on-litecoin-and-bitcoin-cf95a7ab656b

[7] https://coinmarketcap.com

[8] https://www.alzashop.com/alza-introduces-a-payment-by-litecoin

[9] https://www.youtube.com/watch?v=U2KP8koYC3s

[10] https://www.coindesk.com/lower-bitcoin-block-time-scale/

[11] https://bravenewcoin.com/news/for-bitcoin-is-being-a-store-of-value-more-important-than-a-payment-system/

[12] https://www.express.co.uk/finance/city/905756/Litecoin-bitcoin-fork-miners-China-South-Korea-Charlie-Lee

[13] https://lightning.engineering

[14] https://www.coindesk.com/information/comparing-litecoin-bitcoin/

[15] https://dedi.jochen-hoenicke.de/queue/litecoin/#3m

[16] https://www.express.co.uk/finance/city/905756/Litecoin-bitcoin-fork-miners-China-South-Korea-Charlie-Lee

Bitcoin Cash

chart-5
Bitcoin Cash Percentage Increase Compared to the Average (Bit20 ETF) Starting in 2017

Bitcoin Cash is a hard fork of Bitcoin – meaning that it shares almost all of the same characteristics with Bitcoin except one: Bitcoin Cash uses 8 MB blocks while Bitcoin uses 1 MB. This adjustment to the Bitcoin protocol was made to address Bitcoin’s scalability issues. By using larger block sizes, the Bitcoin Cash protocol is designed to increase transaction speeds and decrease fees compared to Bitcoin. Those in favor of Bitcoin Cash argue that the larger block size solves Bitcoin’s scaling problem making it useful for daily transactions (e.g., for a cup of coffee) including micropayments. They also claim that the cryptocurrency that can handle small, constant transactions can also be used as a store of value, thereby replacing the need for Bitcoin. However, those opposed cast Bitcoin Cash in a much different light. They argue that a larger block size does not permanently solve the scaling problem and instead is a temporary solution that Bitcoin could easily adopt if it’s successful. Instead, Bitcoin Cash is one of many cryptocurrencies competing to be the leader in daily transactions. There are strong arguments on both sides making Bitcoin Cash very difficult to evaluate. 

Pros: Contains many of the benefits of Bitcoin including decentralization, security, immutability, and limited supply in addition to improved scalability due to the 8 MB block size; fast confirmation times (~a few seconds); low transaction fees (~$.10 per transaction); decentralized development

Cons: Provides a quick fix to the scalability issue without finding a long-term solution; Bitcoin could always increase its block size in the future to match or exceed the Bitcoin Cash block size; vulnerable to a 51% attack if a mining pool or anyone else controls over 50% of the mining power; Bitcoin Cash mining is centralized

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

Bitcoin Cash uses the same proof-of-work (POW) system as Bitcoin to validate transactions. But its larger block size leads to expensive data storage costs, and as a result, only a few miners participate in the Bitcoin Cash network.[1] Thus, Bitcoin Cash is highly centralized (only three miners control over 50% of the hash power: Antpool, ViaBTC, and BTC.com), making it vulnerable to a 51% attack.

Leadership/Community Participation

Unlike many other cryptocurrencies, Bitcoin Cash has a decentralized development team made up of developers from Bitcoin ABC, Bitcoin Classic, Bitcoin Unlimited, Bitcoin XT, and several others.[2] This prevents any single group of developers from controlling the code. Although Bitcoin Cash does not have a prestigious leader like Vitalik Buterin of Ethereum or Brad Garlinghouse of Ripple, the cryptocurrency has many influential supporters such as Roger Ver, better known as “Bitcoin Jesus.”[3]

Transaction Volume and Market Capitalization

Bitcoin Cash has about 1/10 the transaction volume of Bitcoin (~$400M in transactions per day). Even though confirmation times and transaction fees are significantly lower for Bitcoin Cash, the network has not been fully tested. On the other hand, Bitcoin Cash does have the 4th largest market cap (~$20B) of all cryptocurrencies and just recently came into existence after the hard fork of August 2017.

Industry Participation

Bitcoin Cash is accepted at some retailers, such as Overstock.com.[4] Additionally, it can be purchased through several exchanges, such as Coinbase, Bitstamp, Binance, and many others. However, Bitcoin Cash has yet not received widespread acceptance and may only be used at very limited locations.

Security

In terms of security, Bitcoin Cash has many of the same advantages and disadvantages as Bitcoin.

Usability

Many argue that Bitcoin is meant to be used as a store of value, while Bitcoin Cash is better suited for day-to-day transactions including micropayments.[5] Although this idea makes sense in theory, it is yet to be seen whether Bitcoin Cash can maintain low transaction fees and fast confirmation times when the network is flooded with billions of transactions per day. It appears that off-chain solutions like the Lightning Network or solutions that do not require a blockchain are better suited to handle exponential increases in transaction volume[6] and micropayments.

Technical Features

As described above, Bitcoin Cash has almost all of the same features as Bitcoin. The main difference is its block size of 8 MB. This means 8 times as many transactions are included in a block, preventing the network from overloading and having a backlog of transactions that need to be confirmed. While Bitcoin’s mempool had been reaching close to 300 MB of unconfirmed transactions in January, the amount of unconfirmed transactions for Bitcoin Cash is typically under 1 MB.[7]

Growth/Legal Risks

Even though it may appear that Bitcoin Cash is a direct competitor with Bitcoin, there is an argument that the two can coexist and users can have both for different purposes. Bitcoin may end up being used as a store of value while Bitcoin Cash is the cryptocurrency for day-to-day peer-to-peer transactions. As such, Bitcoin Cash’s main competitors are other cryptocurrencies that intend to be used in a similar manner, such as Litecoin, Dash, Nano, etc. Although there are many competitors in this space, Bitcoin Cash is currently the leader according to market cap, and has room to grow as the demand for cryptocurrencies that can perform day-to-day transactions and micropayments increases. On the other hand, if Bitcoin can address its scaling issues Bitcoin Cash may lose its advantage as the leader of a niche market within cryptocurrency.

Estimated Time of Arrival

Because Bitcoin Cash shares almost all of the same features as Bitcoin, the protocol is fully developed and ready for use. Nevertheless, the Bitcoin Cash network has not been tested to the same extent as Bitcoin’s, and we won’t know for sure how well Bitcoin Cash can handle daily transactions until its required to confirm hundreds of millions or even billions per day like a credit card company.

ETA: Now

Conclusion

The future of Bitcoin Cash is very hard to predict as there are so many possible outcomes when it comes to this cryptocurrency. It may emerge as the cryptocurrency used as a store of value and for daily transactions while Bitcoin is considered old technology. On the other hand, Bitcoin Cash may become obsolete when developers discover a more permanent solution to the scaling problem, such as by using off-chain transactions or a data structure other than blockchain. Of course, the ultimate fate of Bitcoin Cash is likely somewhere in between, but because their solution to the scaling problem doesn’t seem to be a permanent one, it’s value may be surpassed by other coins down the road.

[1] https://coinsutra.com/btc-vs-bch-bitcoin-cash/

[2] https://news.bitcoin.com/developer-amaury-sechet-discusses-the-values-of-bitcoin-abc-development/

[3] https://www.cnbc.com/2017/12/20/bitcoin-jesus-says-investors-should-be-ready-in-case-bitcoin-falls-out-of-favor.html

[4] https://acceptbitcoin.cash

[5] https://bravenewcoin.com/news/for-bitcoin-is-being-a-store-of-value-more-important-than-a-payment-system/

[6] https://lightning.engineering

[7] https://dedi.jochen-hoenicke.de/queue/#30d