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

Cardano (ADA)

chart-14
ADA Percentage Increase Compared to the Average (Bit20 ETF) Starting in 2017

Cardano – also known as the “Japanese Ethereum” – takes many of the pitfalls of Bitcoin and Ethereum and attempts to improve upon both networks. For example, Cardano uses proof of stake as its validation method rather than the proof of work systems employed by many cryptocurrencies including Bitcoin. This significantly reduces the amount of processing power required to validate the network. Furthermore, unlike Ethereum, Cardano utilizes a two-layered system (i.e. two sets of processes occurring simultaneously): (i) a settlement layer similar to Bitcoin to record transactions, and (ii) a control layer for executing “smart contracts” similar to Ethereum. By separating the network into multiple layers, Cardano can address problems with each layer independently. This is similar to the communications protocol for the Internet, which uses several layers including an Internet layer for routing data to the appropriate destination, and an application layer for defining the protocols used to exchange the data.[1] The ADA coin is utilized as the “gas” for executing the smart contracts on the Cardano platform, which means users have to pay a certain amount in ADA to run a contract.

Pros: Executes Turing-complete smart contracts; platform for developing dApps; strong development partner in IOHK; multi-layered network that separates the transaction from the terms and conditions of the transfer; 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

Cons: Unproven and untested – the Plutus programming language for writing smart contracts is still in development; proof of stake can lead to centralization as only a select few may have enough coins to participate in staking

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, Cardano uses a proof-of-stake (POS) system to validate transactions rather than the more common proof-of-work system. In a POS system, the validator for the next block is selected based on a combination of random selection and account balance. For example, in a POS system if you own 2% of the coins, you can expect to validate about 2% of the blocks, and consequently, receive about 2% of the rewards.[2] In a POS system, the likelihood of a 51% attack is lower than in a POW system, because it is typically more expensive to own more than 50% of the coins than it is to have more than 50% of the computing power. Conversely, a POS system is vulnerable to the “nothing-at-stake” problem, where an attacker sends a transaction, forks the blockchain from one transaction behind the attacker’s transaction, and then rewrites the transaction to himself to double-spend the currency.[3] Because there is no disincentive for validators to mine both chains in a POS system, they will continue to mine on both validating the attacker’s transactions. However, this problem is more theoretical in nature, and is not perceived as an imminent threat.

Leadership/Community Participation

The Cardano Foundation partnered with Input Output Hong Kong (IOHK) – a technology company founded by Charles Hoskinson and Jeremy Wood who were previously involved in Ethereum.[4] IOHK also employs Professor Aggelos Kiayias, a cryptographer from the University of Edinburgh, along with a team of researchers and scientists that have contributed to the protocol.[5] With these great minds at the forefront of cryptography and distributed ledgers working together, Cardano has the potential to improve upon the existing platforms. Cardano is also the first academically peer-reviewed distributed ledger.[6]

Transaction Volume and Market Capitalization

Cardano has the 7th largest market cap (~5.7B)[7] and a daily transaction volume of over $200 million despite requiring substantial development before any token holder can participate in staking and smart contracts can be deployed on the network.

Industry Participation

A few companies have indicated an interest in the Cardano platform once the virtual machine and Plutus programming language are available for use. This includes Traxia[8], a token for financing small and medium sized businesses, which plans to migrate to the Cardano platform at the end of 2018. However, as Cardano is still in its very early stages, the majority of companies seem to prefer Ethereum at this time.

Security

In terms of security, Cardano 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.

Usability

ADA is a utility token used as fuel for operating the Cardano platform.[9] This means that each time a developer creates a smart contract or issues a token on the platform, a designated amount of ADA is transferred. ADA may also be used as a store of value and/or for daily transactions, but its primary intended use appears to be as fuel for executing smart contracts.

Technical Features

To perform proof-of-stake, Cardano uses an algorithm named Ouroboros which has been extensively peer-reviewed.[10] As mentioned above, the Cardano protocol is separated into two layers: a settlement layer and a control layer. The settlement layer is used to record transactions, while the control layer executes smart contracts through a virtual machine called IELE and a programming language named Plutus, both still under development.[11] By separating smart contracts and transactions into two layers, the development team can address problems such as scaling with each layer independently. By contrast, Ethereum records all of this information in the same layer, creating large storage requirements and in some instances, slowing down the network. Finally, Cardano intends to enact an on-chain governance system, where token holders vote on updates to the protocol, and if a majority vote in favor of the update then it is enacted.[12] 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 Cardano’s on-chain governance system, updates are voted on before they are added into the protocol.

Growth/Legal Risks

Cardano has plenty of potential for growth as development proceeds further.  Eventually, Cardano may compete with Ethereum as developers and companies try out the Cardano platform for generating smart contracts. Moreover, the supply of the ADA coin is capped at 45 billion which it should reach in a little over 20 years.[13] While the supply is several orders of magnitude larger than Bitcoin’s, Litecoin’s, or Ethereum’s, the ADA coin may see a spike in growth as it reaches the maximum amount.

Estimated Time of Arrival

Although ADA is readily available on many exchanges, a significant amount of development is still necessary before this coin becomes viable. Currently, the proof of stake system requires users to have at least a 1% of the total supply of ADA (or about $130 million) to participate in staking. Additionally, both the virtual machine (IELE) and programming language (Plutus) for writing smart contracts remain under development.

ETA: 2020

Conclusion

While the concepts behind Cardano are very intriguing and address many issues with other cryptocurrencies, there is still a lot of work to do to build the platform.  The ADA coin has tremendous potential, but it is yet to be seen how developers will adapt to the Plutus language, or how the IELE virtual machine and the Cardano network will handle a large volume of contracts/transactions.

[1] https://technet.microsoft.com/en-us/library/cc958821.aspx

[2] https://hackernoon.com/cardano-ethereum-and-neo-killer-or-overhyped-and-overpriced-8fcd5f8abcdf

[3] https://blog.goldmint.io/nothing-at-stake-and-longrange-attack-in-pos-4ec486f1fc89

[4] https://iohk.io/team/#iohk

[5] http://storeofvalueblog.com/posts/a-deep-dive-into-cardano/

[6] https://hackernoon.com/cardano-ethereum-and-neo-killer-or-overhyped-and-overpriced-8fcd5f8abcdf

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

[8] https://www.traxia.co

[9] https://steemit.com/cryptocurrency/@nrek/the-real-next-neo-is-here-meet-cardano-and-ada

[10] https://www.investopedia.com/news/introduction-cardano/

[11] https://cardanodocs.com/technical/plutus/examples/

[12] https://hackernoon.com/cardano-ethereum-and-neo-killer-or-overhyped-and-overpriced-8fcd5f8abcdf

[13] https://onchainfx.com/asset/cardano

Ether

chart-12
Ether Percentage Increase Compared to the Average (Bit20 ETF) Starting in 2017

As a decentralized platform that utilizes blockchain technology, Ether has many of the advantages (better security, immutable, trustless, no need for a central authority) and drawbacks (scalability issues and high transaction fees) of Bitcoin. Its distinguishing feature, however, is the ability to generate and execute “smart contracts,” which are a set of terms and conditions that allow for the automated exchange of tokens or digital assets. For example, Alice may automatically receive Bob’s tokens when the Cubs win the World Series, and Bob may automatically receive Alice’s tokens when the White Sox win the World Series. Through the use of these smart contracts, companies can develop decentralized applications (dApps) on the Ethereum platform, where users receive digital assets when a particular set of conditions occur. The Ether coin is referred to as the “gas” for executing the smart contracts on the Ethereum platform, which means users have to pay a certain amount in Ether to run a contract.

Pros: Executes Turing-complete smart contracts; platform for developing dApps; allows for the exchange of a wide range of digital assets; strong leadership in Vitalik Buterin and a development team of over 200 contributors; several tokens run on the Ethereum ERC20 token standard; second largest market cap to Bitcoin

Cons: Scalability issues; rising transaction fees (has reached ~$0.50 per transaction); 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

Like Bitcoin, Ethereum uses a proof-of-work (POW) system to validate transactions by miners required to solve a cryptographic riddle which is difficult to compute but easy for others to verify.[1] Therefore, mining requires a large amount of computing resources and electricity. Additionally, a POW system is vulnerable to a 51% attack, where a single miner or mining pool (made up of several miners working together who split the rewards) has more than half of the mining power of the network. As a result, the miner can refuse to validate transactions and can double-spend Ether.[2] On the other hand, the likelihood of a 51% attack is low, because this would devalue the currency that the miners are working to obtain.

Currently, Ethereum is considering switching to a proof-of-stake (POS) system called Casper, where the validator for the next block is selected based on a combination of random selection, account balance, and the number of days the coins have been held.[3] 

Leadership/Community Participation

The Ethereum Foundation is led by Vitalik Buterin, a Russian-Candian programmer and entrepreneur who co-founded Ethereum before he turned 20 and has been referred to as a “boy genius.”[4] The Ethereum Foundation includes over 200 members who are actively improving the functionality of the network.[5] Software updates are added on Github on a regular basis.

Transaction Volume and Market Capitalization

Ether has the second largest market cap to Bitcoin (~$80B) [6] and a transaction volume of about 1 million transactions per day.[7] Nevertheless, Ether has been experiencing scalability issues as transaction volume has rapidly increased leading to rising transaction fees. Multiple solutions to this problem have been proposed including a multi-layered protocol similar to Bitcoin’s Lightning Network where most transactions will occur on off-chain micropayment channels. Another proposed solution is referred to as “sharding,” where nodes no longer store the full state of the network and instead each node merely stores a subset of the data.[8] Then the nodes communicate with each other to obtain data which is not stored at a particular node. But, this system isn’t trustless since nodes need to obtain data from the other nodes. 

Industry Participation

Several players have been involved in creating dApps on the Ethereum platform. This includes CryptoKitties[9] (an extremely popular game where virtual cats have been sold for up to $100k), Eth-Tweet[10] (a microblogging service), and WeiFund[11] (a crowdfunding service). While we have not yet seen dApps created by large companies, some big businesses such as Toyota have been experimenting with applications utilizing the Ethereum blockchain.[12]

Security

In terms of security, Ether has many of the same advantages and disadvantages as Bitcoin. Executing smart contracts on the blockchain may open Ether up to additional security issues, however, because the code used to run the smart contracts is made public. Everyone in the network then has the ability to review the code, find bugs, and exploit them before the developers become aware of the bugs and are able to make corrections.

Usability

Ether is a utility token used as fuel for operating the Ethereum platform.[13] This means that each time a developer creates a smart contract or issues a token on the Ethereum platform, a designated amount of Ether is transferred. Several tokens and altcoins have been created on the Ethereum platform using the token standard ERC20. These tokens include: Tron, ICON, OmiseGo, Binance Coin, VeChain, Tether, Golem, and many others.

Technical Features

Although smart contracts can also be executed using Bitcoin, the Bitcoin smart contracts have limited functionality. Ethereum, on the other hand, uses an Ethereum Virtual Machine[14] which executes Turing-complete smart contracts that can perform just about any computation, and are not limited to exchanging tokens.[15] In this manner, additional information can be recorded and exchanged via the blockchain, such as identity information, product information, etc. Ethereum also utilizes oracles to communicate with the off-blockchain world for evaluating conditions in the contract.[16] For example, if the terms of the contract indicate that Alice will receive 100 Ether from Bob if the average temperature in Chicago is over 50 degrees in January, an oracle collects temperature data for Chicago which is then evaluated by the smart contract.

Growth/Legal Risks

Currently, there are over 32000 ERC20 token contracts executing on the Ethereum platform, and this number has been increasing at an exponential rate.[17] As developers and companies find more uses for smart contracts, the value of Ether should continue to rise. Even though the supply of Ether is technically unlimited, the issuance of Ether is capped at 18 million per year.[18]

Estimated Time of Arrival

Like Bitcoin, Ether is currently in use and several developers have created dApps and tokens on the Ethereum platform. While it is still in its infancy, developers will likely experiment with more and more uses of smart contracts.

ETA: Now

Conclusion

Ether has the advantage of being the first cryptocurrency to be used in the execution of Turing-complete smart contracts. The possibilities for these contracts are endless, and the Ethereum project has the opportunity to transform not only the legal landscape, but how people and machines exchange value.

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

[2] https://learncryptography.com/cryptocurrency/51-attack

[3] https://seekingalpha.com/article/4132934-ethereums-casper-protocol-will-address-problems-proof-stake

[4] https://www.inc.com/sonya-mann/vitalik-buterin-ethereum.html

[5] https://github.com/ethereum/go-ethereum

[6] https://coinmarketcap.com/currencies/ethereum/

[7] https://www.computerworld.com/article/3245928/emerging-technology/ethereum-explores-a-fix-for-blockchains-performance-problem.html

[8] https://www.coindesk.com/information/will-ethereum-scale/

[9] https://www.cnbc.com/2017/12/06/meet-cryptokitties-the-new-digital-beanie-babies-selling-for-100k.html

[10] https://github.com/yep/eth-tweet

[11] http://weifund.io

[12] https://www.trustnodes.com/2017/05/28/toyota-prototypes-ethereum-blockchain-based-car-sharing-uber-alternative

[13] https://www.ethereum.org/ether

[14] https://themerkle.com/what-is-the-ethereum-virtual-machine/

[15] https://www.coindesk.com/information/how-ethereum-works/

[16] https://bitcoin.stackexchange.com/questions/40389/what-advantages-and-disadvantages-does-ethereum-have-over-bitcoin

[17] https://etherscan.io/tokens

[18] https://www.ethereum.org/ether