Top Five App/Platform Cryptocurrencies
For the average person, the term cryptocurrency suggests a digital currency, a solution around the bank-driven fiat money system that drives the world today. Despite this, there is a growing movement to get away from the bitcoin definition of cryptocurrency.
The potential of the distributed ledger or blockchain has driven innovators and dreamers to imagine a world where applications live in virtual space, where money and services can move without the need of a third party, and where data is shared without needing to be held by any singular authority.
This post will look at the five largest app/platform cryptocurrencies.
It may be easy to forget that the world’s second largest cryptocurrency is an app platform. However, without the Ethereum model, we would not have the ICOs and decentralized applications we have today. Ethereum, if fact, was the first ICO.
In his whitepaper, Vitalik Biterin bemoaned the fact that bitcoin has no scripting language. While you can transfer a limited amount of data to and from the bitcoin blockchain using bitcoin, any application acting on it must either be locally-hosted or sitting on a remote computer. Neither option spoke to the potential of the decentralized blockchain, as the process of downloading and installing an application or logging on to a remote terminal “centralizes” the experience. The ideal solution is to create an ecosystem where the applications can run in the same space as the blockchain, decentralized and without third party interference.
This ecosystem became the Ethereum Virtual Machine. A 256-bits register stack, it is the runtime environment where all decentralized applications (Dapps) and smart contracts are implemented. Existing on every node, it is isolated from other processes and applications running on the host computer, creating a virtual universe of sorts where users can have unfettered access.
The key function of the EVM is smart contracts, or anonymous, decentralized applications designed to conduct a transaction between two parties without the need of an enforcing third party. Smart contracts live on the Ethereum blockchain and are, therefore, present on every node.
In effect, a smart contract is a self-executing contract that will execute the terms of the contract without the need to engage in independent enforcement, collection, or recollection processes. This can be problematic, as in the case of the DAO hack, where a flaw in a smart contract was detected, but could not be quickly remedied. However, it is generally felt that smart contracts are safer than actual contracts as enforcement is not dependent on an outside party.
These smart contracts can constitute asset management, commodity purchasing, revenue sharing, or any other function their programmers design for them. A way to think of a smart contract is a self-replenishing, self-depositing vending machine – it is always available when you need it and no one will ever need to service it.
The EVM and Ethereum’s native coin, Ether, made the platform attractive for building decentralized applications or Dapps. These include IDEX, Bancor, CryptoKitties, ForkDelta, Auger, and SingularDTV. While scalability problems limit the size of the network and the maximum number of transactions possible at any one time, and while these limits have led some to look at other options, Ethereum remains the first and best known smart contract platform.
In a common Ralph Waldo Emerson misquote, it is argued that “Build a better mousetrap, and the world will beat a path to your door.” This idea has been the hope of Ripple, whom sought to build a better real-time remittance, payment, and settlement (RPS) system.
The problem with the current RPS system is that it is a trust-based system. To get a payment cross-borders, it would take a number of independent actors to act in good faith when one or all of them may have an incentive not to. Say, for example, Miguel runs a coffee shop in Chicago that proudly sells Colombian fair trade coffee. To get a payment for the latest shipment to Colombia, Miguel must engage a cross-border payment.
This cross-border payment involves many hand-offs as the payments travel from one national bank to another. Each time there is a hand-off, the new bank will take a fee from the payment. Worse, as the payments move from system to system, it becomes harder to track from the outside, making the possibility of the transaction being lost a distinct possibility. Even if the transaction does arrive safely, a significant amount of the payment was lost, with the payment itself possibly being delayed by days or even weeks.
While the banking industry’s preferred solution – SWIFT – has incorporated blockchain technology to its messaging service to make interbank transfers easier to track, it is argued that a fully decentralized solution would be preferable. Under such circumstances, a cross-border payment would be as simple as an email, where the payment would be tokenized, sent digitally, and reconverted by the recipient.
Ripple seeks to achieve this by creating an interbank transfer protocol where a financial institution can make a payment to another institution via its native currency or through Ripple’s cryptocurrency, XRP. With XRP transfers, the transfer is completed using the Ripple blockchain, while fiat currency transfers are only recorded on the blockchain as a debt obligation to be satisfied outside of Ripple. Debt obligations among trusted partners can be adjusted atomically in a process known as “rippling.”
While a fully decentralized solution is currently beyond the capabilities of the technology, the Ripple protocol presents the possibility of independent bank systems being able to work together to conduct real-time gross settlement without a full-scale conversion of their software infrastructure. However, as this system still requires trust, it is unclear if there will be enough draw for Ripple to be a true rival to SWIFT.
The technical limits of Ethereum has led many to imagine how they would reengineer the smart contract ecosystem. One of these is block.one, which developed the blockchain EOS.IO. EOS.IO seeks to resolve the scalability issues that face bitcoin and Ethereum, allowing for industrial-scale smart contract applications without the need for transaction fees.
EOS.IO achieves this by switching its consensus from Proof-of-Work to Proof-of-Stake and by implementing an operating system that allows for use of multi-threads on multi-core servers. This operating system (EOSIO) allows for the creation of decentralized applications like Steemit, a peer-rewarded social network, and cryptocurrency exchange BitShares. Both are founded by EOS founder Dan Larimer.
Ownership of the token EOS is equivalent to ownership of the network; so ownership of ten percent of the coin is equal to ten percent ownership of the network, its bandwidth, and its storage. This means that one stake in the network is assured, regardless of the hashrate distribution of the nodes.
While all of this sounds great, not all is well regarding EOS. For one, the EOS blockchain has yet to be fully operational. As of the publication of this article, there are 533 issues that are yet to be resolved for the blockchain, per GitHub. With the blockchain live but buggy, it is unsure if this is the tip of the iceberg or if the code is stable. Notably, block.one is allowing the EOS community take the lead in bringing the blockchain into compliance.
One key concern, going back to the EOS token, is that current ownership of the network is in debate. The original idea was that ERC-20 tokens were offered during the EOS ICO. These tokens would be traded for EOS tokens once the network engaged in June. This leaves control of the network to those that were staked native EOS tokens.
This is dependent on the development of decentralized applications on the network, which will be proportionately linked to the coin. The more coins staked, the more resources are available to the dapp and the more resources are generally available for distribution.
One EOS dapp developer, JUST discord, has alleged that EOS is attempting to draw Ethereum users from Ethereum to EOS through dishonest methods. “Every day up until the launch of the EOS platform, which was June 6th, gas prices increased due to ‘Airdrop’ tokens,” JUST discord wrote in his Reddit post. “Thousands of random tokens, with no website, or bootstrapped template websites made in hours. Wasting hundreds of ethereum daily, hundreds of thousands of dollars to drop tokens.”
“This happened up until the launch of EOS, on the 6th, then immediately stopped. In one day, gas prices dropped back to normal.”
If EOS is attacking Ethereum to cover up for its own mistakes or shortcoming, it is something investors may want to take into consideration.
It has been said that if you find one person trying to outdo someone else, you will find another person trying to outdo the outdoer. This is the case with Ripple; not long after Ripple announced its intentions to take on SWIFT, challengers appeared to take on Ripple.
One of these would-be competitors is Stellar, which has agreed to work with the money transfer company Tempo. The two companies are seeking to create a global payment network that will convert fiat payments to Lumens (XLM) immediately and allow transfer over the Stellar Decentralized Exchange. As Tempo offers a debit card option, this partnership will allow Lumens to be used as a payment option for goods and services, making it comparable to bitcoin.
Theoretically, the partnership with Stellar and tempo will create a platform that will not only make cash transfers fast and easy, but also allow for the simplified cash-out of XLM.
With the major exchange Coinbase looking at possibly including into its portfolio, there is the potential that XLM may outpace XRP. Reports that Coinbase may include XRP in its portfolio helped to grow Ripple’s market capitalization to the third-largest. Should XLM manage to be listed by Coinbase – where XRP was ultimately rejected – it may represent a situation where Ripple lost market position to a direct imitator.
Stellar was founded in 2014 by Ripple co-founder Jed McCaleb, who also founded the failed exchange Mt. Gox. In large part due to its investment in nonprofits working toward financial inclusion for all, Stellar has emerged as the payment transfer option for the not-for-profit sector. The platform claims a fiat currency-to- cryptocurrency transfer rate of two to five seconds with low latency. As Stellar is not a gateway like Ripple, transfers are all peer-to-peer.
Despite an 85 percent drop in price, Stellar is looking strong in large part due to its partnerships. IBM and Veridium Labs, for example, are working with Stellar to develop a cryptocurrency solution toward buying carbon emission credits. As a pure peer-to-peer payment network, Stellar – despite the fact that it started as an imitator to Ripple – has few direct competitors, poising it, for now, in an unique position in the cryptocurrency ecosystem.
There is a bit of a friendly competition going on at Ethereum-competitor NEO. The former AntShares is currently running a game development competition, where over 160 teams have four months to create the best NEO dapp. NEO is hoping to tap into the mania that made Ethereum’s CryptoKitties a runaway success.
The increasingly popular smart contract platform works by allowing the native coin NEO to generate GAS tokens that pay for transactions on the network. Random nodes are selected to validate transactions using a delegated Byzantine Fault Tolerance mechanism. This consensus system prevents hard forking, as two-thirds majority is needed for any proposal to pass. The smart contract compiler can function without the implementation of the full virtual machine, which saves on network resources.
With support of 10,000 transactions per second, NEO is not the most robust smart contract platform currently being offered. However, it may be the most lightweight, making it suitable for implementation to Internet of Things development. As Internet of Things devices use low-power microprocessors and microcomputers, this light application would cause less stress on the IoT infrastructure.
At twelfth in market capitalization, NEO has suffered from the same price collapse that has plagued most of the cryptocurrency market. Being a Chinese-situated firm, things are not helped by the nation’s hardened stance on cryptocurrency firms. However, with NEO currently engaged in an airdrop/token swap with parent company Ontology’s ONT, the change in management may reflect a positive change that may show up in the coin’s price.