Written: September 13, 2017
There is quite a bit of talk around this new blockchain technology, and even more speculation of what it could become. This public digital ledger, that records all transactions and trades of digital currencies and tokens, is starting conversations among outsiders of the tech industry and developers. It is now compared to the internet in the 90’s and that’s enough to get anyone’s attention. Topics that once were only found in a reddit forum are now articles in Forbes, Bloomberg, and even being discussed between neighbours during dog walks. For us ‘non-techies’ it pretty hard to wrap our heads around Bitcoin and its current value, let alone all other digital currencies. If Bitcoin uses blockchain technology, why do we need other independent blockchains running their own currencies? Isn’t it all the same?
Let’s take a closer look.
ICO fever has hit and there are so many different digital currencies right now, it’s hard to know where to start. In my experience, a great resource to help you cut through the noise and get to the substance is the Coin Market Cap. It displays the ranking of digital currencies by the total market cap, but it will also allow you to filter by the trading volume, allowing us to see what currencies are actually being traded regularly — a measure of liquidity. At the time of post, the 6 top players in the Blockchain game with the highest market cap are Bitcoin, Ethereum, Ripple, Litecoin, Dash and Nem. If you’re crypto-curious, like me, you’ve probably been wondering what the pro and cons are to each, and why they all exist. After all, these currencies are completely decentralized from any location or government and they all seem to have the same end goal.
So why do they all exist?
The short answer lies in the direction each development team is heading towards. Each team (Bitcoin, Ethereum, etc.) has its own intended use for the coins/tokens and ideas it wishes to deploy in their blockchain protocols in order to take it to mainstream adoption. Sound reasonable? Okay, let’s dive into the details of these digital currencies and the teams behind it.
Part 1: Bitcoin, Ethereum and Ripple
Bitcoin has the highest market cap as of 2017
1. Bitcoin
By now I’m sure you have heard that Bitcoin is a big deal, valued over $4,000 USD for 1 Bitcoin at at time of this post. The surge in price has turned developers and early investors into millionaires in just a few years. This sounds like a wonderful stroke of luck for these people, but not even they were expecting the USD value to swing that high so quickly. This evidence is in full view in stories like the 20 million dollar pizza. According to the Coin Market Cap, Bitcoin not only holds the highest value of any other digital currency but it is also the most traded, and has the highest market cap of all crypto assets. Being the first digital currency created based on the original white paper by Satoshi Nakamoto, Bitcoin signaled the birth of digital currency as we know it today.
Bitcoin’s Intended use:
Bitcoin’s vision is to allow peer-to-peer transactions without any interference from intermediaries — in other words ‘Digital Cash’ that can be handed to anyone, anywhere, at any time. Their approach has been centered around getting the currency accessible at all means, including ATM systems and storefronts, both online and brick-and-mortar. Improving accessibility is one of the main reasons why Bitcoin the most widely traded crypto asset.
How does Bitcoin work:
The 2 main concepts behind the Bitcoin blockchain are decentralization, and proof instead of trust. Through the use of algorithms and complex math (cryptography), the team was able to eliminate the need for trusted intermediaries in financial transactions and solve any double-spend issues. By providing proof that cryptographic codes have been decoded by nodes (or miners), the network of nodes can validate the legitimacy of each transaction. Each node is always updating the newly mined ‘blocks’ (groups of transactions) and working to create transactional consensus throughout the network. This keeps the entire transaction validation process away from centralized organizations, such as governments and banks. This process of achieving consensus is known as Proof of Work (PoW).
Bitcoin’s Team:
The creator of Bitcoin, Satoshi Nakamoto, wishes to remain anonymous and it’s rumored he/she is actually a team of people. In the absence of the original creator, a Bitcoin Foundation emerged that is driving the evolution of Bitcoin and considers itself a community for all. The board of directors also publishes monthly meeting notes online. According to its public Manifesto, ‘the Bitcoin Foundation coordinates the efforts of the members of the Bitcoin community, helping to create awareness of the benefits of Bitcoin, how to use it and its related technology requirements, for technologists, regulators, the media and everyone else globally.’
Plans for Bitcoin:
This foundation believes in the complete ownership of an individual’s earned funds, and in the freedom to use it at the owner’s discretion, without limits. Their hope is to make this a global currency, able to be used by all and accepted everywhere — global digital cash. They have released their 2017 marketing strategy which outlines the primary audience is still firmly centered around the community of developers and media. Which makes sense since we are still in the early stages of development for mainstream adoption and it’s important to keep current and future developers engaged and pushing forward to new improvements. In 2017 there has been many changes and updates to the Bitcoin project but the biggest change to take note of would be the Bitcoin Cash Hard Fork which happened on August 1st of this year. Simply put, Bitcoin cash is what some developers believe will be a faster more efficient version of Bitcoin by increasing the amount of transactions per block. There is skepticism around whether it will actually be faster, and also around the hard fork in itself and what it represents.
Ethereum has the second highest market cap as of 2017
2. Ethereum
If Bitcoin is not enough to wrap your mind around then let’s jump into Ethereum, which is the newest trendy buzzword floating around in the tech industry. At the time of posting, Ether (Ethereum’s Token) is the 2nd largest crypto asset and valued over $300 USD, no wait — over 400 — and back to 300’s again. In 2017, Ether started the year valued just under $10 USD and skyrocketed to $400 USD in June dropped to $150 USD by July. Needless to say, investors have been on a Ethereum roller coaster. Many link this market swing to the flood of investors who feel they missed the Bitcoin boat and are hoping to cash in on Ethereum. When investors buy and sell to make a quick buck (speculation), the value often fluctuates (volatility). This behaviour isn’t sustainable and will inevitably correct itself once Ethereum projects demonstrate real-world applicability and scalability.
Ethereum’s intended use:
While Bitcoin is centered around adoption by individuals, Ethereum is focused on businesses adoption and the mass will follow. Its premise is that it could become a platform for distributed applications (Dapps) that can transform business models. To accomplish that, there needed to be a layer of automation to hold for a variety of applications and allow ease of use. The idea driving that automation is what Ethereum calls ‘smart contracts’, one of the key innovations introduced by Ethereum.
How does Ethereum work:
Like Bitcoin, Ethereum is based on a white paper which is 29 pages in comparison to Bitcoin’s 7 page white paper. What’s the need for this much detail? The Ethereum Blockchain is based off the Bitcoin Blockchain technology with a few upgrades. Ethereum comes complete with it’s own programming language (Solidity) that can be used to create “smart contracts”. A smart contract is code that will execute certain actions if all the requirements are met. In simple terms ‘if this — then that’. When a contractual requirement is met, the smart contract will trigger the next action until all requirements are met and the full contract is executed. There can be a time lapse if some requirements are not met, in which case the smart contract will trigger a return of funds to its original owners. Once the code is written and a smart contract is deployed on the Ethereum blockchain, this process can be executed without any human involvement. These smart contracts can ultimately be used to create decentralized applications (Dapps) that run on the Ethereum blockchain. By the end of September, Ethereum will move from Proof of Work (PoW) to Proof of Stake (PoS). Simply put, this change will fix some common issues they are facing with the current PoW consensus algorithm. (e.g. saving on energy costs, maintaining integrity of each block)
Ethereum’s Team:
Naturally, there is also an Ethereum foundation which it’s creator, Vitalik Buterin, is part of. Buterin’s public presence in the development of Ethereum is also different from Bitcoin’s creator who wishes to remain out of the public eye. This foundation’s mission is geared toward educating current/future developers, and empowering them with the knowledge to develop the next generation of decentralized applications. Ethereum also has an Enterprise Ethereum Alliance (EEA), which is a group of companies that are collaborating to investigate the potential applications of the Ethereum ecosystem. JPMorgan, Microsoft and Intel joined the alliance earlier in 2017, which gives Ethereum the added bonus of being linked to larger legacy companies, giving investors, entrepreneurs and talent a sense of security on the future of the network.
Plans for Ethereum:
The team continues to keep it’s eye on the prize: mass adoption. In order to hit the end goal they need to continue to address scalability issues. Even with all Ethereum’s potential, it is clear that there are scalability issues to the current state of the Blockchain. The Raiden project is an example of how Ethereum plans to address affordable micropayments. Buterin also sits on the board of many new startup companies within the Ethereum ecosystem, offering advice to leverage their potential. More big changes are in the works and Ethereum is set to hard fork towards the end of September 2017. This will implement a switch from Proof of Work to Proof of Stake, which will affect how transactions are being validated. It is also important to note that PoS consensus algorithm will force nodes to lockup Ethereum in order to maintain a high enough ‘stake’ to be able to mine. This will create scarcity within the currency which will theoretically drive the value up.
Ripple has the third highest market cap as of 2017
3. Ripple
Fun fact: the idea for Ripple emerged in 2004, 4 years before Bitcoin’s legendary white paper was released to the public. The plan was always to create a decentralized digital currency but the future of Ripple took a slight turn when Ripple (XRP) launched in 2011. Ripple transactions are verified by consensus among ‘trusted’ members of the network, rather than by fully distributed mining as they do with Bitcoin. What does this mean? Well, if someone has to choose who’s trusted and who isn’t, then there is a centralized entity at work. Although it uses blockchain technology, Ripple makes no claims to be decentralized, and instead the technology boasts to be ‘scalable, globally distributed and stable’. At the time of posting, Ripple is valued at $0.21 USD. Before you rush to buy some Ripple expecting it to jump to at least $50 USD by the end of the year, let’s take a closer look at it.
Ripple’s intended use:
Essentially, Ripple aims to be the technology behind inter-bank transactions, creating unity between financial institutions and systems. It also has a cryptocurrency (XRP) to support the transfer of value. The Ripple protocol is not limited to XRP though: Ripple was meant to be a global financial solution, able to work across different platforms and currencies — both crypto and fiat.
How does Ripple work:
Ripple released a beta version of their protocol in 2015 called ‘Interledger’, which will be used by banks and financial institutions as a bridge between all networks. This protocol is just the beginning and allows nervous bank leaders to experiment and familiarize themselves with the technology using currencies that are familiar to them. As Ripple puts it, this technology provides the “ability to facilitate direct integration into payment systems and improved transaction economics’. It ‘allows banks to offer greater payment reach at lower costs, real-time cross-border settlement for low-value and micropayments, and 24/7/365 access to a settlement with improved transaction monitoring capabilities.” To reach consensus throughout it’s distributed ledger, Ripple uses ‘Proof of Correctness’ or the Ripple Protocol consensus algorithm (RPCA).
Ripple’s Team:
Ripple is run by a private company, Ripple Labs Inc., equipped with all the C-suite bells and whistles. Ripple’s focus is primarily on the banking industry. The company has never held the same libertarian views as Bitcoin or Ethereum. “We’re not the disruptors, we’re not the guys who come in and tear everything down,” said Stefan Thomas, Ripple’s Chief Technology Officer. In 2014 Ripple partnered with Earthport, a company already well established among big banks and since then they have been reaching new banks across the globe. The year 2016 marked the creation of the Global Payments Steering Group (GPSG), a group of banks that will help Ripple make decisions on company direction. As they put it, ‘the group will oversee the creation and maintenance of Ripple payment transaction rules, formalized standards for activity using Ripple, and other actions to promote implementation of Ripple payment capabilities as our network continues to grow.’
Plans for Ripple:
In order to get the buy-in from legacy banking institutions, Ripple needed a ‘low-risk’ approach to getting banks involved in the blockchain today instead of waiting until it was safe. The most important move that they made to lower the risks and push this endeavour past the tipping point was allowing big bank leaders to aid in the ‘steering’ of the company. For Ripple, The more banks that get on board — the better. You might have noticed Ripple is putting a great deal of energy into the development of the global and cross-platform protocol and it might seem like they have left XRP on the back burner. This leaves a lot of early XRP investors, which helped fund the initiative, wondering if they will see any growth in the value of the token. Ripple’s Chief Standards Officer, Adrian Hope Bailie, admits “it’s been very difficult to push XRP at the same time as focuses on Ripples commercial interests, which is selling cross-broader solutions to banks.” But that doesn’t mean XRP will disappear. Currently, banks don’t want to transact using digital currencies, but they are very interested in Ripple’s interledger technology. For now, Ripple is playing the long game with XRP. Bailie continues to say “XRP’s real value is going to come when it filters down into corridors where currency is a little bit more obscure. My ideal would be if XRP becomes the bridge currency for anything other then dollars”. (Bailie’s full presentation)
Congratulations!
Now you have a high-level understanding of the top 3 cryptocurrencies out there: Bitcoin, Ethereum and Ripple. We went from a possible libertarian revolution to technology developments that is trying to save banks from themselves. That was a lot to digest!
— but wait —
There’s so much more! In my next post, I’ll go over 3 more currencies that might be flying under your radar.
Make sure you look out for Part 2 of the ‘Breaking down Cryptocurrencies’ series showcasing Dash and Nem.
