WILL BLOCKCHAIN SAVE THE DAY? Pandemic lockdowns and central bank money printing have rightly been pointed to as reasons to sound alarms about what’s ahead for America and, indeed, the entire world.
But there’s always the potential for unforeseen events or agents of change to upend seeming tides of historical inevitability. A recent post in the Trends Journal covered the basic idea, as illuminated by Issac Asimov’s landmark Foundation novels.
This past week, many “average” Americans seemed to catch on that something huge is going on with digital blockchain technologies. Perhaps the frenzy on the crypto exchange on Coinbase was mostly fueled for the moment by the exchange's listing on NASDAQ. And cryptos certainly took wild swings up and down during the week and into the weekend. But there's little doubt that Americans are suddenly striving not only to "get into" crypto investments but to understand more about what they are and what they portend.
There may be a lot to be optimistic about. Blockchains can do much more than just create digital currencies that are highly resistant to being controlled or inflated by governments, though that alone represents a huge sea change of history. Imagine that governments might no longer be able to use the "back door" of monetary inflation to pay its bills while rendering the spending power of citizen savings diluted and effectively stolen. That's the promise of Bitcoin and perhaps even more so down the line, Monero.
But, as the next story details, the blockchain can do much more than just revolutionize the way the world employs mediums of exchange.
COMPETING BLOCKCHAINS OFFER OPPORTUNITIES AND RISKS. Bitcoin (BTC) is widely seen as the “gold standard” of decentralized “blockchain” currencies. Like gold, plenty of investors are moving to it as a store of value resistant to inflation.
With a hard cap on the number of bitcoins that can ever be produced (21 million), the anonymity of its founding, and its impregnable, decentralized protocol, it serves its intended purpose well.
There are limits to what bitcoin was designed to do. But blockchain technology is quickly proving to be much larger than just serving as a backbone for tamper-resistant digital currencies. Significant players currently competing in the blockchain “2.0” and even “3.0” space include Ethereum, Cardano, and many others like Algorand, Stellar, and Monero.
Blockchain Already Reshaping The World
At its core, blockchain technologies are decentralized databases, with peer-to-peer network nodes. How they handle writing, storing, and accessing information in those databases, as well as the kinds of information that can be handled, is a large part of what differentiates them.
What can blockchains potentially do? Just about anything centralized databases do. And via the crypto security measures they employ and their decentralized structure, they are more resistant to hacking and shut down by any group than any technology previously devised.
But some blockchains are also designed from the ground up to the house and run computer code. That means they can act as platforms for just about any digital application imaginable. And those applications can have all the resiliency and security that the blockchain offers.
Blockchain technology can take the place of both a central server running an application and a database. Add it up, and the potential for blockchain platforms to experience explosive growth in usage and demand becomes clearer.
Ethereum Was First With a Different Type of Solution
Ethereum was the first significant bitcoin competitor that offered something beyond what bitcoin does so well. In addition to minting decentralized digital currency, the Ethereum blockchain was designed to run “dApps” or computer programs. Being “open source” means anyone can build off of Ethereum.
Like Bitcoin, Ethereum attained a "first" in its sphere of utility and has gained market capitalization and usage accordingly. As reported by CoinDesk in March 2021, over 3,000 dApps are currently running on the Ethereum blockchain.
Many of those apps are focused on various aspects of “DeFi” or decentralized finance. Some of the objectives of DeFi projects include handling loans and derivatives, as well as handling day-to-day financial transactions.
Crypto assets devoted to DeFi rose over 2,000 percent in 2020, from $650 million to $16.05 billion.
But apps are doing things beyond DeFi. For example, the Chainlink platform built on Ethereum uses the protocol’s “smart contracts,” or predefined instructions, to interact with real-time data from the outside world. This allows applications that can do things like using weather data to pay an insurance claim in the event of a hurricane. Other so-called prediction apps like Augur and Gnosis share similarities with Chainlink. They turn real-world events into actionable or wagerable events on blockchains.
Independent voices shut down by Big Tech will find Unstoppable Domains a welcome Ethereum development. The project is creating domains that can’t be taken down by a central entity or government.
And there are many more innovative Ethereum-based projects, such as:
- Livepeer (a decentralized live-streaming alternative to YouTube)
- Status (an ether crypto wallet, Web3 browser, and private messaging system/app)
- Golem and Storj’s Tardigrade (storage apps)
Ethereum Challenged by Other Blockchain Solutions
Cardano, Algorand, Stellar, and other more recent blockchain platforms have offered their innovations.
Cardano and others have avoided Ethereum’s “proof of work” method of authenticating and adding to its blockchain. Proof of work, without wading into technical details, can involve significant network computing power and affect transaction times. Cardano, Algorand, and Stellar all use an alternate “proof of stake” or similar consensus method, which reduces network resources.
Cardano: Regulation-Ready A Good Thing?
Cardano, designed by Ethereum co-founder Charles Hoskinson, has billed itself as the first “peer-reviewed blockchain.” The nonprofit responsible for the blockchain has assembled a wide array of scientists and academics to review and decide its protocols and development.
In other ways, including app building, Cardano shares similarities to Ethereum.
Cardano might be the most "woke" blockchain. It has been designed for and even welcomed greater regulation by authorities. Because of that, its chances of being adopted and building relationships with existing entities are considered to be good. But those gravitating to blockchains for their abilities to resist narrow control may want to invest elsewhere.
Monero and Zcash Focused on Ultimate Privacy
Monero, with a completely anonymized transaction ledger, is undoubtedly one of the most private decentralized blockchain currencies in the world. It isn’t focused on being a platform for far-flung applications. It intends to be the most private and secure digital cash on earth. Zcash also has a robust privacy protocol, including options for shielded (or completely anonymized) transactions.
Transaction Speeds and the “Trilemma” Blockchain Problem
Financial transaction times are one of the problems that blockchain technologies have had to confront. Anyone who has initiated a bank transfer knows that traditional financial networks leave a lot of room for improvement when it comes to moving money.
The Stellar blockchain is largely focused on making those kinds of transfers much faster, and much cheaper to process.
But purchase transactions are another matter. There, traditional networks like Visa currently perform at a healthy clip. According to Bitcoin.com, Visa currently handles 1,400 to 1,700 transactions per second, and at least theoretically can scale to 50,000 per second.
Many current blockchain projects are trying to find ways of overcoming the “trilemma” problem of blockchain technology. That trilemma states: you can achieve any two out of three of security, decentralization, and speed, but not all three.
Bitcoin achieved security and decentralization, but transaction time (along with major, mostly upward price volatility) makes its use as a payment currency impractical. Thus, it has largely functioned as a digital store of value, not a means of purchase payment. Bitcoin Cash, a “fork” of the original Bitcoin blockchain protocol, addresses some of the transaction time problems, to try to make it friendly for purchase-related uses.
Other blockchain/crypto solutions like Stellar, Algorand are focused on the “trilemma,” as they develop. Info on current transaction rates of different blockchains was recently compiled by https://u.today. Together with other factors like flexibility and protocol focus, transaction speed will continue to play into how investors assess the potential and risks of different blockchain technologies.
But despite technical aspects that have yet to mature, more people are becoming aware that blockchain technology is set to impact the world in very, very big ways that are only just beginning.
BLOCKCHAIN MOVERS OF THE WEEK. Polygon, an India-based company with innovative technology designed to boost the power of the Ethereum blockchain, gained a listing on Coinbase in March.
That’s significant, since Coinbase made a huge splash of its own as the first crypto exchange listed on a major U.S. stock exchange, NASDAQ.
Polygon's networking and transaction technology propose to solve some of Ethereum's issues with transaction times and costs. Since Ethereum, with its dApps, has proven to be a blockchain of choice for application builders, Polygon may be technology to watch.
The Polygon token available on Coinbase traded in the 30 to 50 cent range this week. In January (not then available on Coinbase), it was around 3 cents. The quick expansion of blockchain apps may spell more upside potential in Polygon’s future over the next 12 to 24 months.
New Kind of Network (NKN), covered a few weeks ago in the Trends Journal, made an early April Coinbase debut. It was mostly down during Coinbase's NASDAQ debut bonanza. But with a wide base of network nodes and a technology that shares unused bandwidth, NKN is likely to generate more interest as investors look for opportunities where products and adoption already exist.
MakerDAO, the blockchain powering the dollar-pegged Dai stablecoin, saw significant upward movement for most of last week, before heading lower over the weekend with other cryptos. Maker boasts that “a growing ecosystem of over 400 apps and services have integrated Dai, including wallets, DeFi platforms, games and more.”
Zcash, a crypto with a privacy focus similar to Monero, posted gains. That move came off its announcement of “Hao Arc,” a suite of upgrades due in October. Halo Arc will include an ECC wallet prototype and ECC wallet software development kits (SDKs). The wallet will enable shielded-by-default transactions.
Dogecoin Wagging the Investment Hound?
Dogecoin has seen huge gains over the past year, rising from a few cents to .45 this past Friday. But beware of articles like this one from Yahoo claiming the currency is anything like Bitcoin. The article itself admits there is no hard cap on the amount of Dogecoins that can be mined. And as far as utility, though it’s oft-used to tip hipsters on social media, Dogecoin has no infrastructure for applications or services.
But, it does have a “legendary” meme status.