Cryptocurrencies that will survive as Currencies (IOTA, if you don’t care to read the rest)
The full article was originally published by Robert Ussery on Medium. Read the full article here.
We’ve reached the great filter. The overwhelming majority of digital assets listed on https://coinmarketcap.com/ today will be forgotten in 5 years’ time. In this article, I’m going to attempt to rationalize picks for digital assets that will survive and thrive all the way through the year 2100.
Digitization of assets makes moving funds faster and cheaper than ever. This isn’t something particularly new, as anyone with an online bank account knows. Of course, It’s true that every digit shown on your bank account’s online balance represents a dollar, but do you know where the dollar physically exists? It’s highly unlikely that when you spend a dollar on Ebay, a physical treasury note is sent from your bank account to paypal. Instead, a series of digital ledgers held by your bank, paypal, and the receiving party are all adjusted a tiny bit. By digitally representing a dollar and electronically altering balances, transactions have become infinitely cheaper and faster to execute.
Blockchains work a bit differently. If I want to send money to any receiving party, instead of using an intermediary like my bank and PayPal, I just need to know the digital address of the user’s cryptocurrency wallet. Simply paste in the receiving address, the amount of Bitcoin you want to spend, and click send! Easy peasy, right? Not so fast! To the average cryptocurrency user, this is the entirety of the process, and to be fair, this should be all they need to know; but for you, lucky reader, you’re going to be let in on a horrible little element of blockchain technology, the reason most blockchains will never work for large-scale adoption.
Most blockchains are too slow.
I love cryptocurrency and new technology, don’t get me wrong! I’m just trying to be pragmatic here. Let’s look at some numbers. We’ll compare Bitcoin and Ethereum to Visa’s TPS.
Bitcoin is currently averaging 3–4 transactions per second.
Ethereum is currently handling between 7 and 14 transactions per second.
Visa processes about 4,000 transactions per second on average, with a max of about 56,000 TPS.
Right off the bat I want to say that anyone arguing that 3–14 TPS is acceptable as a means of payment is flat-out wrong. I’d argue that even as a store of value, this is too slow to be adopted. If only 1% of the world’s population adopted Ethereum, and 1% of those people tried to send a transaction at the same time, it’d take nearly 14 hours to process all the transactions! How am I supposed to go buy a cup of coffee if I’m expected to stand around waiting for my barista to receive 4 block confirmations? Speed is an absolute must with today’s money, so let’s take a look at why blockchains are having trouble keeping up.
Why is Visa so much faster than these two chains? The centralization of information. All of Visa’s account balances that are actively being edited, audited, and otherwise used are on very secure physical machines that have full authority to process transactions. These machines can process transactions instantaneously, without checking other machines for permissions or competing for processing power.
Bitcoin and Ethereum, on the other hand, rely on a great number of machines all over the world to authorize the account balance changes at the same time. Every single machine (or node) on a decentralized network must have the exact same collection of data that includes every single transaction that has ever occurred on their respective network. The processing time to reach a consensus is monumental compared to a server that processes Visa’s transactions.
Along with the slow transactions, blockchains incur high transaction fees when many people compete to process transactions, failed transactions when the transaction fees are not sufficient, and even network outages when there is an overload of information spamming a network.
The contemporary mindset is that there is a sliding scale; on one end you have decentralization, and on the other end you have useable speed.
There are some potentially promising ways to scale current blockchains, such as Ethereum’s Raiden Network (and similarly, NEO’s Trinity Network) which aim to provide off-chain transaction confirmations and could allow these networks to scale to 100x the processing capability, but until these are proven successful, we’re going to look at an alternative option: innovative blockchain designs that have proven themselves to be much faster than previous attempts.
Not all cryptocurrencies are blockchains; let’s take a look at the block-less distributed ledgers of the future: RaiBlocks and IOTA.
These are the only promising solutions for scalable (AKA potentially successful), distributed cryptocurrency platforms that I’ve found. Without getting too heavily involved in the specifics of these competing technologies, I’ll just say that by modifying the method (and not the core beliefs) of the digital ledger technology, the transactions per second of these two are 10,000 TPS for Raiblocks, and “limitless” for IOTA, or at least scale with the number of nodes participating in the system. To be fair, these are both at ideal conditions and both technologies are in their infancy. Below I’ve linked the whitepapers. Read up on the DAG data structure that IOTA uses. Take a look at Raiblock’s “Representative” system. Look at the teams’ backgrounds.
Looking to invest in one of these? After reading the following article, WHICH I HIGHLY RECOMMEND, I’ve decided to invest in IOTA because I believe the team has the stronger and more versatile product. It’s true that RaiBlocks has been a bit faster, already having a useful product, but I strongly believe IOTA’s final form will steamroll RaiBlocks (and every other crypto) on its way to market cap position #1. This is, in my opinion, the best decentralized cryptocurrency for buying a coffee.
Cryptocurrencies that will survive as Currencies (IOTA, if you don’t care to read the rest) was originally published in Social Club on Medium, where people are continuing the conversation by highlighting and responding to this story.