Blockchain Trends for 2019: DAG, zk-SNARKs, Serenity, Stable Coins and More
2018 has been another big year in the development of blockchain technology. As the year draws to a close, we took a look at some of the areas set to dominate the blockchain world in 2019. From Serenity to DAG-based protocols, there are a number of developments for those in the industry to keep an eye on across the next 12 months.
Trend 1. DAG-based Protocols Continue To Spark Interest
One major blockchain trend for 2019 may not involve blockchains at all. This year saw a growth of interest in directed acyclic graph (DAG) protocols, and 2019 is set to be no different. A revision of the traditional linear blockchain with which we’re all familiar, DAG-based protocols potentially offer one answer to the industry’s long-standing scalability problem.
At Binary District’s Master Workshop in Amsterdam in November, Christopher Carr, PhD researcher at the Norwegian University of Science and Technology, led the audience through Graphchain, the DAG-based framework he had been part of for two years, and began by setting out exactly what a DAG is.
“A DAG is a type of mathematical graph. Generally, you have these sets that consist of vertices and edges. Edges are just ordered pairs of vertices and, on a directed graph, they’re normally represented as arrows. A graph is acyclic if you can’t start at one vertex and get back to the other following those arrows,” Carr explained.
“A DAG-based framework uses topological ordering, doing away with the miners of the proof-of-work system and creating an all the more efficient, scalable product.”
A blockchain is a flat sequence of transactions grouped into blocks in which each block references the one before it – this is what creates the bottlenecks and blockchain’s notorious scalability issue. A DAG-based framework uses topological ordering, doing away with the miners of the proof-of-work system and creating an all the more efficient, scalable product.
“So, why do we need a DAG? What are we trying to address?” Carr went on to ask. “The main things we are trying to address are decentralisation and scale. There are a lot of problems with blockchain technology. These are perhaps two of the most talked about – there are some others as well, but the two that interest me the most are the decentralisation issue, which really boils down to security, and the scalability issue, which is about usability. And do these issues stem from the use of blocks of transactions? Yes, that might be the case.”
Graphchain is just one of a number of DAG-based protocols out there. Carr cited IOTA, Byteball and Nano as the best known. “We are trying to keep or even expand the idea of a decentralised cryptocurrency,” he concluded. “And we also want a system that can scale.” If DAG-based protocols can solve what is currently blockchain’s most pressing issue, there is no reason that, in 2019, we won’t see them really take off.
Trend 2. Banks Throw Their Hats Into The Ring
There has been plenty of speculation that banks will rally to aggressively combat cryptocurrencies – there is merely a lack of consensus on what that backlash might look like. Some commentators expect banks to issue their own, while others predict they will try to position themselves as exchanges or will invest in tokenization to streamline their asset management.
Central banks across the world are conflicted in their attitudes towards digital currencies. The governor of the People’s Bank of China described them as “technologically inevitable”, while the board director of the Swiss National Bank sees them as a “useless innovation”.
Ripple is one company looking to cater for them. Ripple is built for enterprise, with the core principle of facilitating global money transfer as quickly as possible. Crucially, it isn’t a blockchain as such. It’s consensus-oriented, relying on a shared public database, and has validating servers to ensure the integrity of the data. Those servers can belong to individuals or establishments such as banks, and it uses a HashTree to summarize that data, the value of which is shared across the servers, giving consensus.
Ripple’s tokens, XRP, aren’t mined. Rather, it issued 100 billion at its inception, much like a company would issue stocks when it incorporates. For these reasons, banks are keeping a close eye on the company’s development – perhaps they see a step towards decentralised consensus that is comfortably similar to their current practices.
Trend 3. Stable Coins Make Inroads Into Crypto
The three key tenets of most cryptocurrencies are scalability, privacy and decentralisation. Without one of these, the long-term viability of any coin is compromised. The good news is that 2019 should see a new fundamental pillar grow in significance: stability.
A ‘stable coin’ is a cryptocurrency that is pegged to an asset such as gold or a common fiat currency like the US dollar. It’s still decentralised, but the fact it’s pegged lowers the volatility of its value to a level at which it could function as a currency. The likes of Bitcoin and Ethereum can fluctuate wildly in value – so much so that they are inherently problematic as ‘currencies’. It is hoped that stable coins will address this problem, building functional currencies and not vehicles for financial speculation.
“A ‘stable coin’ is a cryptocurrency that is pegged to an asset such as gold or a common fiat currency like the US dollar.”
Attaching a coin to the dollar is not a panacea for crypto, however. If the stable coin is fully collateralised, as Tether claims to be, the operator holds dollar reserves of equal value to the coins in circulation. This asks those buying these stable coins to trade what is a liquid dollar for a cryptocurrency with no prospect for financial gain.
Trading a unit backed by the full faith and credit of the government for a cryptocurrency that is, as yet, difficult to actually use may be a step too far for most investors. This has led to concerns about the scalability of stable coins, with some suggesting that the tech community is naive in its assumption that products will be picked up. If the stable coin is only partly collateralized, or not collateralised at all, this issue will only be exacerbated.
Having said that, Tether’s market cap had been growing well over the past year, until a recent dip, and is already showing signs of renewed growth thereafter. Additionally, more USDT tokens have been added to Bitfinex, one of the leading cryptocurrency exchanges, with six major stable coins now available. With the dip in Bitcoin’s value coinciding with a rise in the market cap of those stable coins, could we be due a shift in the type of digital asset in which people will invest their money and time?
2019 will see Tether’s monopoly shrink and competition emerge between new coins such as USD Coin (USDC). USDC is now accepted on Coinbase, Bitfinex and other major exchanges, for example, as interest in stable coins swells.
Trend 4. More Stores Will Accept Cryptocurrencies
If there’s one criticism of cryptocurrencies in their current form, it is that they simply don’t work. And that’s fair criticism, as they don’t – not as currencies, anyway. Of course, there’s a long way to go before blockchain technology is ready for mass adoption, but that’s not the only reason the cryptocurrencies that operate on it aren’t ready for use. Ironically, the hype surrounding the likes of Bitcoin as an investment is what makes it deeply unsuitable as a currency. No one would confidently go travelling with Bitcoin as their only currency, for example, because its value fluctuates far too much.
So, will 2019 shape up to be a year in which more traders accept cryptocurrencies for goods and services? According to cryptocurrency data-tracking company Chainalysis, the monthly average for consumer spending of Bitcoin on merchant services was $190.2 million in 2017. Compare this to just $9.8 million a month in 2013 and the increasing viability of daily cryptocurrency use becomes clear. Companies such as Bitwala, meanwhile, are opening cryptocurrency banks with a view to providing digital-currency debit cards – it facilitates the transfer of the asset into fiat currency in real time, so users can pay a restaurant bill in Bitcoin, for instance.
“[Compare] the monthly average for consumer spending of Bitcoin on merchant services [of] $190.2 million in 2017… [with the] $9.8 million a month in 2013 and the increasing viability of daily cryptocurrency use becomes clear.”
High-street stores accepting cryptocurrency may well remain a gimmick for a while yet, but use cases will be championed by digital traders. One example is Brooklyn-based rental-management company ManageGo – it accepts rent payments in Bitcoin, Litecoin and Ether, which it then converts to dollars before releasing the money to property owners. In January, it reported that 38 people had used Bitcoin to pay their rent that month – a small percentage in the context of its 400,000 units across the US, maybe, but it expects that number to skyrocket.
There are stumbling blocks, of course. Transaction fees alone are significant enough to put most people off trading in Bitcoin, for example – at least for the time being. Fluctuations in value are another problem and there are complex tax issues in some countries that hold back the viability of crypto as a daily currency. Those that endeavour to accept cryptocurrencies as payment will be trailblazers – and by the end of 2019, we will have a great deal more of them.
Trend 5. Privacy Will Be At The Forefront
When it comes to blockchains such as Bitcoin, there is the implicit problem that everything is completely public. Even with the proposed anonymity protocols in place, the fundamentals of the network are such that payments are proven to be intimately trackable. In 2019, as real use cases are developed and the mainstream market becomes more aware of cryptocurrency, the issue of privacy will force itself to the forefront once again.
One of the most exciting coins focused on privacy is Zcash. The cryptocurrency is the first major application of zk-SNARKs – a promising form of zero-knowledge cryptography. In short, the technology can prove possession without revealing any information and without any interaction between the prover and the verifier, thus delivering privacy across the network. Zcash is similar to other privacy-focused coins such as Monero, with each offering slightly different propositions but ultimately convinced that privacy is paramount.
“[Zcash] is the first major application of zk-SNARKs – a promising form of zero-knowledge cryptography. In short, the technology can prove possession without revealing any information and without any interaction between the prover and the verifier, thus delivering privacy across the network.”
Binary District Journal spoke to Ian Myers, one of the founding scientists of Zcash. Myers once described Bitcoin as “Twitter for your bank account”, and feels strongly about ensuring that complete privacy is maintained despite the use of a distributed ledger. We asked him why he believes privacy is such an important element of the payment systems of the future.
“With blockchains, every transaction is available to everybody, and you can’t have a world in which everybody can find out about your payments,” he said. “You have your business competitors knowing about it, you have stalkers using it to harass people… The things that’ll happen are just awful, so you need privacy controls – that’s a fundamental.
“Anonymity is crucial to crypto for social reasons – privacy is a public good, it’s a human right. It’s also necessary for economics. Fungibility is an important property of money; you give someone else a dollar and it’s actually the same as another dollar, and that doesn’t work if currency has history. It’s also important to businesses. One of the more interesting things that has come out of doing Zcash is finding out that there’s actually quite a bit of demand from enterprises who want to do blockchains, but, again, don’t want to expose everything they’re doing to their competitors."
“The notion of broadcasting all the transactions held by your bank across a distributed ledger may put some people off adopting crypto, so those that lead with privacy as a selling point may well see a swell of interest in the coming year.”
Banks offer the illusion of privacy, despite the low levels of trust that people have in the finance industry. The notion of broadcasting all the transactions held by your bank across a distributed ledger may put some people off adopting crypto, so those that lead with privacy as a selling point may well see a swell of interest in the coming year.
Trend 6. Serenity Marks A New Milestone
Anyone who follows blockchain news will be aware of Vitalik Buterin’s recent announcement concerning Serenity, the final milestone phase of the blockchain’s development.
The Ethereum founder told the audience at DevCon IV that Serenity “is a realisation of all of these different strands of research that we’ve been spending our time on for the past four years. It’s a new system, but it’s a connected system, and the long, long-term goal is that once this new system is stable enough, all the applications on the existing blockchain can be folded into a contract on one shard of the new system that would be an EVM interpreter written in eWASM.”
What this means, essentially, is that Ethereum has created a new blockchain that will be fully compatible with its existing blockchain. The new proof-of-stake chain will be smaller in size, demanding under 1GB from validators to run a node, rather than the current 8GB. Buterin claims he expects the consensus to improve scalability by approximately 1,000 times.
“Ethereum has created a new blockchain that will be fully compatible with its existing blockchain. The new proof-of-stake chain will be smaller in size… [and] improve scalability by approximately 1,000 times.”
Ethereum’s current model means transactions can take hours to be confirmed, which immediately disqualifies it as a potential platform for daily use. In his announcement, Buterin claimed that the new system will fix this issue by having hundreds of validators include transactions as opposed to only one. Theoretically, this reduces the transaction time to under 16 seconds, making Ethereum a viable proposition for use in point-of-sale.
There are differing opinions as to whether proof-of-stake is the future of blockchain with regard to its scalability, but there are some accepted benefits inherent in the model. Crucially, it requires considerably lower energy consumption to function. It also creates literal stakeholders who have financial interest in the long-term viability of the chain, rather than being merely a magnet for those looking to make quick cash.
Ethereum has talked about moving to proof-of-stake for some time – a promise on which it finally seems to be making good. We’ve heard this kind of statement from Buterin in the past, though, so all eyes will be on Ethereum to see if it really can deliver. Closing his keynote, Buterin summed up just how important a release Serenity could be for his product, describing it as “the milestone that we've all been waiting for, that we've been working toward for the past four to five years – a milestone that is no longer that far away."
Mark Zuckerberg has made no secret of his personal interest in blockchain technology. Despite not officially announcing that Facebook will be adopting the technology any time soon, he has said that they could take the “power from centralised systems and put it back into people’s hands.” Earlier this year, Facebook revealed that it had a team of 12 working on blockchain projects, including two blockchain software engineers.
It’s unclear how, exactly, blockchain will fit with Facebook’s business model, but a number of potential uses are evident. For one, it could use blockchain to better keep user data records, using the added security of blockchain to avoid further embarrassing data leaks. It could also use blockchain to improve the capabilities of the money transfer service it operates on Messenger. Whatever the use-case may be, it will be interesting to see what such a resource-rich company eventually creates.
llustrations by Kseniya Forbender
To contact the editor responsible for this story:
Margarita Khartanovich at [email protected]