State of Blockchains: Bitcoin, Ethereum, Permissioned Ledgers, and More
Blockchain technology is being tested, developed, and integrated in many forms across various industries. Since the introduction of Ethereum in 2015, many public and permissioned blockchain networks have emerged with unique strategies, visions, and structures.
Some blockchain networks, such as Zcash and Tezos were launched to provide infrastructure and services that bitcoin does not offer. Others have been developed for specific use cases, such as Intel’s Sawtooth Lake and the Microsoft Coco framework.
As blockchain technologies continue to scale rapidly, the potential of the blockchain to operate at a commercial and enterprise level will be realized in the near future.
The State of Bitcoin: Scalability and Adoption as a Store of Value and Digital Currency
Ivey Business School professor, JP Vergne proposed that the most accurate indicator of the market value of a cryptocurrency is the developer activity around its blockchain network.
Bitcoin remains the dominant cryptocurrency in the market, with a $7 billion market cap. Through the integration of innovative scaling solutions and a drastic increase in liquidity, it has evolved into a store of value, safe haven asset, settlement network and digital currency.
“Bitcoin is one of the most traceable currencies on the planet, and contrary to media misreporting over the last few years, Bitcoin is not anonymous and offers very little privacy protection to its users.”
Earlier this year, Segregated Witness (SegWit) -- the scaling and transaction malleability solution created by the Bitcoin Core development team -- was implemented onto the bitcoin protocol. Subsequent to the adoption of SegWit, bitcoin transaction fees dropped from above $3 to less than $0.1. Popular bitcoin wallet platforms such as Blockchain, the second most widely used bitcoin wallet after Coinbase, recommend a transaction fee of $0.04 -- with the assurance that the first transaction confirmation will be received within an hour. The bitcoin transaction is considered verified after five more confirmations, approximately 50 minutes after the first.
In order to develop as a multi-trillion dollar blockchain network and financial system, the scalability and privacy of the bitcoin blockchain needs to improve significantly.
Nevertheless, it is important to acknowledge that the integration of SegWit created the necessary infrastructure for innovative two-layer solutions, such as Lightning, TumbleBit and MimbleWimble.
In the upcoming months, businesses and developers will be focused on the development of privacy-focused services with TumbleBit, and micropayment applications on Lightning. This will allow bitcoin to become more private and scalable.
Michael Perklin is an expert in digital forensic examination and the head of information security architecture at ShapeShift. In an exclusive interview, he told Binary District that bitcoin severely lacks privacy measures, and argued that two-layer solutions are vital to improve this.
“Bitcoin is one of the most traceable currencies on the planet, and contrary to media misreporting over the last few years, Bitcoin is not anonymous and offers very little privacy protection to its users”, Perklin explained. “ If a user values privacy above all else, face-to-face meetings where they exchange value, products, services in private will ensure digital footprints are not left behind.”
The State of Ethereum: Scalability, Developer Activity, Decentralized Applications
Ethereum is in an optimal situation wherein developers, businesses, and large-scale conglomerates are ready to develop, test, and integrate decentralized applications. As a result, the demand for the Ethereum blockchain network has increased exponentially.
Companies, such as the $336 billion financial institution JPMorgan and $573 billion technology giant Microsoft, have launched Ethereum-based networks and platforms to serve clients at an enterprise-level.
At this time, issues with scalability have meant that Ethereum decentralized applications are struggling commercialize and are unable to support millions of users. The Ethereum Foundation is currently in the process of launching the Metropolis hard fork, which is expected to significantly enhance the Ethereum protocol in terms of privacy and scalability.
Other innovative two-layer scaling solutions are being developed by some of the most influential developers in the cryptocurrency sector, such as Plasma by Ethereum co-founder Vitalik Buterin and Bitcoin’s Lightning co-author Joseph Poon.
“The various scaling solutions, including Sharding, Plasma and various state channel systems such as Raiden and Perun, are already quite well thought out, and development has already started.”
As Buterin has emphasized, in order to scale to a level in which it can be applied commercially and decentralized applications can support millions of active users, Ethereum must employ a proof-of-stake consensus protocol.
In an interview with JoongAng -- South Korea’s largest finance news publication -- Buterin stated that, while the Ethereum Foundation and its open-source development community is working hard to safely migrate from proof-of-work to proof-of-stake, scaling Ethereum could take two to five years.
“I would say [it would take] two to five [years for Ethereum to scale], with early prototypes in one year. The various scaling solutions, including sharding, Plasma and various state channel systems such as Raiden and Perun, are already quite well thought out, and development has already started. Raiden is the earliest, and its developer preview release is out already,” said Buterin.
Ethereum-Based Blockchains: Omise, Tezos, EOS, Bancor
Ethereum-based blockchain platforms and initial coin offering (ICO) projects, like Omise, Tezos, EOS and Bancor, are actively exploring various methods of creating tokenized economies using the Ethereum network.
Most notably, Tezos and EOS have also started introducing solutions to some of the limitations of leading public blockchain networks, like bitcoin and Ethereum. For instance, the Tezos project has come up with an innovative method of incentivizing developers to continue sustaining the network and the developments around the currency.
“The scaling problem is being tackled by many prospective solutions such as Raiden or more powerful Plasma, EOS, Tezos. However, it'd be premature to judge their efficiency.”
Furthermore, in an exclusive interview with Binary District, Dmitry Khovratovich, a researcher at the University of Luxembourg explained that, Ethereum-based blockchain platforms like Tezos and EOS are trying to solve the well-known limitations of Ethereum and bitcoin.
“The limitations are also well known: traceability resulting in privacy loss, scaling problems, and openness resulting in almost no confidentiality”, said Khovratovich. “The scaling problem though is being tackled by many prospective solutions such as Raiden or more powerful Plasma, EOS, Tezos. However, it'd be premature to judge their efficiency as a lot of technical details are still being developed or unknown.”
Startups like Omise, which are targeting regional markets, have also made significant progress. Omise recently partnered with McDonald’s Thailand, securing a contract to power the company’s transactions and payments. This means, Omise will be able to demonstrate the potential real-world and commercial use cases of Ethereum.
Permissioned Blockchains: Hyperledger, Intel’s Sawtooth Lake, IBM, Microsoft
Whereas the cryptocurrency community is generally focused on public networks and blockchain projects, large-scale conglomerates are targeting the integration of permissioned blockchains because of their flexibility and functionality.
Most recently, two major pharmaceutical companies, Pfizer and Genentech, who have a combined market cap of over $300 billion, introduced the MediLedger project. This blockchain platform, which is based on JPMorgan’s Ethereum Go-inspired Quorum, will be used to prevent counterfeit medicine and pills from entering the large supply chains of the two companies.
The two conglomerates revealed their intention to test the MediLedger blockchain platform with other key players in the global pharmaceutical industry, in order to demonstrate the potential of blockchain technology outside the realm of finance.
JPMorgan, Intel, and Microsoft are members of the Enterprise Ethereum Alliance and the Hyperledger Foundation. JPMorgan’s Quorum blockchain was created as a project within the EEA, while Intel’s Sawtooth Lake was created as a part of the Hyperledger Foundation’s blockchain initiative.
In an interview with Binary District, Patrick McCorry, a researcher at the prestigious University College London, suggested that despite criticism from the cryptocurrency community surrounding their security, these permissioned blockchain networks that are being developed by large conglomerates could actually work.
“I am not ideologically opposed to permissioned or centralised blockchains”, McCorry noted. “In fact, it is also arguable that blockchains like Bitcoin have many similarities with them (one similarity being that both systems rely on a small committee to select the contents of new blocks; in bitcoin this committee is elected based on wealth/investment, whereas this committee in permissioned blockchains are appointed), but there are some issues.”
This is how one bitcoin enthusiast described it in a forum back in 2013. And up until recently, it was also how cryptocurrencies were depicted in the media. It's likely, however, that the FBI and other law enforcements agencies disagreed with this sentiment as they charged Ross Ulbricht, who created Silk Road; Tomáš Jiříkovský, who laundered $40 million in stolen bitcoins; and Mark Karpelès, who embezzled $390 million from the Bitcoin exchange Mt.Gox.
To contact the editor responsible for this story:
Margarita Khartanovich at [email protected]