Public blockchains: Thinking about opportunities - Part 1
For my first post on Steemit I will focus on analyzing the evolution of Bitcoin and Ethereum blockchains in 2017.
From January to June 2017 market cap raised ridiculously much and many changes to come in the next 6 months might bring those cryptocurrencies to the moon or back to the 2016 standards.
More and more transactions
A good indicator of cryptocurrency usage is the number of transactions that is made on the network daily.
Lately Bitcoin network treats up to 350,000 transactions a day. It is still the highest number I am aware of and it grew approximately 20% since January.
Ethereum has quadrupled its transaction number from March to June 2017 reaching sometimes more than 200,000 daily transactions. That is a massive growth that could explain some of the lately price evolution.
Lots of new businesses and use cases are getting developed on Ethereum, and even though blockchain usage probably won't become mainstream this year, more and more people are coming in.
On the 1st of January 2017, Bitcoin went up to 1,000$, pushing its market cap to 16 billions of dollars. Less than 6 months later the Bitcoin blockchain was worth 3 times that.
Ether on the other side was sold for 8.5$ back in January. Now you can buy one for 380$. This is a 4400% growth in 6 months, but more importantly the Ethereum market cap is getting much closer to the Bitcoin one. Today, Ethereum market cap is twice as big as Bitcoin was 6 months ago! Comparing like with like, Ethereum market cap is approximately worth 80% of Bitcoin as I write this.
I don't think an "alt-coin" was ever so close to Bitcoin valuation, so it never made more sense to ask ourselves: what would happen if Ethereum became, in term of market capitalization, the first cryptocurrency?
My first guess is that exchange will propose new market types letting people decide if they want to buy some new fancy cryptocurrencies with Ether or with Bitcoin. Cryptocurrencies are mostly bought with Bitcoins nowadays which is responsible for many transactions on the Bitcoin blockchain. The transaction number might switch naturally there.
Governance and evolution
There is one major problem when different actors have a lot of money or have businesses running on a public blockchain: technological evolution.
For example, Golem, Augur and Gnosis are projects that are worth together more than 1 billion dollars and they are built on the Ethereum token and transaction system. What would happen if those projects stop agreeing with the Ethereum updates?
Last year, the Ethereum community disagreed on an evolution and ended up with 2 different blockchains: one with the updates and one without it. That has mostly a negative impact for the network (that gets less secure as miners are divided into 2 chains), the community and the image.
Having a look at Bitcoin eternal debates about block size and the impossibility of Bitcoin actors to agree, we can see that we face a "limitation" of public blockchain. Governance or not, miners decide to apply the code (at least in PoW). And if some do, and some don't, we get 2 chains.
Hopefully this doesn't stop people from developing solutions and trying to convince others of the benefit of their work for the platform.
Both Bitcoin and Ethereum developers are working on an off-chain transaction system that would allow instant and really cheap transactions. Their names are respectively Lightning network and Raiden network. This would mean a lot for blockchain transactions as the system could scale in a much more effective manner and allow a viable mainstream micro-payment solution that is still impossible today.
Raiden should be deployed before 2018. It's a different story for Lightning that depends on a much more complicated ecosystem. For the lightning network to be optimized, Bitcoin will need to do an update containing the Segregated Witness implementation (SegWit): that could take months, years or it might even never happen.
The Ethereum Foundation is working as well on switching its validation system to Proof of Stake. I don't think it will be ready in 2017 so I am not going to talk more about it here.
Miners aren't cheap
Coin supply is another difference that could matter in the next few months. Bitcoin and Ethereum choice to reward miners is pretty close, except that the total number of coins generated by Bitcoin is limited to 21 million.
Today, more than 78% of the total number of Bitcoin was produced. The inflation rate of the number of Bitcoin this year will be less than 4%. 12 Bitcoins are generated every 10 minutes for miners. That makes 5 million dollars at day currently.
Ethereum has no limit in supply. It is generating 5 ether every 14 seconds approximately, so 30,000 eth a day, and about 10% inflation this year. At current price it makes 11.4 million dollars that needs to be invested daily to keep the price stable.
As the price raise, we see more and more discussions and propositions to limit the coin generation, mostly by giving less reward to miners, but the foundation did not recommend any solution yet.
Blockchains are here to stay
2017 is a historical year for cryptocurrencies. Many actors are coming in with great ideas and expect a piece of those brand new billions invested every month on public blockchains. As for Bitcoin and Ethereum they already changed the world, each in a different manner. Their purpose is different but their ideology is the same and I hope we will keep seeing both of them evolving in their own direction for the next decade.
As a software engineer playing around data technologies, I am curious to see what blockchain has to offer with decentralized storage solutions. My next article will talk about those kinds of solutions, such as Sia, StorJ and MaidSafe. Can it get cheaper and easier to use than Amazon and Google storage solutions or will it only be use for privacy purpose?
Saluton @grinn kaj bonvenon je Steemit.
Great first throw ! I would like to know how much energy is spend to shovel all the crypto coins around all the time? Will it be less in future because of new technology?
Hello Johano.
The answer to this question could be estimated by looking at the reward given to miners.
Bitcoin miners are mostly professional miners that need to make a profit. It's a risky business that requires an important investment and you need to spend lot of time configuring and securing your mining farm. So you definitely want a good cut. Bitcoin is giving about 5 million a day to miners. I think more than half is spent in electricity. Some say it's rather 90% though. If 2.5million$ are spent daily in electricity (so 50%), it better be the cheapest possible. That's why miners go to China or India where the price is 0.08$/kWh. So my guess would be that bitcoin network uses 31.25 millions of kWh a day. To give you an idea, recent statistics showed that an American home uses 900kWh a month.
Thanks. So much energy ! And no end to see!
Perhaps it is more a philosophical question whether all this effort is necessary and good for our society as a whole.
To answer the other part of your question about the futur, it is complicated to tell.
Bitcoin will stay like this for a few years for sure as you need electric power to have mining power. It is the same for Ethereum at the moment, but Ethereum planned since the beginning to evolve to a Proof of Stake where block validation won't be won with hashing power but with the Ether that you hold. I don't know if you are familiar with those principles but the main goals behind a switch to Proof of Stake is environmental reasons (no more electricity waste fight) and safety (someone who hold Ether have a good reason to be honest and validate correctly on the network than someone who doesn't have Ether).
Thanks, that is helpful.