Cryptocurrency Fight Club — Who Will Reign Supreme?
- Durable Consensus
- Scalability & Transactions
- Node & Mining Health
- Transaction Fees
- Smart Contracts
As of writing this post, there are three leading cryptocurrencies which have surpassed a market cap of $100 billion USD. These cryptocurrencies include Ethereum, Ripple, and most recognizably Bitcoin. Ethereum and Ripple both exceeded a market cap of $10 billion USD this past year, trailing four years behind Bitcoin’s own eleven figure evaluation. Despite the clear historical advantage Bitcoin has held over other cryptocurrencies thus far, the world’s most popular blockchain was only three months ahead of Ethereum and Ripple when it came to reaching a $100 billion USD market cap. In terms of this alone, Bitcoin’s dominance is acutely shrinking. However, it is important to note that the market cap of a cryptocurrency only reveals a slice of the whole economic picture. In terms of worth derived from actual technical ability and application, the convergence between Bitcoin and competitors has become even thinner.
The technical strength of a cryptocurrency can be determined by measuring a blockchain’s effectiveness at several key operations. Among these measurements are blockchain security, transaction fee costs, network scalability, reliable consensus protocols, and the presence of / robustness of smart contract programming languages. In simpler terms, this all might sound more obvious. When one blockchain is observably better than another blockchain at accomplishing several complex tasks, while still maintaining competitive performance in other tasks, they’ve historically shown explosive growth and flourish in market value.
These factors of technical strength remain clear indicators of whether or not a cryptocurrency will succeed across long-term exposure to the ecosystem, and how well they’ll fare against similar competitors. Nonetheless, there’s nothing truly preventing the market from favoring multiple blockchain solutions for long-term support. This is most evident in cryptocurrencies which provide significant technical advancements towards specific applications, usually by sacrificing efficiency elsewhere. IOTA, which currently ranks 10th overall in terms of their market cap, offers unparalleled transaction scalability through the use of an exploratory technology known as a “tangle”. This technology differs greatly from the blockchains used in Ethereum and Bitcoin but comes with several unfortunate drawbacks. Most noticeably, is a structural inability to support most smart contract functions. For this reason, IOTA is a very favorable solution for traditional 1-1 transactions but is not suitable for more complex smart contract uses. Therefore, It’s conceivable that the future could value an array of cryptocurrencies which serve different specific purposes should alternative solutions to current problems remain unsolved.
With so many problems to solve, complete dependence on Ethereum, or any cryptocurrency for that matter, is not necessarily a guaranteed outcome. In the near-term, there should be plenty of room for specialty cryptocurrencies. Direct competitors such as Bitcoin, Ethereum, and Ripple will start to see a dominant force arise in terms of their total value though. So why might Ethereum be this dominant force in the market?
Achieving a healthy and durable consensus on a blockchain is incredibly challenging. Consensus refers to how a blockchain decides upon implementing changes to a system. Think of this portion of the platform as the blockchain’s central government. This department is responsible for deciding what new features to add, how difficult mining should be, how best to address bugs, and how to solve other such communal issues. Furthermore, when dealing with a decentralized blockchain, consensus becomes exponentially harder to preserve.
Bitcoin itself was created by an anonymous figure known as Satoshi Nakamoto. Seeing as how Satoshi Nakamoto has never revealed themselves, Bitcoin has consequently suffered from a lack of stable leadership. Many people will claim that they know what is best for the future of Bitcoin, but few have ever truly obtained the public’s collective support. Many blockchain developers even believe that it is because of this lack of sustainable governance that Bitcoin has been unable to address several tremendous scalability issues. Meanwhile, the Ethereum community which is lead by Vitalik Buterin remains a more transparent and streamlined governance. Regardless of how you feel about Ethereum’s methods for this, the results certainly show quicker development turn around.
Regarding Vitalik Buterin:
Ethereum was created by Vitalik Buterin. Vitalik, a young and brilliant Russian-Canadian who is incredibly active in the community he built, has largely fit the primary authority role within the Ethereum world. Regardless of how this affects Ethereum’s decentralization, as many are quick to call him a “dictator” of sorts, Vitalik’s position largely accelerates the development process. For reaching consensus on new features and fixes, he simply whips the votes. While the opinion that Vitalik has too much power is understandable, one might argue that he is largely viewed as influential because of his work and contributions to Ethereum, not because of some monetary ownership like Ripple. As the core code contributor of Ethereum, it stands to reason that his opinion would merit more value and contain incredibly insightful knowledge of Ethereum’s inner workings.
Scalability & Transactions
Ethereum can currently process around 3x the number of transactions per second that Bitcoin can with on-chain methods. However, Bitcoin still processes the majority of fiat-to-crypto transactions made online. However, these transactions are done on centralized exchanges and do not accurately represent anything blockchain-related. However, this fact definitely makes bitcoin more liquid with respect to transferring from fiat currency to cryptocurrency.
Most of Bitcoin’s scaling efforts have been surrounding SegWit, which is a proposal to reduce on-chain transaction size. Bitcoin has also been working on adding support for Lightning, which is an off-chain transaction method. Lighting would be great for things such as micro-payments and would enable zero-fee transactions. Ethereum also has an off-chain transaction proposal known as Raiden. Raiden won’t just work with Eth though, but rather with any ERC-20 Ethereum token as well. Additionally, Raiden will interact with smart contract state changes.
In addition to Raiden, the Ethereum community is also implementing additional scaling solutions such as proof-of-stake and sharding. Both of these are being fully tested on alpha networks before being implemented on the Ethereum mainnet. They’ll require significant work before being implemented publically, but promise more scalability than Bitcoin.
Node & Mining Health
The quantity of full nodes often indicates how decentralized a blockchain truly is, with some caveats of course. Essentially, that less overall nodes on a network the more centralized it is. If a network becomes too centralized, the entire system becomes at risk. Ethereum currently has more than double the number of full nodes as Bitcoin and therefore faces less risk.
The mining reward allocated to users is a large indicator of how secure a blockchain’s core technology is. This reward determines the cost of executing a 51% attack and gives powerful insight into the network’s overall health. Mining rewards are currently just about equal between Ethereum and Bitcoin, so this would mean that both blockchains are relatively equal with respect to hashing.
The undeniable winner for this category is Ethereum. Ethereum has exponentially lower transaction fees than Bitcoin, regardless of processing more transactions per day and having very similar mining rewards. Bitcoin continues to show slow progress towards reducing standard transaction fees, while Ethereum remains ahead and is focused on researching off-chain transaction methods which aim to reduce fees to zero.
Bitcoin is primarily a cryptocurrency capable of one-to-one transactions. Ethereum however, features a Turing-complete programming language which can be used to build “smart contracts” that exist on top of the network. This allows Ethereum to perform automated tasks and execute functions that extend way beyond applications for the financial industry. The ability to build decentralized applications on top of the Ethereum network remains one of the clearest advantages for their blockchain over others.
Despite Bitcoin’s current lead in overall market cap, Ethereum has shown extremely promising growth through promoting rapid adoption of new technological enhancements. Additionally, by building and sustaining a healthy leadership with transparent community interaction, Ethereum has grown to tackle a wide array of challenges, instead of focusing on a particular niche. Given all of the advantages, and Ethereum’s intent to be the general purpose blockchain, it’s likely that Ethereum will continue to grow in adoption. If Ethereum were to gain enough adoption during this time to pull ahead in terms of market cap, it’s also very likely that extreme liquidity would follow. Increased liquidity could easily solidify Ethereum as the de facto blockchain, and push the cryptocurrency ahead of Bitcoin in the public’s interest.