Scaling Blockchains For Mass Adoption
Happy new year crypto enthusiasts,
We hope you all had a great break.
We’re very excited about what 2018 will bring to crypto assets. 2017 saw significant increases in media attention, adoption from retail investors and the early stages of investment from big business. We expect adoption will continue to exponentially increase in 2018 as consumers will be able to more readily use crypto assets to purchase goods and services which will leave governments no choice but to work with this new and futuristic asset class. Prepare for a great year ahead!
This week’s hot topic - Scaling blockchains for mass adoption
As thousands of new users join the crypto asset market daily, blockchain scaling issues have become a top priority for developers. Bitcoin and Ethereum, the largest blockchain networks have both recently faced usability issues, slow transaction processing, large network backlogs and unsustainably high fees for their networks during times of peak demand. The transaction limits of the two largest crypto assets, Bitcoin and Ether, are 7 and 15 transactions per second respectively. Compared to VISA which can process 4,000 transactions per second, it is clear why many think crypto assets are far from becoming a usable global currency.
There are multiple proposals and solutions being proposed by developers to address the scaling issues. The main ones in the current ecosystem include:
Segwit - already implemented by Bitcoin, Litecoin and many other crypto assets, SegWit removes part of a transactions data (~65%) and moves the script to an extended block, thus reducing the size per transaction. As an example, Since each transaction is smaller, Bitcoin which processes 1 megabyte of transaction data per block (10 minutes) can now process more.
Block size increase - simply speaking, by increasing the block size, much like Bitcoin Cash recently did from 1mb to 8 mb, you can process more transactions in per block (10 minutes).
Lightning - Lightning is an off chain micro payments system where users can transact without broadcasting to the blockchain and require miners to process the transaction. Users do so by creating their own payment gateway and both signing each transaction or set of transactions electronically. After a defined period of time elapses, the set of transactions is bundled and broadcasted to the network to be process on the blockchain. This allows for instant and cheaper micropayments, particularly where a high transaction volume exists.
Sharding - Sharding is a process by which each transaction only needs to be verified and stored by a subset of transaction validators (nodes), rather than the complete network. If a node requires information from a transaction it does not store, it simply finds a node with that information. Ethereum founder Vitalik Buterin claims that once in place, these platforms will enable Ethereum to handle billions of transactions per second
Plasma - Plasma is a proposal by the Ethereum development team where a series of ‘contracts’, or plasma chains, would be developed to run on top of the main Ethereum blockchain. Each plasma chain would process transactions and periodically send reports which aggregate a large set of transactions to the main Ethereum blockchain for processing.
Let’s not forget that we are still very much in the infancy of blockchain, much like the internet during the dial up phase back in the 1990’s. Blockchains will scale to process thousands of transactions per second and even surpass the capabilities of today’s financial systems.
If Bitcoin and Ethereum fail to implement scaling solutions it won’t take long before we see them fade into the past and newer and more innovative ‘crypto 2.0’ assets which can process significant transaction volumes replacing them as the market’s dominant forces.
Exchanges shut down new accounts - Coinbase, Kraken, GDAX, Binance, Bittrex, Bitfinex, Poloniex, Coin Spot are among the exchanges who have closed access to new investors. Current systems are barely able to keep up with demand as exchanges have been experiencing a whopping 100,000 new users a day. Binance added 250,000 users in one day, and subsequently closed the doors. The demand for crypto assets has never been this big. Sadly, enterprise grade infrastructure is not easy to spin up, it will be many months before these powerhouse engines are at able to deal with this kind of demand.
The Ethereum Foundation has announced two million dollar grants to address the scalability of the network. The grants are targeted at developers in an attempt to address the transaction speed and scale which will allow for greater global adoption.
Mark Zuckerberg, CEO of Facebook, plans to study crypto assets and decentralised technologies in a bid to improve the functionality of Facebook. Mark spoke of both the positive and negative aspects of crypto assets, encryption and blockchain which are removing power from centralised entities and placing that power back in individuals.
The Founders Fund is reported to be adding positions in the world of cryptocurrencies to its portfolio. It is reported that the Founders Fund have purchased between US$15m - $US20m worth of bitcoin.
IBM and Comcast have launched a new Blockchain Start-up Fund. The Fund has a focus on helping fund early stage startups to help enterprises better use blockchain technology.
As of this morning, the most popular Bitcoin price reporter, coinmarketcap.com, decided to exclude South Korean exchange prices in its quoting, which has given the perception of a market sell-off and ~10% reduction of total crypto market cap. However, the majority of this can be explained by the alteration in price calculation. South Korean exchanges have recently been trading at a premium to other global exchanges due to liquidity issues and strict control on capital movements.
Bitcoin pulled back over the christmas break as holders liquidated into cash to enjoy the holiday period and treat themselves and families to presents. Adding to this Bitcoin has been sold recently into alternative crypto assets which have seen some phenomenal growth.
Ripple was the exceptional performer, increasing by 800% over the 2 week period on increased adoption by banks and speculation of further global adoption and listing on major exchanges.
Platforms tended to receive the most attention with Ethereum, NEO, NEM, EOS and QTUM all experiencing over 100% growth during the holiday period