Technical

It’d be foolish to undermine the role of white papers in the cryptocurrency and blockchain ecosystem, given these industries – estimated to be worth billions in years to come – spawned from a nine-page document put together by Satoshi Nakamoto, Bitcoin‘s mysterious creator (or creators).

First published in 2009, Nakamoto’s white paper set the scene for an innovative and decentralized peer-to-peer payment network, its underlying blockchain technology, and the some 1,600-plus altcoins that have emerged since.
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 Throughout cryptocurrency and blockchain’s relatively short history, white papers have been considered to be an effective marketing tool. They explain a project’s raison d’être, offer prospective customers a unique insight into a product, seek to influence decisions made by the reader, and help to establish interaction with potential investors in the run-up to an Initial Coin Offering (ICO).

At the very beginning, blockchains like that of Bitcoin’s or Ethereum’s were public, hence it made sense to make the information about them publicly available in a white paper. With the emergence of private blockchains such as Hyperledger, there may be less need to publish a white paper.

White papers have also played a crucial part in the due diligence process, helping investors to ascertain if a project is legitimate or if the presence of recurrent red flags (such as plagiarism or lack of sources) indicate something untoward.

“A comprehensive written explanation of what a project is trying to accomplish – including an explanation as to why a token is necessary as opposed to using traditional infrastructure – will almost always be the first port of call for anyone seriously looking to conduct an in-depth examination of a project and its merits,” attested Preston Byrne, a partner at Byrne & Storm, P.C.

Put simply, white papers are the cryptocurrency and blockchain industry’s equivalent of standard pitch decks, and as such have, to a varying degree, played an important part in this very nascent market.

The role of white papers in ICOs

Not all cryptocurrencies have white papers – many early coins such as Litecoin launched with a simple project description on the Bitcointalk forum in a bid to gain early support from miners – but these documents have gained preeminence in recent years due to the influx of ICO activity.

ICOs became increasingly popular in 2017 as Bitcoin‘s price rallied. In May that year, a web browser called Brave raised around $35 million in less than 30 seconds and in September, Kik, a messaging app developer, nabbed nearly $100 million.

By the beginning of October, ICO coin sales throughout the year already amounted to a staggering $2.3 billion – more than 10 times the amount sold in 2016.

As of November, there were about 50 offerings per month and by the end of the year, ICOs had raised approximately 40 times as much capital as they had in 2016 – although they still amounted to less than two percent of the capital raised by Initial Public Offerings (IPOs).Today, ICO-related activity has lessened.

According to cryptocurrency ranking website CoinGecko’s 2018 Cryptocurrency Report, the number of ICOs being able to achieve their investment hard cap dropped from 53% in January 2018 to 10% in December of the same year.

Regulatory uncertainty, especially in the US, has meant that raising money via ICOs has become increasingly difficult.

As such, many teams are now looking to fundraise via Securities Token Offerings (STOs), although no jurisdiction has legalized this and there’s still a lack of security token exchanges in the market. Regardless, STO offerings are legally required to offer investors a prospectus, which in itself, has caused a shift in the role of white papers, rendering them somewhat unnecessary.

“To a large extent, a white paper allows the community to vet an idea and vision in detail. During the ICO boom, the white paper serves largely as an investor prospectus/pitch deck to raise funds from the public.

It deviated from a technical-heavy document to a business plan masquerading as a white paper,” Bobby Ong,co-founder of CoinGecko told Hard Fork, adding: “As many of these ICOs have no working product, it is hard to determine which ICO projects are worth backing.

To many investors, the quality of the white papers’ vision and writing serves as an indicator to the quality of the team behind the project and became an investment indicator.”

Deviating from the original

It’s not uncommon for businesses to pivot throughout their lifetime, but for cryptocurrency and blockchain companies, deviating from the original white paper can prove troublesome on many fronts.

The lack of regulation in the space, means many ICOs don’t have a track record that serves as a point of reference, and as such, any unexpected moves by a company can leave investors feeling on edge.

Kevin Hobbs, CEO of Vanbex, believes white papers are a double-edged sword. They’re essential to attract investors, but on the other hand, they “can be detrimental to the ecosystem as more often than not, they’re never followed precisely.

”“It often leads to eventual disappointment and lack of confidence amongst cryptocurrency investors,” Hobbs added.A deviation, though, is not always indicative of untoward intentions. Many projects start off promising everything and anything, but it eventually becomes apparent that their vision and mission was too grand and thus impossible to achieve.

In other instances, companies have to deviate from their white paper to correct wrongly held assumptions or hypotheses if they’re to get product or market fit. Worst case scenario, companies move away from their original intentions due to poor financial management.

“Most ICO companies raised their funds in Ether and many did not convert their investment holdings into fiat currencies or stablecoins. As Ethereumprice declined nearly 90% from its peak, many of these projects saw their funds decreased significantly.

They now do not have enough funds to execute on their vision promised in the white paper,” added Hobbs.“By identifying themselves with their white paper, companies have limited themselves,” said Blockrules’ chief technologist David Williams.

“Successful companies are much more than a single piece of technology. What makes a company successful is not the theory behind their technology, but rather how they implement their new idea.”

The future of white papers

We may eventually see the blockchain community take a more traditional business approach, bypassing white papers and instead focusing on putting together viable business plans.If anything, this shift signals the level of maturity of the current market but poses an important question about the future role of these documents.

“The white paper is here to stay. The Bitcoin white paper serves to describe the technical vision of Bitcoin and solid projects are still writing white papers to describe their visions. It is during the 2017-2018 ICO boom that some projects changed the white paper to serve more like a business pitch deck.

Also due to the sheer number of ICOs coming on board during the bull run, the quality varies a lot,” Ong said.

Tomer Sofinzon, founder and chief business development officer at Pillar Project, notes that while white papers have been a critical component for an open-source system such as blockchain and cryptocurrency, “they also became the primary vehicle for scammers, fraudsters, and tourists to raise money easily with no real responsibility and accountability to their contributors by telling fake promises with no connection to reality.

”Highly technical projects are rife in the industry and it is here where white papers prove to be most useful as they help to communicate a project’s purpose to its audience, but it is, in fact, this technical complexity, and the mainstream citizenry’s lack of understanding, that could help propel illicit projects forward.

The question is not whether white papers will continue to play a crucial role in the industry, but whether the maturity of the latter will pave the way for professionally drafted proposals that represent truly legitimate undertakings.

For others, as Ong quite rightly pointed out, the future of whitepapers will depend on how the ICO and STO market plays out. If the former wins, we’re likely to see the continued emergence of whitepapers in the space. So, stay tuned.

These companies keep the eco-system of blockchain alive.

When you write about blockchain and cryptocurrency you tend to get a lot of emails offering CEO interviews, background on emerging ICOs and everything in between.

I thought it would be interesting to go through some of the companies who have reached out to me and take a look at exactly what they do and who they serve. I was amazed to see that a full-service industry now exists to propel that startup (the one you haven’t heard of yet) to glory, and so I dived a bit deeper to figure out just what help a successful ICO might need.

Indeed, the industry isn’t made up of blockchain companies alone; there are vital supporting services that make up the ecosystem. Despite having a science-fiction/futuristic ring to it— the blockchain industry is no lone wolf. In the world of financial technology, it really is evolve or die.

So here are my top 3 from each section of the blockchain and crypto industry of who I believe are pushing the boundaries, from accounting services to tokenomics.

Accounting Services

Preparing and examining financial records is no easy task and in a relatively new industry, some of these expenses and purchases may be foreign to accountants who have not worked with blockchain and cryptocurrency companies before. Here are a few of the best crypto-accounting companies out there who have managed to get their heads around it.


Gold

Commerce CPA specializes in helping Bitcoin and cryptocurrency users around tax season. The commerce CPA staff are familiar with a number of cryptocurrencies ranging from big names like Bitcoin and Ethereum to smaller altcoins like Zcash, and their team can help consumers with auditing, accounting, and consulting as well.

Silver

The team at Azran financial are considered thought leaders when it comes to cryptocurrency accounting solutions and taxation. From ICO’s to STO’s to cryptocurrency airdrops, the team at Azran has a deep understanding of blockchain technologies and its relationship with regulation.

Bronze

Crypto CPAs is an accounting firm that specializes in blockchain and cryptocurrency. The firm services individuals with cryptocurrency investments, and ICO projects in need of tax and accounting services.

Conferences

Community building is an essential part of reaching out to the mainstream audience and ensuring that a blockchain project maintains enough following to keep going for many years to come; because of this, companies organize blockchain events on a regular basis, especially since cryptocurrency enthusiasts are known to spend large sums of money for these events.

Gold

The United Nations (UN) has been looking to blockchain technology to solve social issues. For those who are looking for ideas on what to tokenize, high-level forums such as those by the UN would provide very valuable insights. After all, the best products in the world are those that deliver a real need.

Silver

Silicon Valley wouldn’t be caught dead behind everybody else, particularly with a technology so big, that even those who don’t understand it keep talking about it. On November 28-29, the ambitiously named event, “The World’s Largest Blockchain Conference and Exhibition,” will bring big names in the industry together.

Bronze

Dubai has always been on a quest to position itself as one of the most forward-thinking cities in the world. The Dubai International Blockchain Summit on August 9 hosted over 5,000 delegates, including several start-up founders, at Atlantis the Palm Hotel.

Developments

In an industry as new as blockchain and cryptocurrency, it can be challenging to come across individuals with the expertise to develop blockchain-based software and hardware. Fortunately, there are a number of companies in the industry willing to assist you with this task.

Gold

Tecsynt helps companies create blockchain-based mobile phone applications. The team at Tecsynt are well-versed in blockchain and cryptocurrency and can help clients when it comes to developing programs and making decisions. A few of Tecsynt’s clients include Freemo, Hawkist, and DermDash. 

Silver

Toptal connects their clients to a pool of talent that can create the blockchain based software and hardware that they are looking for. After hearing about project goals, Toptal leverages their vast network of blockchain engineers and connects customers to developers that are the perfect fit for their project.

Bronze

Peerbits offers a range of blockchain development services; from private blockchain development to wallet development solutions, Peerbits’ team of experienced blockchain specialists can tackle any problem their clients are facing and create solutions.Investment Funds The amount of money coming into the blockchain industry has been quite overwhelming.

Some even predict that the bitcoin market cap alone will shoot up to the trillion-dollar mark at some point in the near future and financial professionals have taken notice of the opportunity.

Unsurprisingly, traditional investors have been seeping into blockchain investing, and investment funds are an easy transition that saves investors from a lot of headaches. 

Gold

Protocol Ventures was started in 2017 by serial entrepreneur and venture capitalist Rick Marini. Protocol Ventures is an investment fund that invests in cryptocurrency hedge funds. The company identifies the top ten hedge funds based on historical and expected performance, quality of fund managers, and quality of investment strategies, and backs these companies in hopes of healthy returns. 

Silver

Pantera Capital is a blockchain-focused investment fund founded in 2013, making it the first US Bitcoin investment firm in history. They have a portfolio of industry heavyweights, including Bitcoin.org, ShapeShift, Augur, Abra, Civic, Omisego, and Ripple.

Bronze

Based in London, Eterna Capital was formed by a group of ex BlackRock analysts with a solid understanding of traditional markets and blockchain tech. The fund is special as it focuses on projects and teams that value social impact and incorporate it into their business models.  

Marketing Agencies

Despite what some may believe, the success or failure of a company isn’t always about being the best, or “getting there first.” Many times, success is bolstered by other less quantifiable factors, like user experience and community relations.

An explosive marketing strategy can help start-ups make their entry into the market, even when it’s already crowded with industry giants; this cannot be truer in the blockchain industry.

Keeping an organization in and ahead of the game is a constant investment that should never be undervalued, pre and post-ICO.

Gold

Making the top of the list is Verma Media, which, within only about a year propelled over 80 projects into over $220 million in funding. With Verma’s track record, it quickly became a household name for blockchain founders. The “decentralized marketing agency” offers full-service marketing, landing big clients like Consensus, Patron, Muirfield, and Substratum, among many others.

Silver

Wachsman PR, founded in 2015, prides itself with its media relations services, strategic advisory, event production, and “crisis communications”—something all-too-familiar with all the hacks and controversies the blockchain industry experiences on a regular basis.

Some of Wachsman’s most well-known clients are Dash, Coindesk, Steemit, and the controversial Bitfinex—which in itself would have been rigorously testing Wachsman’s damage control skills. 

Bronze

Another blockchain-focused PR firm worth watching is Melrose, a California-based agency strategically located in Silicon Beach, where over 500 tech startup companies reside.

The firm has worked with several startups focusing on fields like AI, healthcare, advertising, and online gaming. Among their clients are SingularityNET, DAO.

Casino, and Blockdaemon.Smart ContractsSmart contracts are the blood of decentralized applications. Any flaws within this code could spell trouble for a company and its founders—legal, financial, and reputational. But at the same time, experienced blockchain developers are hard to come by. 

Fortunately, some have taken it upon themselves to put some order into the developer shortage by offering these services through firms. And because these jobs are highly complex and utterly crucial (multi-million-dollar hack level crucial), it’s best to leave this job to the experts.

Gold

Hosho.io nabs the number one spot on this list due to their reliable security services and track record in smart contract auditing. The blockchain security firm, comprised of experienced white hat hackers, is a partner to the Ethereum Enterprise Alliance. 

Silver

US-based firm Zeppelin Solutions boasts of having networks worth over $4.5 billion built using their systems. Apart from security audits for decentralized applications (DApps), the company also builds open-source infrastructure to make it easier for new developers to create complex blockchain applications.

Bronze

Blockchain outsourcing company Prolitus is an ISO 9001 & ISO/IEC 27001:2013 certified firm and is a partner to Google and Amazon Web Services. They currently operate in Ireland, USA, and India.

Tokenomics Strategy

Not only did blockchain technology forge the birth of parallel industries, but it has also given rise to the creation of entirely new fields of study—tokenomics being one of them. The field governs the purpose, mechanics, and economic design of a token ecosystem, as well as the incentive structure within it. This is a crucial pre-launch aspect in an entirely new “science,” therefore tokenomics specialists are highly sought after, yet not easily found.

Gold

Yeoman’s Capital is an investment firm created by early Bitcoin adopters. “We only invest if we can also make a meaningful impact as advisors,” their website says. And to show everyone they mean business, the firm clearly states, “No Free Lambos,” on their website. “We work hard & deploy our own money.”

Silver

Boasting a team of several blockchain analysts, advisers, and technologists, International Blockchain Consulting (IBC) specifically positions their firm as one whose niche is in a tokenomics advisory.

Bronze

BlockchainSaw is a blockchain development firm that also offers smart contract auditing—something the industry is in dire need of. Unlike investment firms and consultancies that provide advisory services, BlockchainSaw does the dirty work for token creators.

I have worked for broadcasters such as the BBC, BFBS and the Press Association before becoming a full-time freelance journalist in 2016.

Previously I had written on the FinTech sector for both national and niche publications, but it was the Brexit referendum that sparked my ... MORE

See more on what I'm writing here or say hi on Twitter @ginadav

As blockchain technology reaches its 10th birthday, many CPAs and accountants continue to ask how this disruptive technology will impact their practice and their clients.

I think the best place to start is with an understanding of a “smart contract,” a relatively older concept gaining steam because of blockchain. Smart contracts originated in the mid-‘90s during the emergence of buying and selling items on the internet.

Nick Szabo, a computer scientist and cryptographer, conceived smart contracts to evolve contract law in the new era of e-commerce. Szabo envisioned contracts converted into computer code that could be maintained, monitored and executed by the networks on which they resided.

The missing piece to these automated contracts was, of course, blockchain.

How Smart Contracts Differ from Traditional Contracts

A standard contract outlines the terms and conditions of the contractual relationship, whereas a smart contract not only defines the rules and penalties of the agreement, but also enforces the terms and conditions.

A common smart contract analogy involves comparing its technology to a vending machine. Rather than going to an intermediary, giving them money and waiting for your product, you put money in the vending machine – or into the blockchain network – and ownership of the product is automatically associated with your account on that blockchain.

Here’s a broader example: Consider a global freight carrier we call Carrier A that picks up a shipment of red wine from a vineyard in Argentina. We’ll call this vineyard Supplier A. Carrier A guarantees Supplier A that its shipment headed to the Port of Houston, USA, will be temperature controlled the entire route.In fact, these two have a smart contract in place that states temperature readings will be collected every three hours from sensors inside the container, and that if two consecutive readings fall outside the acceptable range of 45 to 70 degrees Fahrenheit, Carrier A will pay a $300 penalty to Supplier A, with an additional $300 penalty for each subsequent reading outside the agreed upon range.

As the shipping container moves along the nearly 7,800 nautical miles from Buenos Aires to Texas, temperature sensors inside the container automatically gather readings every three hours, as designed and reports the internal temperature to a tracking system that records the readings to its blockchain. Upon arrival in Houston, the tracking system triggers the smart contract, which reviews all temperature readings for the shipment.

If the wine remained within acceptable temperatures, the smart contract does nothing further. However, if the smart contract finds that the shipment falls outside the agreed upon parameters, it executes an automatic payment from Carrier A’s account to Supplier A’s account.

This process sounds similar to how a standard contract between a carrier and supplier would work without blockchain technology, so what’s the impact of blockchain with regard to smart contracts? Here are five of the biggest benefits:

1. Sovereignty

Lawyers will still play a role in contract negotiations, perhaps less than in the past, but with smart contracts, there is no need for a broker, lawyer or other intermediaries during the execution of the contractual relationship. This also eliminates the possibility of third-party manipulation since execution is automated by the network.

2. Accuracy

In addition to removing intentional manipulation, the automated execution of smart contracts removes the impact of possible human error when manually filling out and processing loads of forms and other documentation.

3. Trust

The encrypted and immutable nature of blockchain technology ensures the contract and transaction details are encrypted and cannot be changed after the fact. All relevant parties have access to the data they need on the shared ledger with confidence it has not been manipulated. As a result, losing or misplacing documentation is impossible.

4. Resiliency

If you have ever lost your wallet, panic typically ensues. You must locate documents that prove your identity and residency to replace your government-issued ID. With your replacement ID, you can prove ownership of, or entitlement to, your assets. Smart contracts that associate asset ownership on a blockchain provide the resiliency inherent to distributed ledger systems.

5. Speed

The manual processing of traditional contracts requires large amounts of time, paperwork and back-and-forth communications to complete, not to mention the challenge of conducting business within business hours, although operations may span multiple time zones. Contractual tasks automated by the computer code of smart contracts reduce the time required to complete the contractual agreements.

Challenges of Smart Contracts

Beyond the obvious smart contract challenges, including errors in the code that could result in unintended consequences and vulnerabilities exploited by nefarious parties, coding every possible outcome of the business transaction could be an almost impossible undertaking because some results may be unknown.

Similarly, some traditional contracts are designed with intentional flexibility, allowing for human interaction or judgment during execution of the contractual agreement. Flexibility is difficult to automate, so these contracts may be poor candidates for smart contracts.

Off-chain events may be difficult to plan for and difficult to program into a smart contract. For instance, a rental agreement for a beachfront vacation condo may be set to self-execute based on the date and time of the rental agreement.But what if a natural disaster severely damages the property?

It is no longer inhabitable, but the smart contract executes transferring the rental fee from the renter to the property owner.

As with other blockchain applications, the lack of standards defining best practices for developing smart contracts is one of the biggest challenges facing the technology. Oversight does not exist on a global or more local focus, with much debate about how, or if, governments should be responsible for regulating such contracts. And, arbitration standards do not currently exist for handling smart contract disputes.

One more challenge: The lack of guidance regarding where smart contract transactions end up on the balance sheet. Are smart contracts invoices?

Should smart contract transactions that automatically exchange cryptoassets on blockchains be included in payables and receivables, or could they be escrow accounts?

Moving Forward – The Opportunity for Accounting Professionals

PwC’s Global Blockchain Survey 2018 shows that 84 percent of responding companies started their blockchain journey; 57 percent have projects in development or in production.

While financial services is the front-running industry in blockchain use cases, advances are being made in manufacturing, supply chain and healthcare.

Walmart, Costco and Tyson Foods partnered with IBM, forming the largest global food supply chain collaboration project. The group anticipates that smart contracts will be a tool to automate governance of food supply chains, as well as a tool to facilitate the commercial relationship between the various participants in the system.

Companies of all sizes are paying close attention to the shared value of their blockchain solution, ensuring benefits for everyone along the supply chain, from farmers to retailers. These companies currently leverage their accounting firms for business advisory services beyond the traditional compliance offering.

As implementation upstream triggers ripples of disruption throughout the supply chain, firms that build specialization in blockchain technology and smart contracts will now have an opportunity to guide these clients. In addition, a discussion about blockchain in public accounting typically includes the technology’s impact on audit.

Specifically, blockchain’s inherent transparency provides insight into both sides of a transaction for all participants and, potentially, regulators. Verification of transactions happens before they are added to the immutable ledger, so blockchain sounds like it could automate pieces of an audit.

Smart contracts offer an opportunity for auditors.

Today, a smart contract audit concentrates on the accuracy and security of the contract’s code. A technical expert examines the code to identify bugs or vulnerabilities, ultimately attesting the code performs as intended. This type of audit is essential to ensuring the proper functionality of the smart contract.

However, a technical audit of the code does not ensure the smart contract properly applies the business logic relevant to the participants’ industries. An independent attestation of the smart contract’s functionality provides your client the confidence needed that blockchain will become a part of our business landscape.

Final ThoughtsBlockchain technology has come a long way in just 10 years. Although challenges remain for the technology, interest and investment continue to increase.

The technology evolved from a distributed ledger designed to track Bitcoin transactions to a platform upon which new tools of transparency and automation are built. As clients rely on accountants to be their trusted business advisors, we have a responsibility to educate and prepare for these new instruments of blockchain disruption.

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About Amanda Wilkie

Amanda Wilkie, a consultant at Boomer Consulting, Inc., is a recognized expert in the profession who regularly speaks and writes on blockchain and cryptocurrency, and their impact on the profession.

Read more from Amanda Wilkie

A blockchain testing company claims it has found something quite shocking: EOS $EOS▼1.69%, a blockchain protocol that was worth $4 billion a few months ago, may not actually be a blockchain.

In a new experiment, benchmarking firm Whiteblock concluded that the EOS token (and its RAM market) is essentially a cloud service for computation – and is built on an entirely centralized premise. 

As such, it lacks some of blockchain’s most fundamental aspects, like immutability.

The tests were commissioned by major blockchain entity ConsenSys, to establish metrics for benchmarking base-layer blockchain protocols.

“Through practical testing and experiments in a controlled laboratory setting, this research provides a thorough and objective model of [EOS’] design, performance, and economics in order to present a reference for the blockchain community,” declares the paper, which Whiteblock shared directly with Hard Fork.

Whiteblock built a replica of EOS to destroy

EOS differs from Ethereum and Bitcoin in lots of ways, but especially in how it decides who should be the ones to validate blocks and reap the rewards for doing so.

Unlike Proof-of-Work blockchains, which allow anyone to contribute to powering the network, EOS selects who should process transactions (block producers) through a complicated voting process called Delegated Proof-of-Stake.

During these elections, each EOS token held equates to one vote, meaning that those who hold lots of EOS have more say in who controls the network.So, to conduct this experiment, Whiteblock ran a replica of EOS which it claims works the very same way as the real thing. “It runs the exact same software.

The block producers within the Whiteblock environment perform the same functions a block producer would perform in the main net,” Zak Cole, Whiteblock’s chief technology officer told Hard Fork.

“We provision nodes within a controlled test environment, configure the network conditions between these nodes in order to emulate real-world performance, and automate their process and actions so we can observe their behavior and measure their performance in a deterministic manner.

”Whiteblock initially began testing their copy of the EOS blockchain in September. The tests took place in an isolated environment and continued for two months. The firm describes EOS as more of a network that provides promises for computational resources, stored in a “blackbox,” for users to access.

Even more damning, it says the entire EOS system is built on a flawed, centralized model.“EOS is not a blockchain, rather a distributed homogeneous database management system, a clear distinction in that their transactions are not cryptographically validated,” Whiteblock argues.

“EOS block producers are highly centralized and users can only access the network using block producers as intermediaries. Block producers are a single point of failure for the entire system.”

EOS is not exactly fast and could be controlled by cartels

A large chunk of the paper is dedicated to proving there is no proper protocol for preventing block producers from colluding to maintain their role as block producers, with little protection against bad actors forming cartels to crash the entire network.

As such, the report indicates EOS suffers from consensus failures with no Byzantine Fault Tolerance (BFT), leaving the network open to being controlled by rogue, colluding members.

For a blockchain to have BFT, the network must be able to withstand system failures that result from situations related to a mathematical puzzle called the Byzantine Generals’ Problem. If it cannot, bad actors are theoretically able to process false transactions, so BFT relates to the reliability of a blockchain.

“Conceptually, it is impossible for EOS to implement Byzantine Fault Tolerance. A true BFT system would not be susceptible to cartels forming in the system, [but] […] cartels are easily formed in EOS, therefore negating any effort to claim BFT.

”In particular, the researchers note the primary threat to EOS’ integrity is the Sybil attack, which involves bad actors muscling other network contributors out of being able to process transactions altogether by creating fake identities, and using them to initiate spam and DDoS attacks.

“This is in fact a large vulnerability in the system as fraudulent users are essentially able to create malicious accounts much faster than the block producers are able to come to consensus [on which accounts to exclude],” Whiteblock warns.

“This further proves the high level of centralization that exists in the EOS network and the tremendous power these block producers possess.

”The report then states that block producers do not actually process transactions based on any consensus algorithm, instead confirming transactions in a “mechanical fashion,” with no formal verification of the validity of transactions being processed.

To which effect, Whiteblock’s benchmarks revealed that the amount of transactions able to be processed by EOS is significantly lower than initially claimed in marketing materials, never exceeding 250 transactions per second (TPS), even with optimal settings like zero latency and packet loss.

It must be mentioned that other testers have previously benchmarked the speed of the EOS network. The general belief is that the current maximum throughput of EOS is around 4,000 TPS.

The EOS whitepaper declares it perfectly possible that EOS would one day scale to process millions of transactions per second.

“During tests with real world conditions of 50 [milliseconds] of round trip latency and 0.01 percent packet loss, performance dropped below 50 TPS, putting the system in close proximity to the performance that exists in Ethereum,” Whiteblock claims.

Bitcoin is currently capable of processing up to 7 TPS, and Ethereum can process around 20.

Whiteblock says EOS doesn’t use cryptography

According to Cole, EOS stores all data related to transactions in a kind of table designed by lead EOS brain Dan Larimer, called a Chainbase.

When EOS network confirms transactions, Whiteblock claims block producers are simply cross-referencing new transactional data against this table, rather than confirming their legitimacy with cryptography.

The firm says EOS transactions only happen due to block producers updating the data stored in the underlying Chainbase, rather than cryptographically verified changes to the state of the underlying blockchain, as is the case with Ethereum.

“All of these actions operate in an environment that lacks cryptographic validation of the contracts and transactions,” says the research.

“EOS is fundamentally the same as a centralized cloud computing architecture [client/server] without the fundamental components of a blockchain or peer-to-peer network.

”Having network participants validate transactions by checking a special table has consequences. Not only is it unusual for a cryptocurrency, it affords developers practically infinite amounts of “undos,” meaning EOS transactions can be reversed by those with access (such as block producers).

Indeed, there have already been cases of reversed transactions and frozen EOS accounts.

“The ability to undo history (or anything for that matter) related to state is a notion that directly conflicts with the essential definition of what can be considered a blockchain, which is characterized by immutability of data,” Cole concluded.

Except it does, just differently

Hard Fork reached out to many EOS block producers for comment. At print time, most representatives declined to comment, noting they are awaiting the publication of the full report.

One source, an EOS dApp developer, did say that Whiteblock’s interpretation of how EOS validates transactions was particularly “weird.

”The source explained that Chainbase is just a method of storing real-time information, as is the case with folders or files. In this instance, EOS stores data pertaining to transactions in a Chainbase, which it places in a central location (similar to a Bitcoin full node).

Block producers then validate the transactions using cryptography, writing confirmed transactions into a blockchain as part of the process.

Chainbases are really meant to optimize EOS performance, as they allow EOS to store data in RAM, which it then uses to produce blocks quickly.This would suggest that EOS is actually using cryptography after all, contradicting Whiteblock’s conclusions.

A look behind the curtain

It should be pointed out that ConsenSys, which commissioned Whiteblock, is heavily invested in the Ethereum blockchain ecosystem, the primary competitor to EOS. It describes itself as a “venture production studio” that focuses on the development of Ethereum-powered platforms.

And if this whole thing is not strange enough – EOS was actually borne on the Ethereum blockchain, starting out as an ERC-20 token.

But after Block.one launched the EOS mainnet in June to become its ownblockchain, many Ethereum tokens have since made the switch – Everipedia is one, which is managed by Larry Sanger, the co-founder of Wikipedia.

It should also be said that EOS is no stranger to controversy. The launch of its mainnet was nightmarish, the whole process lasting more than a week, with block producers failing to agree on whether EOS was ready to go live all on its own.

Since EOS has been fully operational, Block.one has paid over $400,000 to freelance security researchers for discovering critical flaws in code that weren’t fixed in time for the launch.

In any case, ConsenSys says it will use Whiteblock’s findings to develop comprehensive reports, which it will deliver to partners, including Ledger Capital, Bo Shen, Enterprise Ethereum Alliance, Microsoft, and Google.

 Academic institutions like MIT, USC, and Duke have reportedly committed to contributing resources to round out the research.

Extra-curiously, one of the listed partners, Bo Shen, is actually co-founder of Bitshares, an autonomous blockchain organization developed by Dan Larimer and released in 2014.

The research continually highlighted architectural resemblances between Dan Larimer’s Bitshares system and EOS – particularly the ability to revert state and make changes all the way back to the genesis block.

Whiteblock has allowed Hard Fork to publish the study, which includes a thorough representation of its methodology alongside detailed test results. The full report can be accessed from this link.

For those that remain unconvinced, the firm also states it will livestream the EOS benchmark tests in November.

Funnily enough, you can even RSVP here.

Here’s a prediction. ETH — the asset, not the Ethereum Network itself — will go to zero. Those who already think that ETH will not see real adoption — thanks to a failure to scale, to adopt more secure contract authoring practices, or to out-compete its competitors — don’t need to be convinced that a price collapse would follow as a consequence.

But, if one believes that Ethereum will succeed beyond anyone’s wildest dreams as a platform then the proposition that ETH (as a currency) will go to zero will take a bit more convincing running a substantial share of the world’s commerce securely.

So here’s how Ethereum ends up succeeding wildly but ETH becomes worthless. Ethereum’s value proposition, as given by ethereum.org, is as follows:

Build unstoppable applicationsEthereum is a decentralized platform that runs smart contracts: applications that run exactly as programmed without any possibility of downtime, censorship, fraud or third-party interference.

çThese apps run on a custom built blockchain, an enormously powerful shared global infrastructure that can move value around and represent the ownership of property.

This enables developers to create markets, store registries of debts or promises, move funds in accordance with instructions given long in the past (like a will or a futures contract) and many other things that have not been invented yet, all without a middleman or counterparty risk.

If Ethereum succeeds on its value proposition it will therefore mitigate external risk factors for decentralized applications.



İstanbul, Turkey – January 28, 2018: Close up shot of Bitcoin, Litecoin and Ethereum memorial coins and shovels on soil. Bitcoin Litecoin and Ethereum are crypto currencies and a worldwide payment system.

No Future for ‘Gas’

There’s no value proposition for ETH in the official description. Perhaps this omission is because ETH’s value seems so obvious to the Ethereum Foundation that it is hardly worth mentioning: $ETH fees (dubbed ‘Gas’) is how you pay for all this.If the concept of gas isn’t immediately obvious, let’s expand the metaphor:

The Ethereum network is like a shared car. When a contract wants to be driven by the shared car, the car uses up fuel, which you have to pay the driver for. How much gas money you owe depends on how far you had to be driven, and how much trash you left in the car.

Gas is a nice metaphor, but the metaphor is insufficient as an argument to support non-zero $ETH prices. Gasoline actually burns inside an internal combustion engine; an internal combustion engine will not work without a combustible fuel. $ETH as Gas is a metaphor for how gasoline is consumed; there is no hard requirement for Gas in an Ethereum contract.


(Photo by Manuel Romano/NurPhoto via Getty Images)

Buying the “BuzzwordCoin”

Suppose we’re building a new decentralized application, BuzzwordCoin. By default, following a standard ERC-20 Token template, every transaction on BuzzwordCoin will pay gas in $ETH.

Requiring every BuzzwordCoin transaction to also depend on ETH for fees creates substantial risk, third party dependency, and artificial downwards pressure on the price of the underlying token (if one must sell BuzzwordCoin for ETH ahead of time to run a BuzzwordCoin transaction, then the sell-pressure will happen before the transaction requires it, and must be a larger sale than necessary to ensure sufficient funds to cover the transaction).

Instead of paying for Gas in ETH, we could make every BuzzwordCoin transaction deposit a small amount of BuzzwordCoin directly to the block’s miner’s address to pay for the contract’s execution. Paying for Gas in a non-ETH asset is sometimes referred  to as economic abstraction in the Ethereum community.

The revised BuzzwordCoin contract has no functional dependence on ETH. We’re able to incentivize miners to mine transactions without paying any fees in ETH whatsoever.

If the BuzzwordCoin contract has non-transactional contractual clauses — that is, a functionality that should be regularly called by any party for tasking like computing and updating cached statistics in the contract — we can specify that the miner performing those clauses receives coins from an inflation or shared gas pool. In the shared pool, all fees for user’s transactions in a specific contract are paid to the contract’s wallet.

A fee dispensing contract call performing the non-transactional clauses releases the fee to the miner (this bears some semblance to Child Pays for Parent in the Bitcoin Ecosystem).

Battling the economic abstraction

There are four main counterarguments to economically abstracting Ethereum: the lack of software support for economic abstraction; difficulty in pricing many tokens; the existence of contracts not tied to tokens; and the need for ETH for Proof-of-Stake. While nuanced, all four arguments fall flat.

Software Support: Currently, miners select transactions based on the amount of Gas provided in ETH.

As ETH is not a contract (like an ERC-20 token), the code is special-cased for transactions dealing in ETH. However, there are efforts to make Ethereum treat ETH less special-cased and more like other ERC-20 Tokens and vice-versa. Weth, for instance, wraps ETH in a 1:1 pegged ERC-20 compliant token for trading in Decentralized Exchanges.

Detractors of economic abstraction (notably, Vitalik Buterin) argue that the added complexity is not worth the ecosystem gains. This argument is absurd. If the software doesn’t support the needs of rational users, then the software should be amended. Furthermore, the actual wallet software required for any given token is made much more complex, as the wallet must manage balances in both ETH and the application’s token.

Market Pricing: To mine on Ethereum with economic abstraction, miners simply need software which allows them to account for discrepancies in their perceived value of active tokens and include transactions rationally on that basis.  Such software requires dynamically re-ordering pending transactions based on pricing information, gleaned either through the miner’s own outlook or monitoring cryptocurrency exchanges prices.

Vlad Zamfir argues that the potential need to monitor market information on prices makes economic abstraction difficult.However, miners requiring pricing information is already the status quo — rational actors need a model of future ETH prices before mining (or staking) to maximize profit against electricity costs, hardware costs, and opportunity costs.

Non-Token Contracts: Not all contracts have coins, or if they do, they may not be widely recognized, valuable, and traded on exchanges. Can such contracts pay fees without ETH?

Users of a tokenless contract can pay fees in whichever tokens they want. For example, a user of Tokenless Contract can pay their fees in a 50/50 mix of LemonadeCoin and TeaBucks. To ensure liquidity between users and miners with different assets they would pay or accept fees with, a user can simply issue multiple mutually-exclusive transactions paying with fees in different assets.

Specialized wallet contracts could also negotiate fees with miners directly .  A miner could also process transactions paying fee with an asset they do not want if there is an open Decentralized Exchange (DEX) offer to exchange the fee asset for something they prefer —  it is possible to create DEX orders for paying fees which allowing only a block’s miner to fill a user’s offers in proportion to the fees that a user has paid in that block preventing the case where a user’s fee diversifying offers are taken by non-miners.

Proof-of-Stake: Without ETH, a modified version of Proof-of-Stake with a multitude of assets could still decide consensus if each node selects a weight vector for the voting power of all assets (let’s call it HD-PoS, or Heterogeneous Deposit Proof Of Stake). While it is an open research question to show under which conditions HD-PoS would maintain consensus, consensus may be possible if the weight vectors are similar enough.

Proofs of HD-PoS may be possible by assuming a bound on the pairwise euclidean distance of the weight vectors or the maximum difference between any two prices. If such a consensus algorithm proves impossible, the failure to find such an algorithm points to a more general vulnerability in Ethereum PoS.

Assuming a future where ETH’s main utility is governance voting, why wouldn’t all the other valuable applications on Ethereum have a say in the consensus process? Rolling back actions in a valuable token contract by burning ETH stake could be a lucrative business; if HD-PoS is used such attacks are impossible.



Vitalik Buterin (Ethereum Foundation) at TechCrunch Disrupt SF 2017

ETH’s ethereal value

If all the applications and their transactions can run without ETH, there’s no reason for ETH to be valuable unless the miners enforce some sort of racket to require users to pay in ETH. But if miners are uncoordinated, mutually disinterested, and rational, they would prefer to be paid in assets of their own choosing rather than in something like ETH.

Furthermore, risk-averse users would want to minimize their exposure to volatile assets they don’t have to use. Lastly, token developers benefit because pricing in their native asset should serve to reduce sell-pressure. Thus, in a stateless ecosystem, replacing ETH is a Pareto Improvement (i.e., all parties are better off). The only party disadvantaged is existing ETH holders.

• The author holds Stellar and Bitcoin,  but has relatively little holdings in other cryptocurrencies. He has previously done a Virtual Lapel Pin Sale (like an ICO) for his cause, “Fuck Nazis”, on top of Ethereum which faced both government censorship and censorship from the Ethereum community. 

What You Need To Know About Token Economics

It has become clear over the last year that cryptocurrencies can do so much more than replace existing currencies. They can be used to tokenize assets, give access to dapps, represent ownership, make holders become active participants of decentralized networks, among many other uses.

Due to this, digital tokens are creating entirely new economic models which we refer to as token economics.Because of its novelty, token economics can be incredibly difficult. Cryptocurrencies are often used for multiple features on their related blockchain platform, and each cryptocurrency, or token, is programmed in its own unique way.

Understanding the token economics behind cryptocurrencies can assist you with determining which projects are solid, high potential investments and which are not.

These models can make or break a cryptocurrency and its related platform.In this article, we will go through the dynamics of token economics and provide you with several insights to help you understand the token economics behind your next cryptocurrency investment.

Token Economics 101

Token economics essentially refers to the study, design, and implementation of economic systems based on blockchain technology. Every blockchain platform and blockchain application has its own token economic model. The subject of token economics focuses on the actual, new economic models that are created through cryptocurrencies. This excludes tokens that are solely used for fundraising and play no significant role in its underlying platform as they do not pose new models.

Securities have been around for a long time and their dynamics are well understood. Even though blockchain and cryptocurrencies allow for a superior way of dealing with securities in terms of transferability and ownership, they do not change the traditional dynamics of securities. Once regulatory frameworks are in place, tokenized, blockchain-based securities will likely be more or less similar to the current system.

Cryptocurrencies allow for so much more than simple fundraising and they make the construction of entirely new business and governance models possible. Token economics is about blockchain models in which the related digital tokens play a pivotal role.

There is one assumption on which nearly all token economic models are based: people act upon incentives. This is based on incentive theory, a human behavioral theory that assumes behavior is motivated by a desire for reinforcement or incentives. In token economics, these incentives are the tokens themselves and they are used to motivate network members to behave to the benefit of the network. 





Source: https://www.thinglink.com Act according to the rules of the network and you’re awarded with cryptocurrencies. So the rules of a network must be set in such a way that people contribute to the entire network because of personal incentives.

People want more money and they get more money by doing what’s best for the network.These incentives are mostly financial incentives because tokens have a financial value. This financial value stems from the money that has been invested in specific cryptocurrencies in an ICO and on the crypto exchanges.

Designing the Basics of Token Economies

Models for token economies are designed and implemented before a new cryptocurrency is launched. The organization behind a cryptocurrency has to decide on the role of their native token on their platform. This is no easy process as any weakness in their model will sooner or later be exploited by someone in the network, so the economic model must be rock solid.

The first step of designing models for token economies is choosing the consensus model. However, cryptocurrencies can also be continuously created through several consensus algorithms. For example, Bitcoin and Ethereum use Proof-of-Work. In this model, you have miners that secure the network and verify transactions by solving blocks. When a miner solves a block, they are rewarded with cryptocurrencies.

Other cryptocurrencies such as Dash and NAV coin use the Proof-of-Stake algorithm. In this model, holders of the native cryptocurrency stake their holdings in a wallet to solve blocks. The more tokens you hold, the bigger the chances are that your wallet solves the block and that you’re rewarded with new tokens.

In these consensus models, the cryptocurrencies are used as an incentive for participating network members to secure the network, verify transactions, and improve the blockchain ecosystem. Through this, more of the currency come into existence which causes inflation. The supply increases and thus each token becomes worth less, assuming that the demand remains constant. 

Every consensus model employs its own rules for inflation. For example, for each Bitcoin block solved, the miner receives 12.5 bitcoin. This will be halved somewhere around 2021, after which the reward becomes 6.25 and goes on until all 21 million bitcoins are mined. 





Source: https://www.quora.com


This total and limited supply of cryptocurrencies is another key component of the basics of token economics.To prevent endless inflation, most cryptocurrencies have a finite supply.

Through this, the digital coins are scarce and there is no way to create more of it at any point in order to control its price. This measure (of having limited supply) is evident in most cryptocurrencies; it is largely seen as a countermeasure against the current economy in which fiat currencies are endlessly created by the authorities, making the currencies worth less and less, and deteriorating trust in the value of fiat currencies.

Use Cases of Cryptocurrencies in the Network

After a team has decided on the basic model for the creation of cryptocurrencies, they have to create a model for the usage of their token. For transactional coins such as Bitcoin, Dash, and Monero, this model is easy — the cryptocurrencies are a way to transfer value to other parties and to store value digitally.

This, however, is by far the most basic use case for cryptocurrencies, something that the rise of Ethereum pointed out.Blockchain and cryptocurrencies allow for decentralized networks — networks that are governed and controlled by its members without a central party — and smart contracts, which are agreements between parties that are automatically updated and executed.

To ensure that the network of a blockchain or a blockchain application functions effectively and keeps on developing, cryptocurrencies are used. Because there is no central authority, the tokens are essential to the survival and progression of a decentralized platform, and can be used for many different purposes, which include but are not limited to the following uses.

Incentivize Miners

In this model, the cryptocurrency is used to reward miners for securing the network and verifying transactions. How this functions is based on the consensus algorithm in place. The tokens are distributed to those nodes and the fastest miners, making it competitive. Through this competition, more and more people enter the network because they also want a piece of the pie.

In turn, this makes the network more secure and allows for faster and cheaper transactions.

Staking

In the PoS and Delegated PoS model, token holders can stake their holdings. Staking is the process of keeping your cryptocurrencies in a private wallet related to the cryptocurrency’s blockchain. This helps secure the network and stabilize the price of a cryptocurrency as less token holders trade these tokens. In return, token holders usually receive rewards.


PoS is a mechanism in which staking individuals have the chance to validate transactions based on the amount of their token holdings. For instance, the PoS model is currently employed by Dash and OmiseGo. In the Delegated PoS model, which is used by Lisk and Ark, token holders can vote on delegates that validate transactions for which voters are awarded part of the earnings of the delegates.

Payment of Transaction Fees

Cryptocurrency users that conduct transactions pay a transaction fee. This fee can go to the miners of a blockchain, but also to the entire network. For example, when you send Ripple’s XRP to another wallet, a minor percentage of this transaction is burned as a means of payment. This payment is indirectly awarded to the entire network since the supply of XRP is decreased by doing this.

Governance

This is one of the most interesting aspects of token economics as it involves sociology, psychology, networked cooperation, power distribution, and (new) models of democracy.  Through token-based governance, network members that hold tokens can vote on the direction of the platform.

Developers can propose alterations to the network’s programming, upgrades, new features, and cooperations on which token holders can vote with their token holdings. In this way, token holders are part of the network’s governance process.

The best example of this is a Decentralized Autonomous Organization (DAO). This is a fully]-automated, decentralized network that can perform tasks and provide products and services.

DigixDAO is such a network that lets their token holders decide on protocol decisions. The amount of holdings determine the weight of someone’s vote. DigixDAO has recently launched its stablecoin DigixGold, which is pegged to the value of gold. DigixDAO token holders all share the profits of transaction fees of DigixGold.

This incentivizes token holders to make informed decisions about the future undertakings of DigixDAO.

Contribute to the Network

Network participants can also be awarded for contributions to the network without this being automated. Lunyr, for example, is a knowledge-sharing platform on which users can submit articles. These articles are peer-reviewed by other users and both writer and curator receive tokens for their contributions.

On the other hand, if a contribution violates the platform’s rules or a curator approves something that is not accepted by other curators, they can get penalized.

It is important to note here is that developers are much more inclined to aid in the development of a platform when they own tokens of that platform, since there is a personal financial stake involved.

When the value of the platform increases, so does the value of the holdings of the developer. To increase this effect, the network can distribute tokens to key contributors to increase the personal financial stake involved, incentivizing them to develop the platform even more.

Blockchain-Based Services

When a token is used for this, a blockchain application’s native token is needed by users to access the application’s product or service. An example is Siacoin. Siacoin is a decentralized cloud storage platform in which network members with excess digital storage capacity can rent this out to network members that need extra storage.

Those that want extra storage pay the providers of storage with Siacoins for this service.There are many more applications that use this model, for example Ethereum-based applications such as Augur, Civic, and Golem. As more people start using these blockchain-based products and services, the demand for the native currency will increase, making it more valuable.

Profit-sharing

Some blockchain applications let their token holders share in the profits made by the platform. The token of the cryptocurrency exchange KuCoin, which is called KuCoinShares, entitles holders to 50% of KuCoin’s daily transaction fees.Iconomi also shares their profits with token holders through recurring buybacks.

This means that the Iconomi platform uses portions of their profits to buy ICN tokens back from the market and burns these tokens, decreasing the overall supply of ICN tokens.

Why Token Economics Matter

The most important question to ask yourself before buying a cryptocurrency is: what is the purpose of the cryptocurrency I’m buying? The token economics behind a cryptocurrency will guide you towards answering this question.

Currently, there are several problems with token economics.

One problem is that newly-issued cryptocurrencies are mainly created just to attract (ICO) funds and the actual purpose of the cryptocurrency comes later, if at all.

Second, too much of a network’s tokens are held by investors and the creators instead of by who they are meant for—developers and users of the network.

These two problems give an insight as to how to value a cryptocurrency based on its token economics. A platform’s token economy describes how a token will be used on the platform. If a cryptocurrency is only used as a tool for attracting funds, the demand for the crypto will die out over time.

Also, if the token is only used for profit-sharing, the token will not be able to compete with tokens that serve multiple purposes and thus have multiple reasons to create demand.

A strong demand and valuation derives from the actual usage of a cryptocurrency.The more use cases a token has on its platform, the more it will increase in value as the platform gets used more. Lisk is a solid example of this.

The Lisk token, LSK, has various use cases on the platform. LSK is used to pay for transactions, vote for delegates, and is awarded to the top delegates. It is also used to launch applications and sidechains on the Lisk blockchain, and as a base currency to trade native application tokens.

As the Lisk ecosystem increases in size and usage, its LSK token will grow in value with it because more people need the token to participate in the ecosystem. The intrinsic value of cryptocurrencies is based on the utility it provides. The more use cases a currency has, the more utilities it serves.

Another important aspect of token economics is whether the token plays a role in the governance of its platform. In the end, blockchains and blockchain-based applications are meant to be decentralized; to make decisions on a decentralized basis, its users must have a way to let their voices be heard.

Through decentralized governance, a platform can move forward by making community-based decisions on upgrades, alterations, and new opportunities.

For a more technical analysis on how to assess the value of a utility token, click here.

Conclusion

As we’re still in the early stages of the blockchain era and most blockchains and blockchain applications aren’t used yet, the question as to whether a coin will actually be used is still highly speculative. A thorough analysis of the token economics behind a cryptocurrency will provide insights on whether there will be a demand for a cryptocurrency in the long term.

We are just getting started and already we are seeing an increasing number of different models for token economics. Governance, providing incentives, profit-sharing, access to applications, and contributing to the network are currently the most widely applied token economic models, but there are still numerous ways to utilize tokens in other economic models and these ways are still completely unexplored.

When looking for your next new cryptocurrency investment, find out what purpose a cryptocurrency serves on its platform. The more sensible use cases a cryptocurrency has, the higher the chances are that the demand for it will increase in the long term.

Related: A Guide to Long-Term Cryptocurrency Investment Strategy


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Tags: token economics, token economy

About Jorn van Zwanenburg

As a technology and innovation MBA graduate and a passionate libertarian, blockchain technology was the only logical next step for Jorn. Besides trying to know all there is to the blockchain revolution, he wants to explore the world, surf every wave it has to offer and write his brain empty.

Data is indicating that decentralized applications – dApps, for short – hemorrhage users soon after interest peaks, with most users leaving not long after launch.

The latest issue of the Diar report shows that the largest seven dApp platforms by ICO funding, capital raised, have lost 74 percent of their active users, on average, from their all time highs.

The top dApps, ranked by peak user count, included the popular Cryptokitties, which has seen a 96 percent drop in user numbers since its all time high of 14,194. Bancor has seen a 74 percent drop, Kyber Network saw a 61 percent drop, and Numerai, a 97 percent drop.






Augur has also been highlighted for its swift peak of interest, yet alarming rate at which users have steadily vacated the platform.





It would appear that beyond any initial interest in a dApp, they struggle to maintain any form of meaningful user base, once all the excitement has died down.The co-founder of the controversial betting dApp, Joey Krug, has highlighted the challenges that currently face dApps, and cites the complex fee structure as one of the main reasons behind Augur’s drop in active users.

“Right now, if you want to use Augur you have a few fees[…] Add them up you get 11 [percent], making the pay-out ratio on Augur be 89 percent or worse if you account for spreads.” Krug told the Diar report. “Fixing costs, fees is in my opinion the difference between a fun toy and something that’s actually useful.

”The issue though, is that these complex payment strucutures are not unique to Augur, but universal to the entire dApp marketplace. Generally speaking, they are not an alluring proposition for users beyond simple novelty value.

The Augur co-founder continued, “I always used to say that when Augur launched it’d be expensive, slow, and difficult to use but hopefully it works at a core level. It does work at a fundamental level now.

”When dApps It is understandable that users may become quickly disillusioned with using dApps, due to such complex, “multi-step user experiences,” high fees, and low rates of adoption.

Figures for 2018 further show an overall decrease of 38 percent of dApp users, so this downward trend isn’t exclusive to the top end of the market, but rather is a market-wide phenomenon.




When platforms like Coinbase claim to have been signing up 50,000 users a day, interest in cryptocurrency might not be waning, but by contrast, dApps certainly appear to be a flash in the pan.

For most, it appears that dApps are a challenging concept to understand in comparison to popular, easy-to-use web-based apps like Facebook, Instagram and Twitter, which are all free to use too – if you set aside the rampant harvesting of personal data and the exploitation of users, that is.

Despite vast investment in dApp projects, and blockchain startups, platforms will ultimately falter without a growing userbase. Even though they operate very differently to conventional apps, they are still at the mercy of users when it comes to their success.

If dApps can’t find a way to succeed, they may end up becoming a failed use case for blockchain tech.

Research from Northwestern University suggests that there must be some kind of compromise between central banks and Bitcoin’s ecosystem. The Proof-of-Work protocol currently present in the cryptocurrency’s consensus model is serving as an obstacle to adoption because of the low transaction volume, according to the university.

“When you look at two networks like bitcoin and a central bank, one is centralized and one is not. If we want it [Bitcoin] to scale we have to compromise, which means we need to get to some level of centralization,”

said Sarit Markovich, clinical associate professor of strategy at Kellogg School of Management at Northwestern University.We have already seen slightly more centralized models in other cryptocurrencies, such as EOS, where block validators are chosen by votes as opposed to hundreds of thousands of computers engaging in mining.

In collaboration with bloXroute Labs, Northwestern University is reportedly developing a platform that could help resolve what bloXroute calls a “scalability bottleneck” caused by the sheer amount of work that goes into processing one single block on the chain. Their solution aims to increase block sizes while at the same time reducing the amount of time that it takes to process transactions.

We don’t have many details on how this new blockchain would work, but Markovich insists that it already scales 100 times better than Bitcoin. “We’re hoping for 1,000,” he said.Despite the excitement of the researchers, the news is not encouraging since it proposes more centralization of a cryptocurrency ecosystem from the get-go.

 It would essentially strip cryptocurrencies of the motivation that inspired people to adopt them for the last 9 years.Despite all of the problems currently plaguing proof of stake systems, it could help keep a network decentralized while at the same time picking up the pace on block processing.

Coupled with zero-knowledge proofs, a coin could essentially add anonymity into the mix, allowing people to have quick and private transactions.Since we don’t know much about the chain solution that Northwestern University is working on, we could only speculate on just how much it would centralize a cryptocurrency.

Nonetheless, using the word “centralization” in one’s thesis isn’t going to encourage the cryptocurrency enthusiast community very much.

Read more: https://cryptovest.com/news/bitcoin-needs-centralization-to-scale-says-northwestern-university/