Commanding 70% of the cryptocurrency market, Bitcoin and Ethereum are the equivalent of flawed geniuses and any company considering an ICO should look beyond them if they want to succeed in the long-term, writes Kirsten Morel.
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US$3.5 billion has been raised by ICOs since may 2016 and there’s plenty more to come. However, if you look at the wider ICO environment, most new coin offerings have been built upon Ethereum’s ERC 20 protocol but, given its flaws, this could be storing up problems for the future.
This dominance has resulted in a homogenous landscape and that on its own is a serious risk, but unfortunately, the dangers run deeper than mere market limitations. The reality is that both of the first and second generation blockchain networks have in-built weaknesses and vulnerabilities that could come back to haunt their users in years to come.
Risks that must be mitigated
A quick analysis of both the Bitcoin and Ethereum blockchains shows that neither is adequately decentralized and both are vulnerable to 51% attacks. Bitcoin mining is dominated by just few mining pools – a fact that would bother any competent risk manager – and whilst much of the media discussion of these issues has focused on the effect a successful attack could have on the value of Bitcoin or Ether, the growth in the number of Blockchain-based businesses means that there could be far greater market trauma caused by the collapse of operations built on the back of Ethereum than the value of Bitcoin.
That said, risk assessment is a game of probabilities. Just because the risk exists, it doesn’t mean you shouldn’t take it and there’s good reason to believe that a 51% attack on either blockchain is highly unlikely, so companies may choose to accept it.
What isn’t in doubt, is that both platforms have serious scalability issues. Bitcoin transactions are slowing as the number of users increases. This has resulted in an ongoing debate within the Bitcoin community around the proposal of various hard forks designed to deal with the problems caused by the slowing transactions and escalating cost of confirmations that are a direct result of Bitcoin’s scaling problems.
Equally real are the environmental consequences of Bitcoin’s growth. One analysis puts the amount of energy used by the Bitcoin network as being more than the entire Republic of Ireland, whilst the Ethereum network outdoes Cyprus in energy consumption.
These are serious environmental issues that processing power efficiency will only ever mitigate at the edges because, as first and second generation networks, both Bitcoin and Ethereum were not designed with things like energy efficiency in mind.
The need for firmer foundations
If the ICO phenomenon is to continue to attract investors then it needs to be built on firmer foundations than either Bitcoin or Ethereum can deliver.
SkyLedger is the third generation blockchain network that has been designed specifically to be truly decentralized, more robust, faster, more scalable and more environmentally friendly than its predecessors. In short, SkyLedger is the ideal blockchain platform for ICOs.
With SkyLedger, risk managers don’t have to worry about 51% attacks because they are impossible to achieve, simply because the network does not use mining and also because its developers have used a distributed consensus algorithm to govern the network.
Known as Obelisk, the algorithm has been designed to distribute influence throughout the network, preventing build-ups in any single area and ensuring that no one entity can gain control.
Confirmations in seconds
As a currency platform, SkyLedger is vastly superior to either Bitcoin or Ethereum, having been built to compete with payment providers like AliPay or ApplePay. Transaction confirmations take seconds rather than minutes or hours and can easily be adjusted according to the needs of the business. Functionality like this will be welcome news to the leaders of the many ICOs that are already struggling with the slower speeds of earlier platforms.
The fact that SkyLedger’s developers have dealt efficiently with the scalability and speed issues that afflict both Bitcoin and Ethereum, shows that sometimes it is worth waiting a while before diving in!
Third generation success
It’s understandable that the first couple of generations have critical flaws but by the time we get to the third generation of any technology, users can have far greater confidence.
One of SkyLedger’s most important characteristics is the fact that it does not force all the data on its Blockchain into a single database. Instead, it provides independent data storage to every token built upon it, a move which ensures that tokens develop independently of each other, giving users the confidence of knowing that their coin’s value is a reflection of its actual market worth.
The one area we’ve not mentioned is SkyLedger’s environmental impact. Quite simply, without the need for high-consumption mining, the network uses far less energy than any first or second generation platform. Of course, as with any network, energy is needed to sustain it but it doesn’t need anything like the vast amounts required to keep Bitcoin and Ethereum going.