Investment Watch: A guide to emerging cryptocurrency technologies

Kingsley Advani , 26 Mar 2018 - Cryptocurrency AdoptionInvestment

This article outlines three emerging cryptocurrency technologies, all of which have the potential to disrupt today's blockchain industry and make a significant contribution to the new decentralised global economy

As early adopters of cryptocurrency, many of us are asking the question — what is holding this technology back from mass adoption? An honest appraisal should reach the conclusion that despite the meteoric rise of cryptocurrencies in 2017, it is nonetheless clear that the infrastructure to fully utilise them remains incomplete.

Addressing the issues of volatility, scalability, security, interoperability, speed and decentralisation will be fundamental to the continued growth of the decentralised economy. To that end, the following emerging cryptocurrencies should play vital roles.

New blockchains

The ‘original’ blockchain, Bitcoin’s innovative and disruptive properties quickly caught the world’s attention and it remains the most valuable blockchain with a market cap of around US$150 billion. More recently, however, its network has occasionally been overwhelmed with sluggish, costly transactions and concerns have been raised about the environmental impact of its proof-of-work mining protocols. Handling just seven transactions per second, the Bitcoin ‘bottleneck’ has been the impetus behind the search for better alternatives.

The race is well underway to create the ultimate blockchain; boasting unsurpassable decentralization, security, efficiency and transaction throughput. Yet despite the rapid advancement of the technology, it is still the most rudimentary blockchains that host the bulk of cryptocurrency transactions (namely Bitcoin and Ethereum). In light of this, the gauntlet is open to new contenders as they fight to become the world’s preferred blockchain.

A number of projects are on the horizon:

Thunder Token: A high throughput blockchain claiming transaction confirmation in seconds.
Zilliqa: Launched in 2017, Zilliqa uses sharding to increase transaction throughput exponentially as more users are added. Supporting dapps and smart contracts this blockchain is markedly similar to Ethereum, but many times faster.

But not all upcoming blockchain projects will be looking to simply outperform. Aside from speed, scalability, and security, another big technological challenge facing the adoption of blockchains is their lack of interoperability. The explosion in blockchain projects has spawned a network of incompatible, uncooperative chains all with their own various tokens, smart contracts and dapps none of which can communicate or transfer value outside their respective chains.

In light of this disjointed collection, another breed of blockchains are born: bridging blockchains (or ‘multi-chains’). These seek to connect the unconnected, providing a means for existing blockchains to interact with one another and easily transfer assets cross-chain (cross-chain atomic swaps).  

These intermediary blockchains could be invaluable to the industry, or at least until blockchains can freely communicate with one another without third-party infrastructure. The latter half of 2017 welcomed several bridging blockchains, and 2018 has seen a number of emerging projects:

Hashgraph: A new consensus alternative to blockchain using computer ‘gossip’ to potentially achieve more than 250,000 transactions per second.
Algorand:  A high-performance blockchain with open source protocol aiming for near-instant payments and low-cost transactions.
Chainspace: A sharded smart contract platform targeting 350 transactions per second or more.
Block Collider: A multi-chain with no validators facilitating cross-chain transactions and messaging between Ethereum, NEO, Lisk, Waves and Bitcoin.
Dfinity: A decentralised cloud-based blockchain boosting computation and storage — suitable for business logic, creating & running dapps, and data storage.

Decentralised Exchanges

The vast majority of current cryptocurrency exchanges use centralised architecture, holding users’ funds and facilitating exchange on a central order book (think Coinbase, Binance, Bittrex, etc.). While these exchanges can comfortably accommodate millions of users, their centralisation makes them highly vulnerable to attack. The number of multi-million dollar hacks has skyrocketed alongside the increase in trade volume, with the Japanese Coincheck hack of $500 million worth of XEM in January providing yet more evidence of the continued vulnerability of centralised exchanges.

These inadequacies should see growing popularisation of decentralised exchanges (DEXs) with their own native tokens, aiming to deliver unmatched performance while offering the security of decentralisation. The technology behind decentralised exchanges is new, but advancing rapidly as billions of dollars are poured into R&D. Even the most prolific centralised exchanges are aware they cannot buck this trend and are converting; with the world’s largest exchange Binance recently announcing plans to build a DEX. Notable entrants are:

NEX: NEO-powered decentralised exchange with an off-chain matching engine, facilitating large trade volumes and complex orders. 
0x Protocol: A protocol allowing trustless P2P exchange of ERC-20 tokens, allows anyone to create their own DEX.
Kyber Network: A decentralised exchange prioritising accessibility and liquidity- currently in Beta stage.
Binance Chain: A decentralised exchange on its own blockchain, prioritising anonymity and security.

Stablecoins

The current instability of cryptocurrencies is a significant barrier to their mass adoption, as their rapid price fluctuation means they're generally not appropriate for daily payments, let alone as a reliable store of value. Stablecoins have an answer to the volatility of the cryptocurrency market, as any cryptocurrency that can hold its value is as good as the holy grail, and will cement its place as a vital and durable component of the decentralised economy.

Perhaps the most successful stable coin to date, USDT achieves stability through fiat-pegging; where every token is supposedly backed by 1 USD held in reserve by Tether. Yet, such a centralised and trust-based system will never be fully accepted, and a number of contenders have devised ingenious solutions to the dilemma of stability. TrueUSD has a more decentralised proposition, holding US dollars in third-party trusts which are legally redeemable for their tokens (unlike Tether, which provides no legal guarantee of exchangeability).  

Self-pegging stable coins are increasingly popular, which primarily use crypto-assets to avoid dependency on fiat. Basecoin’s “algorithmic central bank” is a promising solution, which expands and contracts its supply to match the value of a fiat currency. As faith in cryptocurrencies grows, new stable coin projects will likely avoid any correlation with fiat. Havven is one such project, where a dual-token ecosystem uses collateral-holders (of Havven) to stabilise the price of its tradable token, Nomin.