Scalability is the attribute cryptocurrencies will need to serve a mass market. Thus, scalability is the killer app, cryptocurrency creators and blockchain builders are striving for.
Three popular definitions; I found through Google, show why cryptocurrency builders strive for scalability. First, they call scalability “the capacity to be changed in size or scale.”
Second, Google says “scalability is defined as the ability of a computing process to be used or produced in a range of capabilities.” Third, Wikipedia describes scalability as; “the property of a system to handle a growing amount of work by adding resources to the system. In an economic context, a scalable business model implies that a company can increase sales given increased resources.”
Cryptocurrencies are not Scalable
Most of today’s cryptocurrencies are not scalable because of most blockchains’ construction.
To explain all the encryption and security measures limit the amount of data a blockchain can process. This makes altcoins slow because they build cryptocurrencies from blockchain.
For instance, Blockchain.com estimates Bitcoin (BTC) could only process 3.729 transactions per second (TPS) on 29 August 2019. Hence, a Bitcoin e-commerce platform could crash if tries to process five TPS a second.
Ethereum (ETH) is a little better, the common consensus is that Ethereum can process 15 to 25 transactions per second. Consequently, Hacker Noon’s Taygun estimates a Bitcoin transfer can take one hour, while an Ethereum transfer can take six minutes.
Scalability is the Key to Cryptocurrency Profitability and Commercialization
In contrast, the world’s largest payments processor Visa (NYSE: V) boasts it’s network can process 24,000 TPS. Consequently, Visa can handle tens of thousands transactions per second.
Under these circumstances, it could be impossible to operate a profitable gaming or e-commerce platform with Ethereum, Ethereum based ERC20 (Ethereum Request for Comment) tokens, or Bitcoin. Gamers and customers will not use a platform that takes one hour to accept their payment.
Therefore, scalability is the key to crytpocurrency profitability and commercilization. In fact, I think all the other cryptocurrency attributes; security, privacy, anonymity, robustness, are meaningless without scalability. Additionally, the public will not use blockchain utilities like stablecoins if they are not as fast as Visa or MasterCard (NYSE: MA).
Does anybody want to wait one hour to play their game or order laundry detergent? The answer, is no. People used to nearly instant credit, debit, and PayPal (NASDAQ: PYPL) transactions will say no to a stablecoin that takes three hours to pay their electric bill.
What is the Best Cryptocurrency Scalable Solution?
Predictably many groups are trying to build cryptocurrency scalability solutions. Some interesting scalability solutions are:
This Ethereum alternative from Block.one is one of the most popular scalability solutions. They have built several EOS-based cryptocurrencies including the CarbonUSD (CUSD) stablecoin, and HorusPay (HORUS) on the EOS blockchain.
In addition, EOS is compatible with the popular Bancor (BNT) liquidity and convertibility solution. To explain, Bancor is an ERC20 token they link to a liquidity network. They design the Bancor Liquidity network to allow you to cash out altcoins quickly in Ethereum or EOS.
Importantly, the EOS Network Monitor estimates EOS’s maximum TPS at 3,996. However, The Monitor estimates EOS was processing between 54 TPS and 62 TPS on 29 August 2019.
EOS is popular with fintech companies but there are allegations it is not a true blockchain. To explain, experts at the consulting firm Whiteblock think EOS does not have enough encryption to be a blockchain, TNW claims.
Instead, EOS could be a sidechain, a less-encrypted shortcut around through the cloud. Sidechain developers sacrifice safety for capacity and speed by limiting the amount of encryption and security they build into a chain. However, sidechain operators can make up for the lack of encryption with constant monitoring and vigilance.
Mr. Market thinks EOS has some value because CoinMarketCap named EOS (EOS) the eighth most valuable cryptocurrency on 29 August 2019. In detail, CoinMarketCap gave EOS (EOS) a Coin Price of $3.23, a Market Capitalization of $3..006 billion, and a 24-Hour Market $1.638 billion on that day.
In addition, CoinMarketCap estimates there was a Circulating Supply of 929.524 million EOS and a Total Supply of 1.026 million EOS on August 29, 2019.
Unfortunately, there is no indication of widespread use or adoption of EOS despite its popularity with engineers. However, fintech professionals’ interest in EOS could speed its widespread adoption.
The Raiden Network Token
The Raiden Network Token (RNT) is an effort to make Ethereum and ERC20 cryptocurrencies scalable. The team behind the Raiden Network; Brainbot Labs, believes they can modify the Ethereum blockchain to process transfers in under a second.
However, they present no proof of these claims or a TPS rate on the Raiden Network website. Yet, Brainbot been testing micropayments on the Raiden Network for some time.
To explain, a micropayment is a tiny payment that an application programming interface (API) or a decentralized application (DApp) can process quickly. Importantly, the digital robots and smart contracts stablecoins utilize to make fiat currency payments are DApps.
The big advantage to the Raiden Network Token is Ethereum’s popularity. ConsenSys Media estimates there were 33 Ethereum based stablecoins in circulations in August 2019, for instance. In addition, Investopedia claims there were 181,000 ERC20 tokens on the Ethereum main network on 16 April 2019.
In addition, Mr. Market gives the Raiden Network Token some value. CoinMarketCap gave RNT a Coin Price of 16.8₵ and Market Capitalization of $8.5 million on 29 August 2019. Plus, the RNT had a 24-Hour Market Volume of $470,466 on the same day. CoinMarketCap estimated there was a Circulating Supply of 50.594 million RDN and a Total Supply of 100 million RDN on 29 August 2019.
ThunderCore is a scalable blockchain whose creators claim they could process 1,000 TPS by 4th Quarter 2019. However, ThunderCore’s website offers no proof to that claim.
Importantly, the ThunderCore team claims their blockchain is compatible with the Ethereum Virtual Machine (EVM). That means you could build ThunderCore into ERC20 tokens and Ethereum smart contracts.
Thus they design ThunderCore to be Ethereum compatible just like the Raiden Network. However, there is no evidence ThunderCore has tested payments.
ThunderCore offers an altcoin they call the Thunder Token (TT). The ThunderToken had a Coin Price of 0.38₵, a Market Capitalization of $10.94 million, and a Market Volume of $469,697 on 29 August 2019. There was a Circulating Supply of 2.902 billion TT and a Total Supply of 10 billion TT on that date. Interestingly, the big supply causes the Thunder Token’s low Coin Price.
The Lightning Network
The Lightning Network is an effort to make Bitcoin (BTC) faster by creating a decentralized sidechain Bitcoins can move through. In particular, the Lightning Network creators at Lightning Labs hope to add smart contracts to Bitcoins and move millions or billions of transactions through their network.
Plus, the Lightning Network could enable fast conversions between altcoins with a utility its creator call Atomic Swaps. The Lightning Network is still under construction, but media reports claim it could have some impressive capabilities.
For example, Lightning Labs hopes to create “Watchtowers” that will monitor the Lightning Network and block duplicates of old transactions that look fraudulent, Coindesk claims. Unfortunately, it is hard to tell how much of the Lightning Network is up and running.
Why Cryptocurrency Needs Scalability
Scalability is cryptocurrency’s trillion dollar app because it is the one capability that could help the technology deliver on its promises.
For example, a global reserve cryptocurrency like the one Bank of England Governor Mark Carney proposes will need to be scalable. To explain, Bloomberg reports Carney thinks we need a global cryptocurrency to serve as a reserve currency to replace the dollar.
In addition, Facebook’s Project Libra cryptocurrency scheme could not work without scalability. Interestingly, Carney’s proposal; made at a Federal Reserve symposium in Jackson Hole, Wyoming, similar to Project Libra. In detail, Libra is a Facebook proposal for a cryptocurrency that will function like a global central bank.
I have to wonder if Carney is involved in the Libra scheme. However, Project Libra will not work without scalability. In addition, EOS (EOS) appears to be the only cryptocurrency scheme I have seen that is working.
Have the Chinese solved cryptocurrency scalability?
Carney is not the only central banker interested in cryptocurrency. Forbes staff writer Michael del Castillo claims the People’s Bank of China (PBOC) will distribute an unnamed official cryptocurrency to several entities including Tencent Holdings (OTCMKTS: TCHEY) and Alibaba (NYSE: BABA) in November 2019.
If del Castillo’s claims are true, the PBOC; China’s central bank, will need an effective scalability solution to make its crypto work. In addition, to Tencent; the owner of social media giant WeChat, Epic Games, and Riot Games, del Castillo speculates the China Construction Bank, the Industril and Commercial Bank of China, the Agricultural Bank of China, and payment processing giant Union Pay will receive the PBOC token.
Importantly, Union Pay is China’s largest credit card provider. Moreover, Union Pay claims you can use its cards in 174 countries and regions around the globe. Thus, like Facebook (NASDAQ: FB) the PBOC could have the infrastructure to distribute a cryptocurrency worldwide. If that cryptocurrency was scalable.
In conclusion, I advise those who fear cryptocurrency to put their hysteria on hold until they invent a scalable cryptocurrency. Without scalability cryptocurrency is nothing but a digital toy for geeks.
Originally published at https://marketmadhouse.com on August 29, 2019.