(BITSLOG) Once upon a time there was Bitcoin
and nothing else. History was being written by Satoshi and a few
illuminated minds that posted the most interesting ideas in the
Bitcointalk forums and IRC channels. Almost every cryptocurrency idea
I’ve heard of had a seed in some of these heated online discussions.
During 2009 improving every part of Bitcoin seemed to at the reach of
the hand: changing the scripting system, the proof-of-work function, the
block format and more. Then the conservative era begun: Bitcoin value
had risen considerably and much more money was at stake. So there was no
room for destabilizing changes anymore. During 2010 ideas were still
discussed, but not implemented. But as powerful ideas cannot be
contained so during 2011 alt-coins came into existence. Apart from Namecoin,
which was something different than a mere cryptocurrency, the first
alt-coin code changes were all minor; only the economic constants, such
as the money supply, were changed (Devcoin, lxcoin, l0coin). Multicoin
allowed simultaneous management of multiple block-chains, mainly to
experiment with different economic constants. Soon other more extensive
changes appeared, such as using another proof-of-work function (Tenebrix, FairBrix, Litecoin).
All these projects changed no more than a hundred lines of the parent
Bitcoin fork. During 2012 cryptocurrencies started making deeper changes
in the code, using proof-of-stake instead of proof-of-work (PPCoin, NovaCoin, PeerCoin).
But still no cryptocurrency took more than a month of work to be
programmed, since there was no business model that could pay for the
development of entire new codebases. Pre-mining was seen as a scam
rather than an investment in the development team, since no profound
innovation had been achieved and no codebase had been started from
scratch.
The first non-Bitcoin based currencies were created during 2013 (Ripple, Nxt, MasterCoin, Counterparty). Three promising new cryptocurrencies will be launched during 2014: NimbleCoin, BitSharses and Ethereum.
With the exception of NimbleCoin, all non-Bitcoin based currencies
adopted either an IPO business model or the pre-mine business model to
pay the founders and support the development after launch. NimbleCoin
seems to be the only one that still tries to bootstrap based on an
equal opportunity for all members of the community. Some of these
currencies (often called “2.0″) add new features not related to
payments: Smart contracts, betting, prediction markets, shares,
distributed exchanges, user defined assets, contracts for difference,
dividends, Decentralized Autonomous Organizations (DAOs), distributed
storage and gaming. Innovation seems to have been primary directed to
provide a more extensible cryptocurrency and more features. Nevertheless
this may not be what users require today. To be accepted world-wide,
users will demand cryptocurrencies to satisfy their everyday needs in
term of usability. They will demand the cryptocurrency to allow them buy
some croissants in the local shop with a standard smartphone in a few
seconds so they can keep walking without even worrying about transaction
confirmation time. Also, considering the deflationary properties of
Bitcoin, and the expected rise in fees, users will soon demand lower
transaction fees, which is also strongly tied to better scalability and
lower mining energy waste. Energy efficiency will also be demanded for
ecological reasons. More experience users will demand higher transaction
privacy and more politicized users will demand higher decentralization.
As I see the ecosystem right now, these are the main improvements users
will demand, more than any new embedded financial instrument. Here is
my wish list in order of importance:
It’s interesting that the two last innovation areas, which in my
opinion are the less solicited by the general public, are the ones where
most money and time has been invested. This may be because they are the
most “geeky” and futuristic use cases. To summarize I present diagram
with the current roads to innovation in cryptocurrencies. Bitcoin it is a
very well-balanced and conservative design and it’s plotted right in
the middle. I tried to plot how the current and past cryptocurrencies
have positioned themselves in the innovation landscape. In each category
I have chosen the most innovative ones and highlighted the best
cryptocurrency (IMHO). Note that Ripple is not part of the comparison
because it still relies on private servers and so it has an unfair
advantage. If it were truly open and yet secure, it will probably win in
most categories. Also note that faster payments confirmations is not
equal to lower block intervals: certain coins with low block intervals
have greater confirmation times because of stale block rate and frequent
chain undoes (such as Quark). When comparing new features, I’m
comparing cryptocurrencies with the features built-in and supported by
the core development team. Ethereum can emulate practically every
feature, but special scripts must be developed and maintained for each
feature added, so it wasn’t chosen in that category. There is another
category I haven’t included because it has too few members, which is
“More Security”. It comprises mainly the GHOST protocol.
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