Cryptocurrency 2.0 Basics: Protocols and Platforms Inspired by Bitcoin
Although the very idea of Bitcoin is just a few years old, a community of developers is already launching the next generation of this technology.
Although the very idea of Bitcoin is just a few years old and most of the world still struggles to grasp what exactly cryptocurrencies are, a community of developers is already launching the next generation of this technology.
These new platforms, projects and protocols draw upon Bitcoin’s innovation of a blockchain and blow that out to applications on an even bigger scale. Or, if a video game analogy helps: Bitcoin is to Pong as the technologies below are to Galaga and Centipede.
Let’s take a look at three of these technologies to get an idea of the direction cryptoplatforms may be headed in the coming years.
Ethereum even has its own tokens, or currency, called Ether. Its blockchain functions much like Bitcoin’s, albeit with one key difference: Ethereum blocks contain a copy of both the transaction list and the most recent state. Potentially, developers say, saving the most recent state means there would be no need to store the entire blockchain’s history for reference, saving significant storage space.
Ripple, started as early as 2004 and redesigned in 2011-2013, is a protocol for sending money, just as SMTP is a protocol for sending messages online; Ripple is also a currency (XRP) and a decentralized exchange. With all three parts combined, anyone would be able to send money anywhere, a la Bitcoin, but the protocol is currency agnostic. Thus, you could swap among BTC, DOGE, EUR, XRP and any other currency fluidly.
Ripple’s website often compares the technology to email (i.e. Ripple makes sending money as easy as sending email). Currency agnosticism might prove to be one of the big innovations with Ripple: Following the email analogy, this is kind of like being able to send a message to someone’s Facebook inbox from Gmail, or perhaps being able to send an SMS via Skype.
CryptoNote is a technology that was defined in December 2012 whitepaper (TOR access) and updated in October 2013 (although Bytecoin, the first coin to use the technology, can be traced back to Independence day, 2012) to be an improvement over all that Bitcoin’s philosophy stands for. Its key features include transaction obfuscation (by which transactions can be rendered both untraceable and unlinkable), an egalitarian proof-of-work model by which miners are made equal through CPU-mining only, and a blockchain that becomes harder to analyze with each transaction.
NXT is an altogether new currency coded from scratch in late 2013 in an attempt to fix some of the issues found in Bitcoin. NXT doesn’t rely on proof-of-work but, rather, proof-of-stake; this means that users are rewarded for actually owning the currency (and getting kickbacks in the form of transaction fees), that there is no need to mine (there were 1 billion NXT created in the genesis block), and the currency is not susceptible to 51% attacks.
As with Ripple, a decentralized P2P exchange is built into the currency, so users also avoid having to put trust in a centralized exchange (see: Mt. Gox) when trading NXT. NXT has a few other features currently available or pending such as colored coins, P2P messaging and aliases.
Counterparty is a protocol that builds on top of Bitcoin to allow for the P2P trading of financial instruments. It was launched in January, 2014. The intention is to allow users to trade assets, secure funding and do business with whomever they choose directly, with no one in the middle, exactly as Bitcoin does with currency itself.
The platform also allows for betting, too, which could be interesting for some users. To place a bet, a user has to create a broadcast, which contains the terms of the bet, and if another user takes up the bet, the protocol itself serves as the escrow, not a third party.
We will follow with more articles, expanding on the topic of each of these technologies, so stay tuned!