Why Did We Choose Stellar (XLM) for AXU Token Distribution?
Our development, experiments and testing of Ethereum ERC-20 smart contracts vs. Stellar ones led to clear outcomes and choice
Why did we choose Stellar with its lumen (XLM) cryptocurrency as the platform for our AXU Token distribution instead of the more commonly used Ethereum platform? In fact, we spent a few months studying, writing code, experimenting and testing smart contracts on the Ethereum platform, with the aim at launching an ERC-20 compliant token distribution on the Ethereum platform. During this period of work with Ethereum, when we really learned about it in the most hands-on manner, both about its advantages and disadvantages, merits and (significant) flaws, we came up with a number of issues and concerns. In the end of the day, our choice between Ethereum and Stellar was very clear.
Crypto markets nervous about Ethereum smart contract security
On 25 April 2018, crypto markets temporarily plunged ca. 10% due to concerns related to bugs founds in some Ethereum ERC-20 smart contracts, in some cases enabling hackers to generate unlimited amounts of certain tokens. This was reported e.g. on the CNBC Crypto channel. Some crypto exchanges even paused their services due to these discoveries. Such incidents confirmed our concerns regarding the safety and security of ERC-20 compliant smart contracts, which are prone to bugs and vulnerable to attacks such as the ones reported by the media. In some cases, security testing and audits would be able to reduce the potential risks but not eliminate them altogether, due to the nature of Ethereum itself.
Future risk events related to flawed ERC-20 contract hacks may cause serious scares and panic due to losses that there may be
While the number and volume of flawed ERC-20 contracts discovered this time was limited and the damage done largely contained afterwards, this is neither the first time such news emerged, nor will it be the last time. There may be much larger and more significant hacks taking place in the future, which may cause serious concerns about the credibility, solidity and stability of the Ethereum platform. No one knows, when the following similar cases will pop up, but they will: there are at least 1,500 tokens created on the Ethereum platform (as of today 1,587 cryptocurrencies listed on coinmarketcap.com, of which most are ERC-20 tokens), and many of them are buggy and not of high quality i.e. exploitable by hackers.
Simpler and safer Stellar code and contract structure
Compared to Ethereum, Stellar, which does not offer Turing complete smart contracts per se, as a “less expressive” simpler and more auditable regarding its code does not have similar vulnerabilities and risks that the error-prone Ethereum smart contracts pose. While the Ethereum platform with such Turing complete smart contracts may be able to offer certain functionality and features Stellar does not, at least in its current form, offer, such other features and functionality are not necessary for the token distribution and use purposes. In this respect, we consider that it is more important to be able to offer a secure solution without any concerns rather than expose ourselves to such vulnerabilities all other token issuers do, when using the Ethereum platform.
Stellar platform tokens can be frozen to prevent abuse and illicit use
The Stellar platform also offers the possibility to freeze tokens in the event of misuse, adding an useful feature to ensure proper and compliant use of tokens issued, and does not require complicated efforts to try to sort out compromised situations like on Ethereum, where any irregular state change would require the goodwill and agreement between transaction validators or miners. Disputes around this topic have also surfaced from time to time concerning Ethereum, and sometimes even very difficult solutions such as hard forks are suggested, which would in worst case scenarios break the Ethereum blockchain up. Such dilemmas and dangers do not exist in the Stellar setting due to its different structure and functionality. At the same time, for legitimate use, the intrinsic decentralized exchange of Stellar makes it easier for users to transfer any tokens between themselves and increase the level of utility and use of any token issued on the Stellar platform. Ethereum does not have any such native decentralized exchange feature.
Cost and speed
High and unpredictable gas costs on the congested Ethereum network
The volatility, unpredictability and high “gas” cost on the Ethereum platform is a frequent topic in the crypto news feed, and not without reason. From time to time, congestion in the buggy Ethereum network causes spikes in the transaction cost (gas price), which is from time to time rather unpredictable. Various gas price estimator tools offered by various development frameworks and helper tools often fail to indicate the correct gas price, or even a correct gas price range, which often leads to execution problems in contracts and they fail to migrate into the Ethereum network and get stored in the blockchain. Sometimes, the cost gets excessively high, especially, when one has to attempt to get the ERC-20 smart contracts as safe as possible, which often requires the use of tested and tried sets of contracts such as the Zeppelin library of smart contract templates used with the Truffle framework, and using such libraries tends to increase the file size, which in turn increases the gas costs, when there are more bytes to be stored in the blockchain. Even if this example is already 8 months old and the gas prices have got generally higher due to the ever increasing load on the Ethereum network and the fiat money price of ether itself has increased over the past 8 months, it gives a pretty good impression of the exorbitant costs of using the overly congested Ethereum network: USD 5.5 million for 1 gigabyte of data. While smart contracts tend to be much smaller than 1 Gb, to tackle the security concern illustrate above, e.g. more secure Zeppelin/Truffle contracts can easily become quite bloated and quite expensive. This problem does not exist on Stellar, which is, as explained above, inherently more secure in terms of its simpler contract structure and atomic multi-operation transaction model.
Neglible transaction costs on Stellar
On Stellar, the transaction cost is 0.00001 XLM, and as 1 XLM = 0.44 USD at the moment, the cost of a single transaction is a small fraction of a cent. A transaction is much cheaper on Stellar than any bank transaction (that is charged either on a per transaction basis or hidden in monthly fees but never free, as it is never free for the banks themselves either), while Ethereum transactions may in certain cases be many times more costly than any bank transfers.
Stellar reduces Ethereum’s long minutes into seconds in transaction validation
As concerns speed, while transactions on the Ethereum blockchain get validated much faster than on the Bitcoin blockchain, normally in 3.5 minutes on Ethereum vs. 10 minutes on Bitcoin (or 60 minutes for the full 6 blocks that is generally considered to be very safe but not considered necessary for small transactions), on Stellar, the transaction confirmation median transaction confirmation time is said to be 5 seconds, which corresponds to what we have experienced as well. Even if it may not be as critical in an ICO or other token distribution, in many transactions the interim market price fluctuations in the underlying cryptocurrency price may cause problems, with the other party to a transaction losing on it, if the fiat currency equivalent value goes the wrong way, while waiting for transaction confirmation. The faster the transaction confirmation, the less there are currency risks, and having seen the recent history of the level of volatility in the cryptocurrency markets, fluctuations may be very significant indeed.
Uniqueness and pioneering spirit
Courage to go against the tide as pioneers and choose a less trodden path
Choice of Stellar also underlines our pioneering spirit and boldness: Instead of choosing the most common and well-known token distribution platform Ethereum, we made a bolder, more unique choice of Stellar. Often, we have realized that in order to achieve our objectives, we have to do our own thing (as we are doing now) instead of going for the mainstream and choosing a thing that exists (even if we try to avoid reinventing the wheel and learn from and leverage good existing solution to tackle a technological challenge — if such solutions exist and can meet our needs and requirements). We do not seek different solutions in order to be different, but indeed for the reason that it often is necessary to achieve what we need to achieve. In terms of token distribution, maybe our project, when the community around it grows, can better stand out in the Stellar context than among the hundreds of concurrent ERC-20 token projects that congest many online channels with their ever-increasing volume. As said, we tried and tested it without any prejudice, but our concerns were validated not only by our own validations and tests but also what is happening elsewhere, as shown in a number of recent events as referred to above.
Stellar closer to our approach than Ethereum even if clearly different
Upon first impression, after having studied the Stellar protocol and the practical network structure in depth, we thought that “wow, this looks good, maybe we can build our project directly on Stellar instead of developing our own one”, but then, when we got deeper in our analysis and started thinking that we need to have A, B, C and then do X, Y, Z, we realized that this is not good enough and certain things were lacking (what this means will be communicated later on, when certain further details of our work are released), which means that we have to build the proprietary blockchain. As explained in other documents, our approach is philosophically closer to that of Stellar than those of Bitcoin and Ethereum that are heavy and slow energy-consuming monsters with their mining processes and clogged environmentally un-friendly networks that suck up vast amounts of computing power and therefore electricity, leading to very slow transaction volumes and confirmation speeds that will not facilitate any global payments network nor any ultimate ‘open global financial system’. Nor does Stellar’s capacity facilitate anything of such magnitude in terms of its inherent transaction processing speed and throughput volume, even if it is a clearly better attempt towards such goal than Ethereum or Bitcoin that have, in turn, given their deficiencies as payment networks, developed other “roles” or “functions” in the crypto sphere (Ethereum as an ICO platform, with the ICOs by far as the most popular form of smart contracts applied on the blockchain, and Bitcoin as a gold-like “store of value”). For us, the use of Stellar as the token distribution platform (which will also enable reception of Ethereum and Bitcoin through use of additional modules such as Bifrost) also enables a better experimentation of seeing its functions and features in real use vs. what ultimately needs to be developed.
Stellar laboratory interfaces and forms not very far from bank transfer forms — relative ease for users to use them
While we understand that the Stellar project operates in a partially similar space as our project, in the space of global payments and other banking related services and their disruption, we can see that the “native” user interfaces and forms offered on the Stellar laboratory are not too far from a traditional online bank transfer forms, even if there are additional steps required like the establishment of “trust” towards a new issuer of an asset before a transaction between the two parties concerned can take place involving such an asset. This makes it also relatively easy for a basic user that is not technically at any expert level while more knowledgeable than a non-cryptocurrency user to use such interfaces to confirm trust and click through the few fields and pages to confirm a transaction in a way that is also safe and secure. While the step for the establishment of trust may be confusing to some basic users at first, the transaction e.g. to participate in an offer can be conducted in a fairly straightforward manner, within the space of minutes. The use of the user’s own account public key and any other public key such as that of the issuer bears a certain resemblance to the use of bank account numbers such as IBANs, and while the secret keys tend to be longer, it is easy to copy-paste them or use another mechanism such as in some wallets, which have sufficient functionality, to establish trust to issuer and effect an offer-related transaction through the confirmation of a personally selected password or similar. Therefore, the process already offered by Stellar itself through the native network user interfaces is sufficient for such purposes, and safe without any intermediary element that may be more vulnerable to hacking efforts.
Concerns regarding the regulatory treatment of Bitcoin, Ethereum and Ripple
Another new issue that touches ether as the second largest cryptocurrency is that there are some considerations — even if no decisions so far — that the two of the three largest cryptocurrencies might be categorized as securities (while ripple is not relevant in this context as it does not offer any functionality for token distribution such as that of ERC-20), which might complicate or even cripple their position in many respects. The fully decentralized Stellar platform and its lumen (XLM) cryptocurrency, which is ranked within the top-10 among largest market capitalizations, has not been subject to such considerations, which also improves its position as a token distribution platform. The whole discussion about what is a security or not is a bit strange, because a security, e.g. shares of equity capital or bonds are instruments that give their holders the rights to distribution of financial streams such as dividend or interest, and stake in the equity in the case of shares, but tokens do not have nor give their holders any such rights or asset values that securities by definition give.
Conclusion: A clear choice
While the market for cryptocurrencies is under a constant evolutionary flux and change, and anything may happen that changes the conclusions made on the basis of the current information and experience at hand, we believe that given the facts and experiences discussed above, we have made the right choice in opting for the Stellar platform, and hopefully this will also help to generate further goodwill for Stellar. This is an important milestone in the project, but we believe that what we will be introducing later on as our work progresses in terms of our own blockchain and the ecosystem that will be built around it, it will be a wholly different matter that will help to generate a lot of new economic activity in the crypto sphere and bring amazing things to life.