There are more and more Smart Contract blockchain platforms popping up on the market, making bold statements on this and that, getting crazy valuations based on nothing but a promise. These promises are more than often a twisted truth used as a marketing gimmick to increase project exposure and / or token price. There is nothing wrong by marketing per se, but it’s vital that the community, both dApp developers and investors, know what they are getting involved in. The majority of these platform will not survive, not because the tech is wrong, but because the space is not big enough, they don’t know the market demand, and they fail to plan for future requirements. Investors may take an economic hit because of these reasons, which is why I personally welcome that Weiss as first independent actor will issue letter grades on cryptocurrencies. Now, I have no clue whatsoever on which factors they will base their evaluation (other than what they state in their announcement), neither do I know how they will rate NEO. The only thing I know is that independent ratings are much needed. As a member of the NEO team, I warmly welcome constructive feedback from an independent outside viewer, as unbiased opinions are very hard to come by.
I have questioned the market caps of several projects myself, and since I know that not everyone has technical background or may lack overall insight in blockchain evolutions, I would like to take the opportunity to mention a few things that I personally think should be emphasized.
First of all, I always raise an eyebrow when someone claims millions of transactions per second (tps) as their main marketing argument. This is in my opinion a very twisted argument of an inevitable future of blockchain technology, where millions (or infinite) tps is a quite natural upper capability. Projects claiming this amount of transactions per second will be applying sharding, state-channels, side-chains, or other off-chain scaling technologies. This is nothing strange (or new), and the techniques can be applied to any blockchain. In fact, we will see all surviving blockchain projects converging towards the same transaction speed in the coming years, to finally be limited by hardware and bandwidth. It’s a harsh statement, but projects using this as their main marketing argument could very well not have much else to market, since it really isn’t anything unique. If tps is important to your use case, then you should in my opinion choose a platform that has high tps today, and not a platform that promises high tps in the future. The projects with high tps today has a much higher probability of reaching the “millions of tps” sooner than the projects that are still in development, and all platforms will reach it within a few years anyway. Moreover, I have seen claims of “millions of transactions per second”, where in the whitepaper it is evident that the planned technology is nothing more than a network of side-chains. As a comparison, it would be similar to spinning up 1000 NEO chains that each handle 1000 transactions per second. 1000 times 1000 equals one million tps. Note that this is very possible to do. Use cases that prefer to have their own chain can very well spin up a NEO chain on their own and have that connected to the NEO main-chain.
The same applies to off-chain scaling mechanisms, for example state-channels. I often get asked what I think will happen with NEO once Lightning network get wide-spread usage. My answer is that I think it will be great. It’s a useful and well needed technology. As a technology architecture, it’s not limited to only Bitcoin. It can be adapted and implemented on the NEO blockchain as well. Moreover, off-chain scaling technologies should be seen as a multiplier of the on-chain transaction capacity, since it has to go back on-chain sooner or later. If Bitcoin does 3–5 tps on mainchain, then 3–5 is the multiplier. If NEO does several thousand tps on mainchain, then several thousand is the multiplier.
Secondly, and an issue that is far from being mentioned enough, is branching possibilities during normal operation. In fact, there are very few blockchain projects that do not branch during normal operation, which could be the reason why it’s not talked about that much. The blockchain future will involve large amount of high value data that must be finalized and cleared. A traditional enterprise will naturally feel resistance towards moving their high value data through a system that even has a 0,01% chance to branch and stabilize on “wrong” branch. The only way to reduce the possibility to be on the “wrong” branch in such systems is to wait for a certain number of confirmations. Anyone who has sent a token from one wallet to another should be familiar; you need to wait 15–30 confirmation before the token actually arrives. Even if you make such a system “secure enough” (or even 100% secure) to convince financial institutions to accept the risk, you are doing so by ensuring that you are on the longest chain, which mean that a high number of confirmations are needed. If you have a block time of 6 seconds and need 10 confirmations, then your transaction time is 60 seconds and not 6 seconds. dBFT, the consensus algorithm that Erik Zhang invented for NEO, do not branch at all. There is always one and only one branch, which mean that block time equals transaction time. One and only one confirmation is needed to finalize a transaction 100%. It not only means that it is (much) safer for financial institutions to trust confirmed transactions, but it also means that on-chain transactions are settled significantly faster. Block time equals transaction time, currently set to 15 seconds, and technically there is nothing to prevent this from being reduced to an arbitrary number of seconds.
Thirdly, you should seriously consider not only the platform and its technology, but also the whole ecosystem around it. Once the big platforms have converged to similar transaction speed and inability to branch, the only thing left to give a competitive edge is the ecosystem around them. How easy is it to build a dApp? How many developers know the Smart Contract programming language? What functionality are projects looking for? What requirements do traditional large enterprises have and how can the ecosystem fulfill those? How do enterprises connect to the blockchain? How are legacy systems encapsulated, and what middle-layer do they need to interact with the blockchain? How is data privacy handled? How is identity confirmed on-chain? How will the blockchain align with regional laws and regulations? In summary, do the blockchain project have the ecosystem to answer all the questions above?
Lastly, a point that many investors seem to disregard, is to consider the actual token value. It can be the best technical platform out there, with significant traction and use cases, but none of this matter if the token is not used. This is the point where I really would like independent third parties to analyze, both on existing projects and newly started projects. It amazes me that some projects (with incredibly good technology) have a token that is pretty much worthless. A large amount of people is buying tokens because the platform technology is good, and totally disregard what use and value the token has within that technology. There are more than enough of these projects in top 50 crypto-market cap, heck, there are some even in top 10. I’m not in a position to point these out, but I warmly welcome independent parties to do this analysis from technical and economic perspective.
This industry is moving in the right direction and I am happy that we will receive more independent judgement from now on. This will be a well needed learning opportunity for all of us.