Ethereum or Stellar — Which Blockchain platform is best suitable for your ICO/STO

A Comparitive study of 2 most promising Blockchain platforms for launching security tokens or utility tokens.

Your ICO or STO will be the first event where substantial number of people will interact with your project and thus it is worth understanding all possible aspects affecting your project and choosing the best platform for development part and fundraising part of it.

ICOs were a trend in 2017, reached their tipping point in early 2018 and have seen a steady decline since then. Parallelly the wave of security tokens has just begun and most people are expecting a Tsunami of it soon.

Ofcourse I am not here to compare STOs with ICOs. You can learn more about it through link given below -

https://medium.com/quillhash/how-is-security-token-different-from-utility-token-bba5a028c47c

Let’s focus on the Two Blockchain Platforms Ethereum and Stellar, that have emerged as the most ideal platforms for going public with your Blockchain startup.

Ethereum is a Blockchain development platform, specifically designed for creating Smart Contracts and to supplement the creation of complex decentralized applications and blockchain platforms. It has since then remained synonymous with the terms like DApps development, the creation of custom tokens and paving the way for distributing tokens through Initial Coin Offerings (ICOs).

Stellar is simply a decentralised payment transfer protocol which executes cross-border payments and digital currency to fiat currency transfers by the usage of multiple currencies including its own cryptocurrency, Lumens(XLM). Apart from being a payment transfer platform, Stellar also acts as a development solution for simple, non-complex applications through simple smart contracts.

As a Development Platform -

Ethereum Virtual Machine being Turing complete, the Ethereum platform allows programmers and developers to explore virtually unlimited possibilities through the platform’s Turing complete smart contracts.

As a result, anybody can develop complex applications and platforms on Ethereum without limitations.

The smart contracts provided by Stellar are simple, faster and non-Turing complete, which means that they can only provide simple functionalities for basic applications.

Thus, if you are looking to develop more complex applications (applications which require Turing complete smart contracts with more computational capabilities), then Ethereum’s offerings are a very viable solution.

On the other end, to develop and launch basic applications and tokens, the simplicity, speed and cost effectiveness of Stellar is best suitable.

As a Fund Raising Tool -

Choosing the best suitable platform here will not be as simple as it was above as determining the best fund raising tool will be a more complex equation with multiple variables to solve.

Security -

The flexibility provided by Ethereum for developing complex smart contract attracted early adopters making Ethereum most widely used portal. But, as William Shakespeare has said

“Your greatest strength begets your greatest weakness.”

This popularity of the portal resulted in Congestion in the network and its own flexibility made the platform prone to Anonymous hackers and resulted in the code becoming vulnerable and exploitable.

As per a research conducted by National University of Singapore on Ethereum Smart Contracts, there were nearly a million active live smart contracts and as they started with their testing, out of which more than 34000 smart contracts showed vulnerability with over 2000 smart contracts showing high-risk vulnerability, which meant that these contracts could be manipulated “easily” by a third party.

“Don’t worry if you have a live smart contract deployed on Ethereum. Get it audited today through Quillhash Smart Contract Audit Platform” where vulnerabilities of your smart contract are tested through 40+ manual and automated tools.”https://audits.quillhash.com/

On the other end, Stellar’s smart contracts are simple and less flexible. But less flexibility in Stellar smart contracts means that there is less room left for hacker attacks, which makes operating with Stellar smart contracts safe and secure. Stellar has also gone a step further to ensure security implementing various authentication constraints and encryptions.

One such solution is Multi signature. Multi signature is a concept that requires confirmation from a unique second party individual who has to verify the action before any action is made reality, that way avoiding hacker attacks.

An additional security feature is that startups have the option to choose which nodes can validate their transactions. This is particularly helpful if there are malevolent validators on the network or if the startup’s tokens represent some real world asset (in case of a STO).

Stellar has also implemented Batching/Atomicity which leads to more auditable code, limits uncertainty, and decreases the risk of harm from bad actors who may exploit program vulnerabilities.

Compliance -

One of the prominent reasons why ICOs became a preferred choice to raise funds was because ICOs do not have anywhere near as many regulatory hoops to jump through as IPOs. Though the situation is changing as many countries have banned ICOs and many countries are working on regulating it. If (or should I say “When”) it happens, will then require the (accredited) investors of ICOs to follow the KYC/AML procedure before investing. A major difference between Stellar and Ethereum is KYC/AML compliance. Once the ICO process gets regulated, Startups will prefer to use a blockchain that is KYC/AML, and Ethereum does not cater this feature, but Stellar does. Arrangements can be done such that tokens built on the Stellar blockchain will only be traded between KYC/AML approved addresses. Stellar has a provision where accounts proven to be owned by a terrorist are frozen. Ethereum ETH does not have these restrictions.

Liquidity -

This point is tricky as both platforms have an advantage and a disadvantage.

As Ethereum is most widely used platform for creating custom tokens, and most of them being ERC20 tokens, there are more than enough ERC20 competent wallets and exchanges to launch, store and trade these tokens.

Thus, projects using ERC20 tokens need not worry about liquidity anytime soon. But there are hundreds of tokens being issued each year and all top exchanges charge a lot for issuing tokens on their platform, this results in new tokens getting listed on random exchanges and difficult for early investors to trade them.

Stellar has solved this issue fundamentally as the startups don’t have to rely on 3rd party exchanges to list their tokens as Stellar has it’s own built-in Distributed Exchange (DEX) where all native tokens can be listed and available to trade since Day 1 of their ICO/STO.

Ofcourse there are only a few projects that are currently listed on the Stellar Distributed Exchange and that there isn’t as much activity/volume on the platform yet, but if/when it grows and attracts more projects, it will become a force to be reckoned with.

Transaction Cost and Speed ( Scalability ) -

Stellar’s built-in decentralised exchange plays a major role in this variable and In this case, we can profoundly say Stellar is the winner.

The average settlement time for Stellar transactions is 5 seconds. For Ethereum, it is 3.5 minutes. This gives Stellar a tremendous advantage over Ethereum.

The transaction fee on the Stellar network is considerably small when compared to that on the Ethereum network. An approximation states that for the fee to total 1 XLM, it would have to contain 100,000 transactions. This is because there are no fees are required to be paid to third party exchanges for transactions. This is only a fraction of the fees we usually pay on Ethereum network , around 0.01%.

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References -

  1. https://globalcoinreport.com/stellar-xlm-casting-a-shadow-over-ethereums-smart-contract-operations/
  2. https://www.coinspeaker.com/2018/03/14/stellar-ico-platform-vs-ethereum-ico-platform/
  3. https://bitcoinexchangeguide.com/stellar-xlm-vs-ethereum-eth-real-proof-lumens-are-better-than-ether/amp/
  4. https://hackernoon.com/why-stellar-could-be-the-next-big-ico-platform-f48fc3cb9a6c
  5. https://unblock.net/stellar-vs-ethereum/
  6. https://hackernoon.com/smart-contracts-turing-completeness-reality-3eb897996621
  7. https://www.stellar.org/blog/using-stellar-for-ico/
  8. https://cryptorecorder.com/2018/09/05/stellar-xlm-vs-ethereum-eth-which-one-is-better-for-investment/