How different cryptocurrency projects are staying two steps ahead

Posted: 7 June 2018 6:50 pm

Read how to put different projects on the "today-tomorrow scale" of cryptocurrency.

One of the questions almost every blockchain and cryptocurrency project needs to grapple with is whether they should develop a solution for tomorrow or for today. Real-world uptake is key, which is hard if the system is too far ahead of the game. At the same time, the space changes so quickly that many projects are at very real risk of being obsolete before they even hit the market.

A lot of projects are torn between gambling on being ahead of the game tomorrow and gambling on being fast enough to create a product for today – or trying to find a sweet spot in the middle. It's a sliding scale with tomorrow at one end and today at the other. The best place for each project depends on what it is.

The far end of the scale

One of the best examples of this in action might be IOTA because it's aiming for the furthest possible "tomorrow" end of the scale.

For example, it's building a balanced ternary system (-1s, 0s and 1s) rather than binary (1s and 0s), which is the computation standard of just about everything today. The advantage is that this is theoretically a much more efficient system. The downside is that it's almost impossible to use today because it currently has to be inefficiently "packaged" into binary since binary is today's global computing standard. This basically defeats the purpose of having a ternary system.

It's essentially gambling on creating a system that's so good that tomorrow's world will move to accommodate it by creating "made for IOTA" hardware, rather than one which can be adopted into existing systems today. On the one hand, there are signs that it's actually going to work, and it's going to be extremely tough to beat if it does. On the other hand, it makes adoption and development extraordinarily difficult today, leads to a lot of semi-valid criticism and is frankly kind of crazy.

But IOTA aims to be a protocol-level Internet of Things project to connect the entire world and be a foundation on which all other industries can build. It's very much in a "go big or go home" area, so it might make sense to gamble hard on the very tip of the "tomorrow" side of the scale.

You can see this kind of hard future approach in many of the more general projects that want to do it all, such as Nexus.

By contrast, industry-specific solutions might be better off finding a balance that lets it get to real-world adoption as quickly as possible, disrupting the space before it moves on and renders the project obsolete.

A balancing act

Consider Ripple. It was created as a very specific solution to the awful state of today's cross-border payment solutions and has successfully managed to present a better solution in almost every tangible way. But it was gambling on quick uptake at the "today" end of the scale, and after years of tangling with regulatory roadblocks, resistance from incumbents and perhaps an unexpected degree of caution from prospective clients, it might be running a little behind schedule now.

Blockchain and crypto technology has moved forward quickly enough that it's feeling the heat from companies that it didn't even see as competition at first. It's also watching its intended clients bypass Ripple with their own cryptocurrency solutions. In response, it's quickly started diversifying beyond international payments, probably while wishing it had started doing so years ago.

Ripple gambled on the "today" end of the scale. It's undeniably gone extremely well – Ripple's a top three coin after all – but it has also left it playing catch up in some respects.

Stepping on the scales

It's not possible to tell the future, but this scale might be worth bearing in mind when looking at different projects. Projects that show an awareness of this spectrum and strategically put themselves as a sensible part of the scale might be more likely to find long-term success.

Looking at projects on this scale can also bring out some of the differences between different systems that appear similar on the surface.

For example, consider Power Ledger and Enosi. Both are renewable energy-oriented systems that aim to create a blockchain-based energy marketplace for consumers and producers to buy and sell power. So far, so similar.

The key difference might be where each project places itself on that today-tomorrow scale. Power Ledger might be more today, while Enosi is aiming for more tomorrow.

What this difference looks like

The exact form of this spectrum will vary depending on the industry and the exact project. In this case, it takes the form of different levels of dependence on existing energy suppliers and different assumptions for the near future of the energy industry.

  • Power Ledger. One of the first movers in the space, Power Ledger created a system intended to be more easily integrated by existing energy manufacturers and suppliers (the power plants and energy companies). Power Ledger aims to deliver value to consumers with the creation of a more transparent and open energy marketplace, eventually helping to fund the construction of more renewable energy plants to clean up the grid.
  • Enosi. Enosi aims to arrive in a future where home solar panels and distributed energy grids are increasingly normal, and more homes and businesses produce their own power or buy from each other rather than getting energy from a central grid. It puts an emphasis on going international as isolated communities and developing countries technologically leapfrog to distributed renewable energy grids, rather than going via the centralised grids which have become normal in large cities.

Enosi's trade-off is being able to get a potentially more effective solution tomorrow, at the cost of needing to make predictions which may or may not pan out. Power Ledger's trade-off might be being able to create a system for quick uptake today, at the cost of being potentially overtaken by competitors like Enosi tomorrow.

Is Enosi's gamble any good?

It might be. Predictions have always been a part of business, but the increasingly rapid pace of technological progress is shifting the general sweet spot towards the "tomorrow" end of the scale. The blowout crypto hype of 2017 in particular is having lasting impacts, having pumped a ludicrous amount of money in the space which is now being used to fund further developments even faster.

These days, any project that tries to look more than a year down the line needs to account for significant changes and tangible technological advancement, especially in the crypto space. Enosi certainly is.

One of its safer predictions is that solar panel installations will continue to pick up as costs drop and yields rise. No kidding.

It's a very safe bet. Australian homes and businesses are currently installing about 10,000 solar panels every day.

It's even being slightly ironically helped along by resistance from incumbent energy retailers, who are already reportedly jacking up prices in response to falling profits. This makes even more people switch to solar to save money, which hits energy retailer profits even harder, which sees them raise prices even more, which causes even more people to switch, and so on. With some energy retailers already caught in this vicious cycle, it's not too far a stretch to plan for a future where distributed home-made energy is the norm.

Enosi also notes the combination of growing energy demand, and the slowness and cost of building entirely new power plants. New power plants take years to build and plan, need enormous investment and take years to pay for themselves in monetary terms. Power plants simply aren't an efficient way of planning for future energy needs, and their construction is similarly dependent on making predictions for the future.

And with times and tech changing faster than ever, the planning and construction of large central power plants only becomes relatively less efficient still.

Energy transmission costs don't help either. The physical infrastructure of power grids is already shifting to an increasingly distributed model, the Enosi white paper notes. This is not only because power plants are a slow way of responding to constantly increasing demand, but also because it will almost always be more cost-effective to produce energy as close to the final consumer as possible. Now that home and business energy systems are crossing a short-term tipping point of cost-effectiveness, it simply starts making more economic sense to create a more geographically distributed grid and it's already started happening naturally.

This is somewhat hampered by existing infrastructure, however. Especially in Australia which is globally notorious for its grotesquely unnecessary "gold plating" of energy infrastructure. Instead, it's most commonly seen in areas that never really had a central grid and are leapfrogging right to distributed-style networks. These regions are deliberately in Enosi's sight as early users.

Fluctuating demand and peak hours are another piece of the puzzle, further pushing preferences towards distributed networks. Businesses use most of their energy in the day while home consumers use most of theirs at night, so why not set up an energy exchange program.

Telling the future

Enosi is gambling on a decentralised future where some of the incumbent retailers are pushed out, while Power Ledger is betting on a system where more incumbents stay on as active participants in the distributed marketplace.

It's clear beyond any shadow of a doubt which way the wind is blowing in the energy industry, which might make it one of the easier areas to find that predictive sweet spot. But other industries, especially the ones which don't exist yet, might be a bit trickier.

For a speculator who wants to place different projects along that today-tomorrow scale, the question might all boil down to how radical you want to be, and how radical you think the rest of the world will be.

Disclosure: At the time of writing, the author holds ETH, IOTA, ICX, VET, XLM, BTC and NANO.

Disclaimer: This information should not be interpreted as an endorsement of cryptocurrency or any specific provider, service or offering. It is not a recommendation to trade. Cryptocurrencies are speculative, complex and involve significant risks – they are highly volatile and sensitive to secondary activity. Performance is unpredictable and past performance is no guarantee of future performance. Consider your own circumstances, and obtain your own advice, before relying on this information. You should also verify the nature of any product or service (including its legal status and relevant regulatory requirements) and consult the relevant Regulators' websites before making any decision. Finder, or the author, may have holdings in the cryptocurrencies discussed.

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