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Why Protocols Are Better Investments Than dApps Today

Early adopters build the infrastructure that the early majority uses for applications.


In the cryptocurrency industry, existing technologies can be divided into three main categories.

The first is primarily synonymous with digital currency’s first use-case, and comprises exchanges of money and stores of value; the second relates to decentralised applications (dApps) built on the blockchain; and the third involves protocol level technologies such as NEO and Ethereum on which these applications are built.

The progression of a new technology, and the way it evolves as it gains mental mindshare, is at the core of Gartner’s Hype Cycle for Emerging Technologies – which suggests that there are five common stages during which technologies are adopted.

The Innovation Trigger

First is the Innovation Trigger that brings the technology into the world. While not very visible, just as Bitcoin wasn’t visible in the early years of its life, word eventually spreads and expectations grow. Over time the murmurs gain momentum, building into a crescendo that is Gartner’s second stage, the Peak of Inflated Expectations.

The Peak of Inflated Expectations

The peak represents the height of confusion around the definition of the original technology, because people often apply it optimistically to everything they see. No technology is a panacea. As companies sprout to life and attempt to transition ideas into reality, shifting from proofs-of-concept to at-scale implementations, it frequently turns out that implementing a new disruptive technology in the wild is much harder than anticipated.

The new technology must integrate with many other systems, often requiring a wide-reaching redesign. It also requires retraining of employees and consumers.

The Trough of Disillusionment

These difficulties slowly push the technology into the Trough of Disillusionment, as people lament that this technology will never work, or is too difficult to deal with. When enough people have given up, but the loyal advocates keep working with dedication, the technology begins to rise again, this time not with the irrational exuberance of its early years, but instead with a sustained release of improvements and productivity.

The Slope of Enlightenment

While the mainstream may continue to observe from the sidelines, innovative companies in nimble sectors are now planning and implementing product lines and services around the new technology. At this stage of the game, the benefits of the tech are clearer and the early use-cases are beginning to show that adoption has been a positive asset to the enterprise. In the blockchain world, that might mean the financial services, supply chain companies, creative ventures and other early adopters are now clearly demonstrating that the enterprise can adopt the technology successfully.

The Plateau of Productivity

Over time the technology matures, ultimately becoming a steady platform in the Plateau of Productivity that provides a base on which to build other technologies. Even conservative adopters now see the benefit of the underlying tech, and it makes its way into mainstream business models.

While it’s hard to say exactly where blockchain technology currently falls on Gartner’s Hype Cycle (these things are always easier in retrospect), we would posit that Bitcoin (specifically, the cryptocurrency) is emerging from the Trough of Disillusionment. At the same time, blockchain technology may be descending from the Peak of Inflated Expectations, which it reached in the summer of 2016 just before The DAO hack occurred.

Cryptoassets beyond Bitcoin are at different points between the Innovation Trigger and the Trough of Disillusionment. These differ because they came to life at different points after Bitcoin and many are still emerging.

Why Distributed Applications Aren’t Currently In Fashion

From an investment perspective of short to medium term adoption, I suggest that technologies that provide the most value to current users of cryptocurrencies include NEO and Ethereum.

As demonstrated by the cycle of adoption, the crypto ecosystem is in its early stages of development and thus the community is strongly represented by engineers, blockchain evangelists and technology early adopters. This suggests that the tokens with the strongest immediate demand will relate to infrastructure and architectural innovation – because they provide the most utility to developers building the ecosystem.

This reflects the third investment category relating to protocol level technologies. Importantly, as the ecosystem grows, protocol currencies stand to profit exponentially compared to application currencies. Protocols can be understood as the underlying infrastructure on which applications are built, and stand to profit from any growth in the ecosystem.

Examples of current protocols in the industry include blockchains such as Ethereum, NEO, Stellar, Lisk, QTUM, and ICON amongst many others.

Since the birth of the first smart contract, the gold rush has migrated not towards dApps, but towards protocols that could bring us closer to real-world implementation and adoption.

These projects aim to build a better, faster, stronger baseline for real-world use. Protocols also offer the prospect of transitioning from simple smart-contract interoperability, towards seamless sharing of information across blockchains. These agnostic protocols are able to inherently work freely and seamlessly with each other, rather than setting up additional layers of communicativity between different networks. AION, ICON, and Wanchain recently established the “blockchain interoperability alliance,” dedicating research and resources towards setting a standard of interoperability for emerging blockchain networks.

Battle Of The Protocols: How NEO Will Scale Better Than Ethereum

I personally believe that NEO will far outperform ETH due to the following reasons:

Scalability and Speed

It’s no secret that blockchains suffer from scalability issues. As cryptocurrencies and blockchain technologies become more widely adopted, the number of transactions requested per second is increasing dramatically causing transaction processing times to slow down. Bitcoin has a painfully slow transaction time of between 3.3 and 7 transactions per second, while Ethereum saw a huge backlog of transactions when the CryptoKitty craze swept through, early in December 2017.

Trinity, the Lightning Network, and the Raiden Network are changing this. Like the Lightning Network for the Bitcoin blockchain and the Raiden Network for the Ethereum blockchain, Trinity aims to address scalability issues on the NEO blockchain by employing state channel technology.

Simply put, state channel technology allows for transactions to be made off-chain via a multisignature agreement or smart contract. Multiple transactions can be made within these off-chain agreements meaning exceptionally fast processing and cheap transaction fees as opposed to each transaction being made directly on-chain. Only when all the conditions of all the transactions have been fulfilled does the transaction chain move onto the appropriate blockchain.

By employing state channel technology on the NEO blockchain, Trinity will be able to address some of the main limitations of blockchain technology: scalability and privacy.

Multiple Programming Languages

The NeoContract smart contract system is the biggest feature of the seamless integration of the existing developer ecosystem. Developers do not need to learn a new programming language, but can use C#, Java and other mainstream programming languages in their familiar IDE environments (Visual Studio, Eclipse, etc.) for smart contract development, debugging and compilation.

NEO’s Universal Lightweight Virtual Machine, NeoVM, has the advantages of high certainty, high concurrency, and high scalability. The NeoContract smart contract system will allow millions of developers around the world to quickly carry out the development of smart contracts.

Delegated Byzantine Fault Tolerance (dBFT)

All blockchain platforms rely on consensus to prove that all transactions are valid. Bitcoin and many other projects (including Ethereum currently) use Proof of Work (PoW) methods, which basically require expending a lot of energy to solve complex mathematical problems.

Another common method is Proof of Stake (PoS). With this method, blockchain nodes are required to “stake” or allocate funds (denominated in the currency being used) to earn verification rewards. The big benefit of PoS, compared to PoW, is that much less energy is expended. It is more eco-friendly.

NEO utilizes a different consensus method called Delegated Byzantine Fault Tolerance (dBFT). You can read all about the mechanics of dBFD here, but the biggest benefit of that system is that it prevents code splits/forks. This is a huge plus, as we have all seen the controversy and drama associated with the numerous Bitcoin (and Ethereum) forks. This will lead to greater stability of the NEO platform.


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