The quest to future-proof the next generation protocol

If 2017 was the year the ICO emerged as the first killerapp of the blockchain, 2018 has given birth to the next generation protocol.

As limits to transaction speed and scaleability continue to plague the king and queen of blockchains, Bitcoin and Ethereum, newcomers including Hashgraph, Universa, and Neo have entered the space with new improved protocols that enable faster transactions; the so-called next generation protocols. With scores of these entering the market, those looking to build on and invest in a blockchain protocol must face up to the million dollar question; who will still be standing in 10 to 20 years time?

Blockchain has kicked off a technological revolution that’s creating early stage transformation across most industries from healthcare to transport and trade, but limitations of the first blockchain protocols have meant that they’re often too expensive or too slow to use.

This has led to a plethora of improved blockchain protocols being unleashed into the playing field to vie for the market’s attention: blockchains compete on speed, processing, and security. They compete to see who will ultimately be crowned with the most prized label of all: future proof.

And if blockchain protocols make up the foundation on which future application layers will be built, then it’s of paramount importance that developers build for the long-term and get it right.

There are many different technical solutions that potentially get rolled into next generation or second-generation protocols.
Craig Borysowich, Emerging Digital Platforms Strategist at Capco, explained that “these include a variety of design changes like sharding, side chaining, multi-chaining, and different consensus protocols which are all working towards the goal of increasing the transactional speed of a cryptocurrency network.

“Credit card processing networks are usually pegged at performing peaks of 60,000 tx/s within North America, and blockchain solutions that want to operate on a global scale for P2P B2C and B2B transaction volumes will need to beat hundreds of thousands of transactions to millions of transactions per second to be viable,” he says.

So, this is the challenge ahead of next generation protocols; improve the blockchain, offer more than the rest, and scale quickly and globally.

Just like the invention of the first car, the classic Ethereum and Bitcoin blockchain has had an unprecedented impact on the world, but will they still be used in 50 or even 100 years time?

American inventor Henry Ford said; “I will build a car for the great multitude,” and he followed up his words with the invention of assembly line production which meant he could offer affordable vehicles to the masses. Mr. Ford focused on both quality and scalability. The result? He built one of the best-selling cars of all time.

Now Ethereum can handle less than 20 transactions per second and Bitcoin under 10: reality is that the networks are slow, expensive, and that they don’t work smart.

“Newer blockchain launches are trialing new designs and consensus methods to reach higher volumes and faster resolution speeds,” says Borysowich. The first generation blockchain protocol can’t compete with next generation protocols such as Universa, which enables 25,000 transactions per second.

But instead of succumbing to being left in the dust, Bitcoin and Ethereum are reworking their protocols with initiatives like Casper, Raiden and Lightning Network. The world is in a transitional phase as it moves towards the decentralised models of blockchain based transactions, and the question of who will win out in the long-run is yet to be answered. Will the end game entail an improved version of first blockchain protocols, or will second generation protocols own the touch down?

“It is looking like we are going to be living with a wide variety of blockchain solutions for some time. Most next generation networks like Cardano, EOS, NEM, NEO and others, are just coming online and becoming available to developers, says Borysowich.

“So long as the network can sustain a quantity of independent nodes, attract developers, and maintain the economics of gas fees for apps and alt coins on the platform, then they are likely to stick around.”

Although, he adds that “Ethereum has likely set the bar for participant/node/developer uptake and that will be the comparison for the success of other networks that come online now and in the future.” 

So, developers are working hard to bring some of the first blockchain protocols up to speed. Meanwhile, new protocols are flooding the market, promising fundamental advances in computer science: decentralised and distributed networks and protocols but with moderation opportunities, smart contracts, the ability to tokenise any asset, together with stable transaction prices.

It’s still a nascent market space with room for many protocols to emerge, but as markets run their course the nature of competition often leads to the biggest and best gradually building monopolies to drown out the rest.

So, will many different next generation protocols serving different use cases survive into the future, or will a small handful build a network monopoly?

“The marketplace likely can’t support thousands of options but could probably settle down to about a dozen implementations of highly performant consensus protocols that will be the best of the breed in their particular design.

“There is likely a place for having networks each running POS, dPOS, DAG, Hashgraph, SCP, POA, or other consensus models as some approaches may be more appropriate for different use cases,” Borysowich believes.

“For instance, you probably don’t want to build a gambling platform on a proof of stake based network as one participant could win a significant enough stake in the currency to start gaming the protocols operation in ways that are detrimental to the overall ecosystem,” he adds.

Ultimately next generation protocols are building infrastructure, so for long-term success they will need 100% support from the community and widespread uptake. Thus, open source protocols could win out over permissioned blockchains as you are unlikely to have the full backing of the community if you are not open source – however, this will have to be balanced with the demand for security.

While huge technological breakthroughs have been made with blockchain protocols, lets not forget that these aren’t yet mainstream. Mainstream markets especially care about the stability of the platform, so security will undoubtedly be another major factor set to shake out the next generation of protocols.

“Whether it is the successful application of game theory to protocol operations like in a proof of stake model, or the general security model of the ecosystem and the ability for an attacker to create or influence the balance of power in nodes within a network – these are the factors that will likely determine long-term success. 

“We’ve already seen a couple of 51%+ compromises on tokens this year that weren’t properly balancing their node pools,” explains Borysowich.

Governments, enterprises, and small to medium businesses and individuals will require stability first and foremost, thus the winning combination for protocols will likely be those with legal controls that don’t restrict open innovation but provide the stability needed by mainstream markets.

As next generation protocols rush to fill the demand for fast and secure transactions, these need to be not only on the cutting edge of blockchain innovation, speed, and security, but also boast a widespread and active community of users. Long-term success is no easy challenge in the fast-paced tech world.

The networks that are going to succeed, says Borysowich, are those that can “attract and maintain developers, scale performance to extremely high volumes of transactions per second, and incentivise people to operate nodes and contribute to the stability of their network.”

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