Next-Gen DLTs Will Disrupt The Blockchain Ecosystem

The crypto community that has made blockchain mainstream is perhaps one of the wildest and most exciting places to be in the 2020s. Especially with the rise of Next-Gen DLTs.

A misunderstood tweet of Elon Musk is enough to wipe out billions in market capitalization.

Governments around the world follow the developments of cryptocurrencies with a wary eye – not infrequently with the consequence of taking serious regulatory measures. Like China, with its recent crackdown on Bitcoin & Co.

Nevertheless, the crypto community attracts the greatest talents, enthusiasts, and evangelists with nothing less than religious faith, technology fans, investors from all over the world. But criminals as well.

One Community, One Ecosystem?

Speaking of the blockchain community. From my perspective there is no such thing as „one community “. In reality, there are rather several tribes.

This may sound like a shocking statement, but going through social feeds, it’s almost impossible to see a discussion around a certain cryptocurrency project, without diehard fans jumping in and arguing why their favorite coin is superior.

It is obvious that this is mainly for two reasons. The first is money.

Coins compete directly with each other, sometimes very strongly, like Cardano with Ethereum. Nobody wants to see their investment thesis become obsolete.

The second reason is passion. The fans, developers and managers of the various projects typically have a full commitment. This kind of enthusiasm reminds me of football teams.

If you ask me, this is good on the one hand, as it drives competition and therefore innovation.

On the other hand, I sometimes ask myself, what would be possible, if the community would align their enthusiasm and energy to a common goal?

Next Generation Distributed Ledger Technology (Next-Gen DLTs)

Let’s now look at what the next generation of distributed ledger has up its sleeve – perhaps also to address the divisive forces described above.

By the way, and before we dive in: I‘m using the term Next-Gen DLTs as it is the generic term for blockchains and other technologies that have the same goal: To securely enable transactions of any kind without a central middleman. I will later give an DLT example that isn‘t based on the blockchain technology. If you lack some basic understanding regarding blockchain, then have a look at my short overview, including real life examples.

To understand the push towards Next-Gen DLTs, we need to look at the disadvantages of current blockchain projects like Bitcoin (Blockchain 1.0) or Ethereum (Blockchain 2.0).

These are: High transaction fees, high electricity consumption, low scalability, slow transactions and often a missing technical basis for regulation.

The last point is especially highly controversial. Many will argue that the crypto world is about cryptocurrency. And further, that it is all about fiat versus cryptocurrency. In this logic, it is even a must for a cryptocurrency to be unregulated.

My opinion is very different here. First, I think cryptocurrencies are only one of many possible applications for DLTs.

Second, I believe that governments around the world will transform their existing currencies into digital ones and start to regulate private ones. Those that are technically open to regulation will have an advantage. The CCP is ahead right now with the digital yuan and corresponding regulations, but also the EU is taking steps towards a digital euro.

After this short digression we turn our attention back to the next generation DLTs. We start with IOTA.

IOTA – The Industry 4.0 Ecosystem Without A Blockchain

I‘ve been covering IOTA for more than two years, for example with articles on it‘s role in the fourth industrial revolution or how it could help realize an industrial data marketplace.

IOTA is the DLT project, I referenced above, that is not based on a blockchain.

The technical basis of IOTA is the Tangle, a directed acyclic graph (DAG). Transactions require the performer to do a validation of two other transactions in combination with a proof of work (POW).

This fundamentally different approach leads to a higher performance the more participants and transactions. Perfect for IoT or IIoT applications.

On top, IOTA is completely feeless.

Still in an early phase, the IOTA project requires a central coordinator. With the latest release „Chrysalis“ a big step towards Coordicide – the Death of the Coordinator – was successfully taken.

Additionally, the performance was boosted a lot. Transaction confirmations now take only 2 seconds instead of 10 minutes.

Besides the use cases that I mentioned above in my articles, IOTA is e.g. working together with Dell on the Project Alvarium to secure IoT devices. This is done leveraging another new feature called Oracles, that allows to bring data from outside to IOTA.

Right now, there is a lot of drive within the project.

Cardano – The Blockchain of Blockchains

Another really interesting project is Cardano, founded by the Co-founder of Ethereum Charles Hoskinson. The vision of Cardano is to address all the weaknesses of current blockchain projects in a scientific manner, based on peer-reviewed research.

Other than IOTA, Cardano is blockchain based. Contrary to Ethereum or Bitcoin it uses a Proof of Stake (PoS) algorithm for consensus. This makes Cardano way less energy consuming. A Cardano transaction requires 0.5 kWh versus 900 kWh (Bitcoin) and 550 kWh (Ethereum) respectively.

Also, the transaction fees of Cardano are way beneath those of Bitcoin and Ethereum with only a hundredth of it. Only IOTA is better with no fees.

Cardano foresees regulation and aims for lower costs here. Examples could be online gaming with automated tax compliance or decentralized exchanges.

Another big thing about Cardano is that it is thinking about how to make blockchains interoperable, making it a blockchain of blockchains. This could possibly lead to a united crypto community.

Interestingly there are already discussions if Cardano and IOTA are building bridges.

Cardano already managed the jump into the real world. The Ethiopian government will handle the country’s education system via the Cardano network, attracting 5.7mio users.

Outlook on Next-Gen DLTs

My opinion is that both Next-Gen DLT projects look very promising and have the potential to play a big part in the DLT space.

Nevertheless, Cardano and IOTA are in a relatively early stage. Anything can happen. For example, hacks, bugs or organizational drama can lead astray.

From my experience, real world adoption is key for further success. Building MVPs and going out as soon as possible to learn is so very important. History tells us that not always the best technology wins.

When it comes to real life use cases, I currently see Cardano slightly ahead. Regarding the technology IOTA has the point.

Yet I must repeat myself. It’s not an either or. Both projects can thrive side by side.

And maybe even together, as the reddit post above suggests.

Did you miss something in this article, or did I get things wrong? Let me know your opinion here or on Twitter. I‘m always happy to hear your thoughts.

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Header Image Source: Pixabay, Pixabay License

About Post Author

Fabian Schmidt

Fabian Schmidt is working as Head of Software Engineering in Manufacturing at SICK AG. He has an extensive IT background and has a faible for lean and agile organizations.

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