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Future of Digital Currency May Not Involve Blockchains

Although it may be hard to imagine, cryptocurrencies are far older than Blockchain technology. Most of us look at Bitcoin as the first cryptocurrency, although it is only the first Blockchain-based currency. Cryptocurrencies like B-Money and BitGold existed prior to Bitcoin, however, these didn’t really go far, especially when judged against Bitcoin.

The problem with cryptocurrencies conceived before Bitcoin was their centralized structure. Without Blockchain technology, there was no “decentralized, immutable, transparent” ledger in which transactions could be recorded, leading to a centralization. Yet it looks like Blockchain may not be the be-all, end-all of digital currency technologies.

Recently, a new form of crypto has emerged that leverages the Directed Acyclic Graph (DAG) organizational model for the structure of its decentralized ledger, allowing old problems to be solved and new features to be added.

Today, we’re going to take a look at the technology that can potentially replace the Blockchain itself and some of its current implementations.

Although the implementations that we are going to discuss today are new, the concept is not. In a 2013 paper dubbed “Accelerating Bitcoin’s Transaction Processing. Fast Money Grows on Trees, Not Chains,” the authors Yonatan Sompolinsky and Aviv Zohar introduce the GHOST protocol which proposes a change to Bitcoin’s structure from a Blockchain into a tree, reducing confirmation times and improving security. Although this change has not been implemented in Bitcoin, other cryptocurrencies are using the DAG-based system successfully. Let’s meet them!

Byteball: The DAG

Byteball is a DAG-based cryptocurrency. The first of its kind, Byteball is distributed through an airdrop process in which GBYTE, the native currency in the network, is distributed according to the user’s Bitcoin holdings. Recently GBYTE distribution has also begun to take place through cashback partnerships with participating merchants. Although it’s refreshing to see an ICO-less cryptocurrency, its distribution method is one of the least interesting aspects of Byteball.

In Byteball, there are no blocks. Instead, transactions are linked directly to each other and each transaction contains one or more hashes of previous transactions. The set of links between the transactions forms what is known as the DAG, as opposed to the “Blockchain” system used in Bitcoin and other cryptocurrencies.

There is no Proof of Work or Proof of Stake mining in Byteball. Instead of having subsequent blocks confirm previous ones, transactions are confirmed by new transactions that come after them.  But this kind of “confirmation” is only a confirmation that the transaction exists, not that it is not a double spend.  

So, how are double spends resolved?  In PoW currencies, the conflicts caused by double spends are resolved by selecting the version of block history that has the most work committed to it.  In Byteball, since it is DAG-based, there is already partial order among transactions. This allows most double spends to be caught and rejected immediately.

What if the double spends are on parallel branches of the DAG and their ordering is not evident?  Then, Byteball uses “Main Chain” – a chain on the DAG that goes through transactions posted by known trusted users called witnesses.  Of the two conflicting transactions, the one that appears earlier on the Main Chain is deemed valid.  Witnesses are selected by the users themselves, who list their preferred witnesses with each transaction they post.

Although there is still much to explain regarding Byteball and its DAG-based system, one thing becomes clear: This system is a viable alternative to Blockchain technology and can even solve some of the most prominent problems found in the technology, such as such as speed, sustainability, scalability, security, privacy and legal compliance.

If the system becomes widely used, transactions become frequent, ensuring that they can be confirmed in mere seconds, as opposed to the 10 minute wait in Bitcoin. As for sustainability, the witness system employed by Byteball offers a security model in which no Proof of Work mining is required, meaning that electricity is not mindlessly wasted in order to secure it. Since Byteball does not have blocks, there is no block size issue.

When compared with Ethereum, Byteball smart contracts are not as powerful and not Turing complete, but they are simple, allowing them to be displayed in user-readable form. This means that regular users can see what is actually going to happen to their money for themselves.  Prediction markets are already working based on these contracts, and a recently introduced manual oracle feature allows anyone without technical knowledge to run a prediction market.

As for privacy, other altcoins like Zcash and Dash have already come up with efficient ways of protecting user’s privacy. Nevertheless, it’s good to know that you can keep this privacy in a network that does not require long confirmation times or wasteful Proof of Work mining. Byteball allows value to be transferred privately through an asset called “blackbytes.”

Lastly, legal compliance is addressed by Byteball through its asset issuing system. The whitepaper reads:

“Users can issue new assets and define rules that govern their transferability. The rules can include spending restrictions such as a requirement for each transfer to be cosigned by the issuer of the asset, which is one way for financial institutions to comply with existing regulations.”

IOTA: The tangle

IOTA is a unique cryptocurrency. Although it also uses Directed Acyclic Graph (DAG) organizational model under the name “Tangle,” its implementation and applications differ wildly from Byteball. Designed specifically for the IoT (Internet of Things) industry, IOTA held a successful ICO in 2015, gathering 1,337 BTC and launched on Bitfinex earlier this year.

Apart from its distribution method, IOTA has several differences when compared to Byteball. For example, in IOTA, all transactions created must validate a minimum of two previous transactions. In order to do so, users (who create and validate transactions) must solve a cryptographic puzzle similar to those found in Proof of Work cryptocurrencies.

Furthermore, IOTA has no fees. Unlike Byteball, where GBYTE transaction fees are the same as the GB size of a transactions, IOTA charges no fees at all, regardless of the transaction size or amount. Instead, nodes are incentivized to participate in the creation and confirmation of transactions by other nodes who will drop nodes if they do not make transactions regularly.

The lack of fees solves two critical problems in the eyes of the IOTA developers. The whitepaper reads:

“The importance of micropayments will increase in the rapidly developing IoT industry, and paying a fee that is larger than the amount of value being transferred is not logical. Furthermore, it is not easy to get rid of fees in the Blockchain infrastructure since they serve as an incentive for the creators of blocks. This leads to another issue with existing cryptocurrency technology, namely the heterogeneous nature of the system. There are two distinct types of participants in the system, those who issue transactions, and those who approve transactions. The design of this system creates unavoidable discrimination of some participants, which in turn creates conflicts that make all elements spend resources on conflict resolution. The aforementioned issues justify a search for solutions essentially different from Blockchain technology, the basis for Bitcoin and many other cryptocurrencies.”

The lack of fees would normally create vectors for spam attacks on the network. In order to avoid this issue, IOTA employs a “weight” mechanism in which transactions are confirmed according to their weight. This weight is proportional to the amount of work that the issuing node invested into it. IOTA’s weight system ensures that spam is not feasible as no entity can generate an abundance of transactions with “acceptable” weights in a short period of time.

Despite the several differences between these two implementations of DAG-based cryptos, IOTA sets itself apart by its unique focus, the Internet of Things (IoT) industry. If you’re not familiar with the IoT, the concept involves a global network where devices like home appliances, cars and so on are able to communicate and exchange data, allowing them to be remotely monitored and even controlled.

IOTA’s goal is to allow value and data to be exchanged and transferred freely between these elements, allowing any IoT-enabled device, appliance, or vehicle to be used or rented in an efficient and trustless way. The data provided by devices can also be bought and sold through the IOTA network.

This concept allows the distributed economy movement to evolve in such a way that anyone will be able to make the most out of their belongings. In short, IOTA acts as a backbone for the exchange of value on the IoT paradigm in which devices produce value for their owner and not the other way around.

Conclusion

Will DAG-based cryptocurrencies replace Blockchain? It’s hard to tell. While there are evident advantages when it comes to these DAG systems, these are still far from being a popular alternative, and very few projects are working on it. Nevertheless, the projects that do seem to have earned their place in the cryptosphere, especially IOTA, a top-15 cryptocurrency by market capitalization.

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Crypto is Targeting Hospitality Giants

There has been a lot of activity in the cryptosphere regarding hotels and accomodation, with progress towards the creation of a new landscape of bookings and payments. Some commentators have suggested that hospitality could become crypto’s killer app. The $500 bln hospitality industry is an enticing prize for the many crypto projects looking to disrupt this space.

Among them a European Blockchain project endorsed by the former President of Bulgaria. It has an enticing customer value proposition for travelers and hoteliers ahead of its token pre-sale this week. Lockchain.co is aiming to decentralize the hospitality industry, completely cutting out the middleman by enabling customers and property owners to rely on the inherent benefits of Blockchain technology.

Considering that the global hotel industry was worth $494 bln last year, this will for sure grab the attention of crypto investors given the sheer size of the market and the number of transactions involved. On top of that, the nature of renting accommodation is tailor-made for a Blockchain solution, and as a result, several promising Blockchain projects are capitalizing on this.

The Lockchain team, headed by founders Nikola Alexandrov and Hristo Tenchev, reckon they have the innovative solution needed to really disrupt the hospitality space.

$500 bln problem: inefficient and non-transparent hotel marketplace

There is a good reason why holidays cost big bucks; from credit card fees to booking commissions to currency exchange charges, the whole set of transactions can incur significant costs. These hassles have always affected traveling and were worse until very recently; the likes of Airbnb, Booking.com and Expedia have made billions of dollars from eliminating inefficiencies and making information more accessible for travelers.

But Blockchain technology can take this a step further. Lockchain is one of the teams that want to make this a reality. Currently, customers and hoteliers can expect that anything up to 25 percent of the value of a transaction to go to middleman processors like search providers, booking platforms and financial service companies.

This is a huge cost for the supplier and the customer – the annual money going to middlemen (anything up to $125 bln annually) is almost as much as the entire market of all cryptocurrencies combined (approx. $150 bln).

Until now, this has been a necessary feature of the hotel industry. Centralized actors like banks and booking platforms provide security in a financial system where transactions are hard to securely verify in a timely manner, while information is scattered.

But these challenges are exactly what Blockchain technology is designed to solve. So the current marketplace (that requires credit cards to verify payments, booking platforms to verify and present reviews, and a central currency for transactions) has problems that shouldn’t exist in a Blockchain-powered world.

The reality is that the existing hotel marketplace has never had access to the component of crypto and Blockchain technology like double-spend-proof transactions, smart contracts, information immutability and low transaction fees.

Ecosystem as a solution: crypto-powered hospitality transactions

Lockchain looks set to leverage these features of cryptocurrency in their solution. The way that the Lockchain team plans to deploy the possibilities of Blockchain technology is through a ledger that lists all available accommodation, as well as pricing and transactions, accessed from a marketplace which property owners list their rooms on and customers can browse.

Their decentralized LOC ledger is the bookings engine and database which will hold all information about hotel listings, their availability and booking requirements. This ledger will operate solely with the LOC token.

This ledger will be open-source and built on the Ethereum VM and will be free for the public to access and use. With all the listings transparently available through the ledger, users, property owners and developers will be able to develop a range of applications on the Lockchain ledger to help customers find the ideal room easily.

Aside from the ledger, the Lockchain marketplace is built to provide the first functionality for the new ecosystem. The team has planned some interesting value-added features for the main marketplace, which should entice users.

This includes instant currency conversion in order to make sure that users are not dissuaded by booking exclusively in a new cryptocurrency. Also, to insulate the ecosystem against price fluctuations, a hedging model as (used in the financial industry) will use Buy and Sell calls to balance the transaction (which is then liquidated when the hotel withdraws its money).

And of course, the big draw of the marketplace will be the zero percent commission required to carry out the transaction. Lockchain will operate a freemium model, which means that the majority of users will be around 25 percent better off compared to the existing market channels.

This is the core of the ecosystem, and it is ready to launch soon. As founder Nikola Alexandrov explained:

“Our goal is to launch a decentralized engine in combination with a user-friendly marketplace which will be fully integrated to the engine as an immediate proof of concept. As of this moment, we have reached a preliminary agreement with travel industry hosts, that supply more than 7,000 properties worldwide.”

To that statement Hristo Tenchev adds the next ambitious goal:

“We aim to give users the opportunity to immediately use their tokens to book properties even during the pre-sale and the main event.”

This should sit well with investors since a criticism of many ICOs is their lengthy wait times before any product actually launches. Also of note is the relatively straightforward problem they’re solving: unlike other Blockchain projects there is less of a leap of faith involved since the online marketplace for hotels does not need to be created, it just needs to be moved to a new ecosystem.

The team behind Lockchain

As mentioned, one of the more interesting aspects of the project is that it has the participation of the former President of Bulgaria, Rosen Plevneliev. Both he and the founders have a strong technical competence, being trained software engineers. The founders have experience and projects under their belts in the crypto world specifically, having founded one of the first Bitcoin exchanges, Bitcoin7.com, way back in 2011, which at one point was the third largest exchange in the world per trade volume.

It is a pretty developed team outside these members, with over 150 contributors (including a Member of the European Parliament) and is fortuitously based in an EU capital (Sofia) that has developed as a tech hub in recent years. The team hopes that being based in an EU country (unlike many ICOs which have opted for offshore locations) will bolster investor trust.

Pre-sale announced for September 29

The team has stated their goal is to create a sustainable and realistic ICO, and 25 percent of the tokens will be allocated to the team as a whole, of which a quarter (6.25 percent) will go to the founders. Another 25 percent will be set aside for future development, meaning that investors have the opportunity to buy 50 percent of the token during the ICO. It will use Ethereum as the payment method, and the token presale starts on Sept. 29.

The future of hotels

Whoever gets user traction with a Blockchain-based solution stands to gain an immense initial market share considering the publicity that crypto is getting in the press now. Other industries like finance have already adopted Blockchain wholesale, but a winner-takes-all-effect is likely to be most present in other industries.

Whoever this winner is, they stand to make a lot of money.

– Eoghan Gannon, Guest Author

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