Bitcoin is not only the oldest cryptocurrency, but still the undisputed number one among them when it comes to market capitalization. Almost 70% of the total value of all existing cryptocurrencies is in Bitcoin. Nevertheless, the world’s first blockchain is struggling with problems. Huge energy consumption, scaling problems and the question of how to proceed when the block reward goes towards zero.
Recent projects are trying to address the core problem of Bitcoin, the consensus mechanism Proof-of-Work. Among the best known alternative consensus mechanisms are Proof-of-Stake, a variation of it, delegated Proof-of-Stake, or even alternative database structures such as the Directed Acyclic Graph (DAG).
At the PoS, the component, which is represented by the energy consumed by the computing power during PoW, takes over the credit of the block producers. Analogous to hash power, the probability of being allowed to produce a block increases with the amount of coins owned. Although it is costly to secure a portion of the network because the coins cost money, this consumes much less energy.
Known projects implementing PoS are Algorand, Cardano or probably soon Ethereum 2.0, although the Proof-of-Stake itself still contains some problems for which there are different solutions. The projects mentioned support all Smart Contracts and are therefore superior to Bitcoin in terms of flexibility. Whether they really have the potential to knock Bitcoin from its throne will have to be shown in the next few years.
Delegated Proof-of-Stake (dPoS)
DPoS is very similar to PoS. The big difference is that not every stakeholder operates a node, but delegates the power represented by the number of its tokens. The nodes that receive the most votes take over the task of block dispatching or verification.
This model allows high scalability at the expense of executive decentralization. Known projects implementing this consensus mechanism are EOS, Tezos, Tron, Nano, Lisk, Ark. Delegated Proof-of-Stake solves some problems of PoS, but also shares the more serious ones. Crypto exchanges that do not really own the coins, for example, have great influence. It also remains to be seen how dangerous dPoS projects can be for Bitcoin.
With DAGs more than just the consensus mechanism changes. The whole database structure is fundamentally different from a blockchain. There are no longer connected blocks, but the transactions are directly chained to each other. The block limitation is omitted and the task of confirming is performed by many nodes simultaneously. Theoretically, a high degree of scaling is thus possible.
Theoretically, because the DAGs also suffer from serious problems which are currently being solved. Also for DAGs there are different approaches in the implementation. Among the best known DAG projects are IOTA or Fantom.
The ambitions of these projects are high. Whether it is enough to get to Bitcoin cannot yet be said. Time will show.
There are several promising technologies that solve Bitcoin’s problems, at least in theory. However, technology alone is not responsible for a large market capitalization. It can be assumed that the vast majority of investors have relatively little knowledge of this. What counts most is the reputation and network effect, in which Bitcoin is clearly ahead. It is almost impossible to say now what will replace Bitcoin. It is more likely that there will be no such thing in the near future.
An important question is, is it absolutely necessary to outperform the market capitalization of Bitcoin? Each blockchain has its advantages and disadvantages, so what is to be said against Bitcoin as digital gold remaining the most valuable cryptocurrency for the next few years? If the whole market rises, the investor may be indifferent in the end.
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