One of my favorite parts of being a founder in the decentralized applications space is working with newfound entrepreneurs who have big ideas and no fear. Whether at conferences, meet-ups, hackathons or elsewhere, I always try to take the time to answer any questions they have. Conversations usually focus on hiring, competition and product development — and of course the process of executing a token sale. The question people should be asking is, “Which blockchain should I use for my token or platform?”
Choosing the right blockchain extends far beyond what is the “cool” blockchain at the time. I have compiled a list of points that companies should consider when determining which blockchain they will utilize for their project. This list is by no means comprehensive — especially in this rapidly changing industry — but these are the things we considered when we did our first token sale in 2014 on the Counterparty blockchain and our second token sale last summer when we migrated to the Ethereum blockchain.
An active community of developers to sustain long-term growth
A growing and active community is critical to ensuring the blockchain you are betting on can sustain itself long-term. Even if you’re only choosing a blockchain to process payments, nothing can bring your project to its knees faster than development on your blockchain stalling out because of dwindling support from the community and developers. Especially where this industry is still very young, and there is much innovation waiting to be uncovered, an active community is critical.
The community extends beyond token holders. It’s also the other companies building on the blockchain under consideration. Just as if you are thinking about moving into a new neighborhood, meeting your potential new neighbors is a good idea to get more information about the area.
When we did our initial token sale on the Counterparty blockchain in 2014, the industry didn’t have much history to go off of. This was about the same time Ethereum was getting started. During the next few years, the Counterparty project lost momentum and we realized we needed to look at other options, ultimately migrating our token to Ethereum in 2017.
Ability to protect against attacks
Security is sort of a given when it comes to choosing a blockchain. It should be expected, but any list would be amiss if it didn’t address the topic. And in light of the recent 51% attacks on several blockchains, it’s good to always keep security top of mind. A large hashpower is very important, but it’s also good to look at the hashing algorithm — do they have some strategy to protect against attacks — especially if they are a smaller blockchain.
Many of these newer blockchains with small — but growing — communities are taking unique approaches to ensure they protect against potential attacks. For example, a new approach is to chain several hashing algorithms into one blockchain, so after each block is settled, the next algorithm utilized is randomly determined by the makeup of the block before. This approach may ensure ASIC resistance, however, many coins have claimed to be ASIC resistant for years, and almost all have failed to achieve this goal.
A good approach is to consider, “What would it take for the blockchain to fail and what would I do if that occured?”
Broad ecosystem support that enables programmability and automation
Going beyond developers, your blockchain should function as a decentralized ecosystem on which other companies can build integrations, provide automation tools and enable programmability. This includes organizations like Parity and Zeppelin that simplify many of the processes and create tools for companies building on these blockchains. Anything you can do to accelerate your development cycle will greatly help you improve and iterate on your product. Features like smart contracts will allow you to enable automation within your platform, providing payments automatically for services rendered on your decentralized application. And let us not forget wallet and exchange support — if your community doesn’t have a place to store and exchange their tokens, it will be difficult to attract new users.
A path to scalability
Even the fastest blockchains still have a long way to go to reach mass adoption in terms of scalability. For example, our team at Storj recently deployed 180,000 payments to our community of farmers. At the peak of those transactions, we noticed our payments made up 7% of total transactions on the Ethereum blockchain. The fact that the Ethereum community was able to achieve this scalability it has is remarkable, but even it has a long way to go. Meanwhile, Bitcoin can only run about 200,000 transactions on a good day — a long way to go to come close to the 150M transactions Visa processes daily. Over the next few years, I’m confident some blockchains will get to the point they can handle 1 million daily transactions.
When you consider scalability, it’s important to consider blocktimes, cost per transaction and transactions per block. If you’re creating a decentralized application for cat pictures, but your blockchain can only transact 7–10 cat pictures a second, you’ll probably run into issues pretty quickly. Or if you’re processing thousands of transactions an hour, but transaction fees are measured dollars instead of cents, you’ll quickly run into scaling issues due to costs. If you’re trying to store data on a blockchain, but blocktimes are several seconds apart, your platform will never see mass adoption. This is actually the reason that our team at Storj Labs has currently chosen to forgo storing data on a blockchain early on. At some point, with a technology breakthrough, it may make more sense, but where latency in the cloud storage industry is currently measured in milliseconds, and the fastest blockchains have blocktimes in seconds, it’s not currently feasible.
Part of evaluating scalability includes evaluating the blockchain’s layer-two solution. Raiden and Lightning network solutions are nearing deployment, which will greatly help the Ethereum and Bitcoin networks improve scalability.
No one blockchain to rule them all
It may come across as though I think Ethereum is the magic bullet blockchain, however it’s merely that Ethereum was the right platform for us. When we migrated to Ethereum, it was because we liked the vast community, the low transaction costs and the programmability of smart contracts. Keep in mind that many blockchains have very unique differentiators. Some are better at storing non-cryptocurrency values, others are better for high volume of transactions. As you weigh out the questions above, it should become clear which one is the best fit for the platform you aim to build.