Functions of Smart Contracts
There are four primary functions of Smart Contracts:
- They act as software libraries by providing certain functions to other contracts.
- Smart contracts manage ongoing contract relationships between several users. Some examples are insurance, escrow, subscriptions and other financial contracts.
- They hold and maintain data that other contracts or members of the outside world can use. For example, a smart contract may hold the protocol for a currency, membership data for certain organizations, and updated company lists.
- They act as forwarding contracts which make an access procedure more complicated by introducing additional measures. These measures usually involve sending an incoming message to a specific destination after preset conditions are met.
One example is the case of multiple ownership of a particular asset. A contract may wait until a certain number of owners have signed a message with their private keys before sending the message to others. Another example is an extra account authentication process or a contract that allows users to override a transaction limit by presenting a complicated procedure.
Gas
Each program run on the nodes of the Ethereum blockchain uses an exact amount of processing power. To conserve power and maintain the integrity of the system, it's imperative to avoid any unnecessary activity. To regulate activity, all Ethereum programs are given a cost in gas for them to run. Gas is a measure of processing power per program in Ether. As the processing power increases, so will the amount of Ether needed to keep its contracts running.
Social Layer
After implementing a data storage layer, and smart contract, application social constructs can be stacked on them. This is the area that users directly interact with. It contains content such as usernames, payment information, and subscription history. Depending on the application, decentralized payment platforms such as OPEN API can be added to the mix.
Together, these layers comprise the backbone of DApps. Currently, several applications exist, stretching across different industries. Some notable DApps are OmiseGo, a payment platform that uses smart contracts to offer global banking services without the need for a bank account. Another is Cryptokitties, a collectibles app making waves, especially in the art industry.
How to Use Ethereum
To a beginner, the idea of using Ethereum and its associated applications may seem intimidating. However, it's quite straightforward once the system becomes familiar. Ethereum has proven to be versatile, and there are different ways in which it can be used.
Ethereum Exchange and Storage
Like other cryptocurrencies including BTC, ETH has an exchange rate against other digital currencies and fiat currencies including the US dollar. This means that it's set at a constantly fluctuating price that is affected by market forces of supply and demand.
Due to this property, Ether can be used as a store of value which can either increase and yield profits or decrease and lead to losses. Although ETH is the second largest cryptocurrency, the ETH price (currently trading at $500) is nowhere near that of BTC ($6,500). Despite this price gap, it's possible to make a profit by buying Ethereum when the price is low and selling when high.
To store and exchange Ethereum, users must have a secure ETH wallet. Apart from storing a user’s balance, it will store private keys as well. These wallets come in the same form as Bitcoin wallets - web-based, mobile, desktop, and hardware.
It’s important to note that while the use of a wallet conveniently eliminates third-party exchanges, there is also a huge disadvantage. In the event of the loss of a private key, there is no chance of recovery and all the Ether in that wallet will be lost. Depending on the amount of Ether in a wallet, this incident can be disastrous to the user.
How to Buy Ether
To buy Ether, users can either physically locate people willing to trade or use exchanges. Exchanges help users buy ETH by matching them with other users willing to sell. Typically, on these exchanges, a user will be expected to sign up and enter any relevant details. Users may also have to exchange their traditional currency for BTC then exchange BTC for ETH because Bitcoin is more popular and it’s easier to find people willing to sell.
Why invest in Ethereum?
Considering the size, popularity and myriad use cases of Ethereum, there are several good reasons to invest in the cryptocurrency and a couple of solid reasons not to. 1 ETH is currently worth about $500, a considerable drop from $1,200 in January 2017. In investing, six months is enough for drastic changes to occur. If the price can fall to this level due to market volatility, a user may ask: so why should I invest in Ethereum?
The answer is simple: there is profit to be made as well. Before ETH price tanked to what it is now, it experienced a steady rise from a mere $7 in January 2017 to over $1,400 in December. So if a user had 100 ETH valued at $700 in January, the same amount of ETH would have been worth $140,000, a jaw-dropping 10,000% increase. When compared to Bitcoin which despite a peak price of almost $20,000 in the same year only saw a 1,500% increase, Ethereum is the more profitable option.
Factors That Influence ETH Price Increase
While the cryptocurrency market may seem random in its fluctuations, there are underlying factors that cause these price changes. Some of these factors have been cited continuously by various industry experts and enthusiasts in their predictions for the future of Ethereum
1. Increased Creation and Investment in Decentralized Applications
A good reason to invest in Ethereum is the predicted popularity of the DApps that run on it. Depending on how useful and mainstream DApps become, the price of ETH could skyrocket. This is because although each application has its crypto token associated with it, users have to exchange Ether for these tokens. All it may take is an app with the decentralized functionality of PayPal, DHL or even Pokémon Go to set a price rise in motion.
This is backed by Steven Nerayoff, the co-founder of Ethereum. On the talk show “Fast Money,” he commented that because of the amount of money being poured into the ecosystem and the apps being built, Ethereum might well surpass Bitcoin. According to him, Ethereum is currently seeing exponential growth in application projects with billions of dollars being poured into them. There are currently ten times more projects on Ethereum than there was last year and this may lead to a 2x or 3x ETH price increase by December.
In a recent Fortune interview, Alex Ohanian, the co-founder of Reddit, predicted that the price of Ether would skyrocket to $1,500 before the end of the year. He owed this prediction to the current applications on the platform and the popularity of DApps like Cryptokitties, an app which lets users buy and breed digital cats. The application recently raised $12 million in funding and has paved the way for several huge investments into other applications.
2. Mainstream Use of Smart Contracts
Increased use of smart contracts built on the Ethereum platform can also influence the ETH price positively. The more users adopt smart contracts for everyday transactions including subscriptions, escrow, and even insurance, the more Ether will be spent. As smart contract usage becomes more popular, there will be more need to buy ETH to fund more smart contracts and pay “Gas.”
3. Increased Public Adoption
Ethereum usership continues to grow as there are currently 36.5 million unique addresses with about 65,000 new addresses added each day. While this may not outrightly prove that the ETH price will rise, it presents a possibility. There have also been several predictions flying about from anywhere between ETH hitting $1,000 to $20,000 in 2018.
Nigel Green, the CEO of deVere Group, made an Ethereum prediction in an interview for Marketwatch, published on April 27, 2018. Green predicts that the price of ETH may reach $2,500 by December 2018 and continue its rise through 2019 and 2020.
Olaf Wee-Carlson, the CEO of Polychain Capital, stated recently that the applications of Ethereum could be likened to Sci-fi. According to Carlson, Ethereum and its interesting applications are beyond reasonable imagination, and he would like to see how the technology progresses.
4. Adoption of Decentralized File Storage by Large Corporations
The creation of data globally continues to increase, prompting the need for reliable data storage methods. Humans are currently creating data at an alarming rate. According to a recent report by the International Data Center, digital data will have a compound annual growth rate of 42% through to 2020. In fact, data growth between 2010-2020 will be 50 times what it was before 2010. IBM has also reported that every day, about 2.5 exabytes (quintillion or 2.5 x 10^21 bytes) of data is created by humans.
These are mind-boggling figures that present a need to store data in a way that it cannot be taken down or lost by a single centralized server. This was the case of the popular Geocities sites taken down by Yahoo. If the data from the sites had been stored on a decentralized platform, it would have been preserved. This is where decentralized file storage clients like Storj and IPFS come in.
These storage clients are slowly being adopted by individuals and corporations and may soon become mainstream. Storj reported that the platform already has about 20,000 users. SIA, another storage platform was valued at $250 million in 2017. When large corporations adopt the use of applications like these, the influx of Ether into the system can immensely impact its price. The more people buy ETH, the more its price will increase.
Factors That Influence ETH Price Decrease
Just as there are factors that increase the price of ETH, they're other negative factors that any Ethereum investor should be wary of. The damage done by these factors will largely depend on their frequency and progression. It’s important to consider a group of probabilistic outcomes of these events along with combinations of the good and bad factors to aid decision-making.
1. Mining
Mining profitability is a huge contributor to the rise and especially the fall of the ETH price. The higher the price of ETH, the more miners are attracted to mine it. The more they mine, the more transactions can occur. For a miner to be incentivized, the profit obtained from mining Ethereum would have to offset the cost of mining by far.
When the price of ETH is high, compared to what it once was, mining profitability increases and miners sell their Ether. When the price is low, it's the other way around, miners hold onto their Ether, increasing the demand and in turn the price.
2. Regulations
The cryptocurrency market has gone wildly unregulated for a long time. This lack of regulation has caused the occurrence of several incidents, which would be illegal in any other markets to occur. Incidents like the case of BitConnect, pump and dump schemes, the case of MtGox and the Modern Tech ICO are some examples.
However, some countries have decided to crack down on cryptocurrency trade by putting several regulations in place to limit and even ban some aspects of cryptocurrency trading. One example is the ICO ban by China. While these regulations serve to limit scams and money loss, some of them have negatively affected the prices of certain cryptocurrencies including Ethereum.
It’s no surprise that the platform may stand to lose the most from regulations due to its unique functionality of having applications built on it. These regulations stand to limit the way users interact with DApps, smart contracts, and Ether as a whole.
In May 2018, Ethereum experienced a 6% decline when the Wall Street Journal announced that it had come under the SEC’s regulatory scrutiny. When the SEC declared both Ethereum and Bitcoin as non-securities in June 2018, the market saw a huge boost. One appeal of cryptocurrency is that it's not policed by any government. If that changes, there’s no telling what disastrous effects it will have on the value of the coin.
Who Accepts Ethereum?
Currently, Ethereum is accepted by a few businesses to fund their decentralized applications. It’s also accepted on most major exchanges because users constantly buy and sell their Ether. As the platform expands and more individuals and businesses create and use DApps and smart contracts, acceptance of ETH will become more mainstream. Here is a list of some small businesses that currently accept Ethereum.
- Cryptopets- A pet supply service that allows users to pay for supply and delivery using ETH
- Overstock- A home improvement retailer
- Flokinet- A Scandinavian web hosting company
- Tapjets- One of the largest private jet rentals in the U.S
- Snel- A popular VPS hosting service
Larger businesses can be found in the Enterprise Ethereum Alliance. The alliance consists of large companies that have decided to embrace Ethereum for different applications. Some members include Mastercard, Hewlett Packard, Microsoft, and J.P.Morgan.
Ethereum Supply
The annual supply of ETH through minting (formerly mining) is capped at 18 million independent of the Ethereum exchange rate. While this may seem like an inflation problem waiting to happen, the Ethereum team has worked out why that’s not the case.
A certain percentage of Ether is lost annually through theft, lost private keys or even death. As Ethereum scales and becomes more economically acceptable, 18 million ETH will no longer seem like such a huge annual cap.
Eventually, the amount of Ether lost per year will match the amount minted and the system will remain balanced. When new blocks are minted, block rewards are paid out to the nodes responsible for minting. Those who receive the rewards sell them, depending on the ETH price, allowing more Ether to circulate. This influences the Ethereum exchange rate.
Ethereum News
Ethereum has constantly been in the news since its release for several reasons, including updates and significant changes. Here are some relevant stories from current Ethereum blockchain news.
- In May 2018 - Vitalik Buterin Endorsed Liquidity network, a trustless payment service that will operate like PayPal. The project seeks to solve the scalability issues of blockchain starting with Ethereum.
- In June 2018 - Vitalik Buterin, the founder of Ethereum stated that the platform would soon be able to process up to 1 million transactions every second. The Ethereum community is looking into different solutions, including sharding, to combat the problem of transaction speed.
What is Litecoin?
Litecoin is a peer-based cryptocurrency that was created to address some of the issues associated with the Bitcoin blockchain. These issues include transaction confirmation speed, scalability, mining process, and transaction fees. It was created by Charlie Lee, a Google developer at the time.
Lee was unimpressed with the wait time of 10 minutes or more that users have to endure when using Bitcoin. He set about working on his cryptocurrency by copying the Bitcoin open source software and making changes to it. In October 2011, Litecoin was released, and by November 2013, it had reached a market cap of $1 billion.
Litecoin is currently the sixth largest cryptocurrency by market cap after Bitcoin, Ethereum, Ripple, Bitcoin cash, and EOS. The value of its market cap currently lies at approximately $5.7 billion and its price is currently about $100, with a peak price of $375.29 in December 2017.
How does Litecoin Work?
Litecoin operates using blockchain technology, just like Bitcoin. While Litecoin is a separate entity from Bitcoin, the two cryptocurrencies work in very similar ways. However, their differences also play a significant role in the progression of Litecoin.
Differences between Bitcoin and Litecoin explained
Initially, Litecoin was mainly created to solve the problem of transaction speed. On the Bitcoin blockchain, it takes roughly 10 minutes for miners to add a new block to the blockchain. Transactions on the platform cannot be confirmed without this mining process and in cases where there are any mining problems, users may have to endure an even longer wait time.
Litecoin, on the other hand, has a transaction speed of 2.5 minutes, which is better for several reasons. Firstly, merchants can now transact freely in four times the amount of time it would take with Bitcoin. Frequent micropayments can also be achieved using Litecoin because if one transaction takes 2.5 minutes then, theoretically, each person would be able to carry out over 500 transactions each day.
The transaction speed is also great for miners. Where Bitcoin mining power is controlled by a concentrated batch of people, Litecoin mining is more decentralized. Theoretically, the fast block confirmation time allows more miners to mine blocks and receive rewards. This leads to a better distribution of rewards.
Another difference between Bitcoin vs Litecoin is that while the former will only have 21 million tokens in existence, the latter will have 84 million. Due to the transaction confirmation time of 2.5 minutes, Litecoin blocks get mined four times faster than Bitcoin.
To make up for the speed and ensure the gradual progression of the system, the total supply of LTC is capped at four times that of BTC. Litecoin also has lower transaction fees than Bitcoin, making it easier to carry out several transactions on its blockchain. The average transaction fee is $0.108 with a median fee of $0.036.
Litecoin Blockchain
The Litecoin blockchain is a decentralized ledger just like that of Bitcoin and uses the proof-of-work system for mining new blocks. However, there are some fundamental differences in the Litecoin block explorer as well as the block mining process. First of all, while Bitcoin uses the SHA-256 hashing algorithm in its mining process, Litecoin uses Scrypt. This was an intentional move by Lee to make LTC mining a more decentralized process.
In Bitcoin mining, large devices known as ASIC can run code that solves mathematical puzzles at the same time. While ASIC provides immense computational power, it can be expensive, and for this reason, average individuals cannot mine BTC. Scrypt, on the other hand, is more serialized than SHA-256.
Running parallel operations will take up a vast amount of memory, so miners run them one after the other. This means that anyone with access to memory in the form of a memory card can mine LTC, ultimately making the process more decentralized.
The first mined block on Litecoin had a block reward of 50 LTC. This mining reward will be halved every 840,000 blocks. Transactions on the blockchain can be viewed using BlockChair, the Litecoin blockchain explorer.
Why Invest in Litecoin?
The growth pattern of LTC has shown that investment in the cryptocurrency is better over a long-term period. While there is no assurance of a fast increase in LTC price any time soon, its community remains unfazed. LTC price predictions continue to flood the internet with varying opinions. In January 2017, 1 LTC had a value of $4, and by December of the same year, it had risen by more than 9,000% to a peak price of $375.29.
If a user had invested $5,000 in Litecoin in January 2017, then by December 2017, it would have increased to $469,112 at peak price. While this may sound like enough reason to pour money into Litecoin, it should be kept in mind that losses can occur as well. Users who bought LTC at a triple-digit price are currently facing those losses as LTC drops below $100 in what has been termed a “market correction.”
According to analysts and blockchain enthusiasts, the rapid drop in Litecoin price may signify an impending price explosion. If that is the case, then it would be reasonable to buy low and hold for a long time (maybe years). Even though the cryptocurrency is nowhere near Bitcoin in price, it continues to be a boon to investors.
Who accepts Litecoin
Litecoin isn’t as big as Bitcoin and Ethereum, so its adoption has been happening at a much slower pace. As the cryptocurrency gains more traction, its adoption as a means of payment is expected to grow as well. There are currently a few places that accept LTC.
- Benz and Beemer- An auto dealership
- eGifter- A New York-based gifting service
- Alza.cz- An online retailer
Litecoin Supply
Litecoin supply is received from the continuous release of LTC in the same way as Bitcoin. The currency has a current block reward of 25 LTC plus transaction fees which miners may choose to sell on the market. An increased Litecoin supply always pushes its price down and vice versa.
Litecoin News
Litecoin has also continued to make news headlines with its key updates. Here are a few relevant Litecoin blockchain news snippets.
- Dark web users have decided to drop Bitcoin as a form of payment because of the slow transaction speeds and other issues they’ve had to endure.
- December 2017- Charlie Lee, Litecoin founder, sells all his LTC in what many are calling a conflict of interest.
Now let's compare the basics of all three cryptocurrencies.
Bitcoin vs Ethereum vs Litecoin: Basics
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Bitcoin vs. Ethereum vs. Litecoin: Pricing**
Whether a user is new to cryptocurrency or not, the whole exchange process can be very confusing. There are a lot of questions, such as Ethereum pass Bitcoin? Is Ethereum better than Bitcoin? How do you even go about exchanges? And, can you exchange one cryptocurrency for another like maybe Bitcoin for Litecoin and vice versa? Apart from questions like these, there are other technicalities like market analysis and coin-watching.
The best way to go about unbundling blockchain is by studying the facts and taking little steps. For pricing, the facts are simple when comparing Bitcoin vs Ethereum. The former had a price growth of about 1,000% while the latter grew by about 10,000%. Despite having a higher overall price, the figures show that Bitcoin may not be as good for investment as Ethereum. As for Bitcoin vs Litecoin, the same trend appears where the smaller cryptocurrency had a better price growth than Bitcoin.
Figuring out which of the cryptocurrencies is better will depend on the user’s preference. All three coins have shown potential to revolutionize investing in their different ways. However, one thing is clear: they all seem to yield better results from long-term investment. These days, anyone can make a Litecoin, Bitcoin or Ethereum price prediction. It’s important to weed out the ones that don’t show any true logic behind them before using them as an investment guideline.
Price-monitoring can be done on sites like Coinmarketcap to see the rise and fall of both the prices and a market cap of different coins. Exchanges like Binance also show current prices and allow users to exchange one cryptocurrency for another. It’s possible to exchange Bitcoin for Ethereum, Bitcoin for Litecoin and so on.
Bitcoin vs. Ethereum vs. Litecoin: Wallets
All three cryptocurrencies use similar wallets. Mobile, desktop, web and hardware wallets are acceptable on their platforms. The safest option is hardware wallets because they're offline and can’t be hacked. Such wallets can be stored in a safety deposit box or even a vault at home depending on the value of their contents.
Bitcoin vs. Ethereum vs. Litecoin: Mining
For those looking to understand and perform cryptocurrency mining, there are significant differences between the way Bitcoin, Ether and Litecoin are mined. Bitcoin mining uses the SHA-256 hashing method to ensure that miners solve a challenging puzzle. They show a solution known as the proof-of-work and add new blocks to the blockchain after. The current block reward is about 12.5 BTC valued at almost $83,000.
Ethereum, on the other hand, switched from the proof-of-work to the proof-of-stake method in which new blocks are minted, not mined. In proof-of-stake, a node puts up an amount of its personal Ether as a stake. The node with the highest stake is chosen to validate the next block. Validators bet on blocks to show that they don’t have any malicious transactions on them. If a malicious block is validated, the validators lose their stake. However, if the block isn’t malicious, then the validator gets a reward proportional to their bet.
Litecoin mining also involves the proof-of-work protocol like Bitcoin. However, Scrypt is used in place of SHA-256 to mitigate the problems associated with mining centralization and energy use. Scrypt allows any user with access to extra memory to become a miner without buying expensive ASIC devices like Bitcoin miners. The current Litecoin block reward is 25 LTC valued at about $2,500 at the time of writing.
Final Thoughts
Cryptocurrency is relatively new and is still being studied and continuously improved upon. Market experiments are still occurring, and businesses continue to find new ways to accept blockchain technology. This is evident in the fast growth of platforms like Ethereum, the Enterprise Ethereum Alliance and recent partnerships like that of sites like Pornhub and Verge cryptocurrency.
While this may sound exciting, investors should not get too carried away as there are many ways to lose money in crypto investing. Research the market and how it constantly changes while leaving room for unpredictable outcomes. Although the field of cryptocurrency is still quite young, Bitcoin, Ethereum, and Litecoin have earned their places as giants that continue to drive innovation in one way or the other.