Ever since Vitalik Buterin, Ethereum´s creator, began to publicly speak about a possible switch from Ethereum´s original Proof of Work (PoW) protocol to the more recent Proof of Stake (PoS) consensus algorithm, PoS became a hot topic of conversation in the cryptoworld. Arguments from both advocates and opposers have flooded the news since then. Here at Pool of Stake, we believe that the benefits of Proof of Stake are far greater than the costs, and that PoS is the future. The energy cost efficiency of Proof of Stake is indisputable, the risk of a 51% attack by a monopolistic miner is eliminated, and its stake-based nature foments participation in the network and makes attacks very costly.
The first coin to implement Proof of Stake was Peercoin, but not in its entirety. Peercoin developed a hybrid Proof of Stake and Proof of Work system that reduced the risk of an attack from a monopoly mining share and became more energy efficient. Still, Peercoin is considered as the project that opened the door for what was to come. There are several projects that are credited as the first pure Proof of Stake systems, but given that many of those no longer exist, we will consider Nxt as the first successful pure PoS system, launched in November 2013. That paved the way for scores of pure Proof of Stake projects, like Blackcoin, Bitshares (the first dPoS project), Qtum, PIVX, Lisk, and many more.
We all like having our opinions confirmed, but this leads us to bias. It is hard to predict objectively which will be the next big blockchain project. In order to sustain our argument regarding the relevance and advance of Proof of Stake Blockchains, we will analyze how many and which Proof of Stakeprojects had a Market Capitalization (market cap) in the top 20 positions listed on Coinmarketcap during 2017. The information will be taken from Coinmarketcap´s Historical Snapshot section. We will start with data from the 1st of January 2017, then we will analyze data at the end of every quarter of that year, and we will conclude with the current market cap data.
Why are we choosing market cap instead of any other metric? Market capitalization can give us a good idea of the level of adoption of a specific product. Market cap is calculated by multiplying a project´s circulating supply times the current price. In more simple terms, market cap tells us the amount of fiat money invested into a specific token. The higher the market cap, the more people are either using the project or investing in it. We didn‘t choose price since it does not reflect the adoption of a project. If a project has a very small circulating supply, price requires less buying in order to increase. As an example, we can compare the current prices and market caps of Monero (XMR) and Ripple (XRP).
The table above makes the point clear. Monero´s price, currently at $186,58, is 34,977.61 % higher than Ripple´s current price at $0,533427. Why is Ripple´s market cap still 703.1% higher than that of Monero when they have such a huge price difference? The answer lies in adoption. Ripple´s huge circulating supply keeps the price low, yet so many people have bought into Ripple that it’s circulating supply times the current price (market cap, as you already know) is slightly more than 7 times what Monero´s is. Please don’t interpret this as Ripple propaganda, we are not the biggest fans of the project since the main team holds a huge share of the XRP supply and the project is very centralized. Besides these issues, Ripple is still the 3rd most adopted crypto. As previously argued, market cap can give us a clear snapshot of a project´s adoption. We will now time-travel to the glorious days of affordable Bitcoin and almost-for-free Ether to analyze the adoption of Proof of Stake coins.
It can be hard to remember the price of Bitcoin under $1,000.00, but these were the days. Even though some Proof of Stake coins had already made it to the list in previous years, in this not-so-far-ago selection we can note a dominance of PoW projects on the top 20. Only three PoS projects made it to the list: Waves, Lisk, and E-Dinar Coin. Let’s analyze them in a small table now.
It is hard to reach any conclusion based on this data, given that at this stage we have no points of comparison. What we can see so far is that the list is clearly dominated by PoW coins, with only 3 Proof of Stake projects reaching the top 20, out of which only one is pure PoS. Let’s continue to see how the adoption of these projects evolved.
I like to refer to this period as the beginning of the Ether boom. People around the world started to realize its potential, and its price skyrocketed 618% since the beginning of 2017. Bitcoin was still under $1,000. In the Proof of Stake realm, things didn’t look very clear, with e-Dinar Coin tanking to #70 and only two projects reaching the top 20: Waves and PIVX.
This first quarter can give the impression that Proof of Stake coins were slowly fading away, however this was not the case. It is a Wall Street tradition to say that the way January goes is the way the whole year will go. Fortunately that is not the case in crypto, as we will see in this article. It is also worth noting that several PoS coins started to climb up. Lisk was at #22, and Bitshares, Nxt, Peercoin, and Emercoin were sitting solidly on the 30s.
At this point, the boom had begun… Bitcoin had smashed its all time high and reached $2,616, Ether was still mooning, and cryptocurrencies started being covered by mainstream media more than ever before. Proof of Stake projects also saw a clear rise, and finally made it to the top 10, taking two positions there. The Proof of Stake projects comprising the top 20 were BitShares, Straits, and again Waves.
This quarter is where we start seeing a Proof of Stake trend forming. As previously mentioned, we have two projects that reach the top 10. Besides that, we see Waves rising and several PoS projects with market caps in the top 30. To make things better, market caps are now worth hundreds of millions of USD, a notable increase from the previous numbers around 30 million.
The sky seemed to be the limit at this point. Even though Ether cooled down for a moment, Bitcoin adds 20 Billion USD to its market cap in this period. We also had the Bitcoin Cash fork, adding a new player in the top 3. Proof of Stake coins boom in this quarter. When it comes to ranking, Proof of Stake projects are no longer holding places on the top 10, but market caps have increased dramatically, and we now have seven PoS projects in the top 20.
Again, we can see the increased interest in this quarter. Even though some of our contenders fell in rank, never before had there been so many Proof of Stake projects in the top 20 ranks of Coinmarketcap. The market caps themselves also show large numbers, with NEO nearing the 1 Billion USD market cap. NEO is also one the first of a new wave of tokens, dubbed the “Ethereum Killers”, to reach the top 20.
The golden winter arrives. Everyone is talking about crypto and blockchain, to the point that even taxi drivers are giving Bitcoin investment tips, or at least pretend to know what they are talking about. There are two Proof of Stake projects less on the top 20 this time, but it is still better than last quarter. Why? Because Cardano reached #5, and all the others have market caps of over 2 Billion USD.
December 2017 was a tremendous month for the cryptoworld. There was a strong tailwind on anything that had to do with Blockchain, Proof of Stakeincluded. The 18 Billion dollar market cap of Cardano is a solid proof. Even though we saw some names off from the top 20, the market caps of PoS coins in these ranks always exceeded 2 Billion USD. We can also see a strong interest in the previously mentioned “Ethereum Killers”. When it comes to Proof of Stake “Ethereum Killers”, EOS, Cardano, and NEO are the ones bearing the title. We shall see how they perform this year.
Proof of Stake in the Present Time
The first quarter of 2018 has been a rough year for crypto. Hundreds of Billions of USD in market cap have been wiped out by steep declines. All altcoins have been dragged by Bitcoin´s drop. This has caused many investors to reconsider the true use-value of different projects, which has led to an increase of Proof of Stake projects in the top 10, and confirms the upward trend in PoS adoption.
The aforementioned “Ethereum Killers” are sitting on the top of our Proof of Stake selection. Market Caps have been reduced dramatically, but that occured in the whole crypto ecosystem. Besides this drop, investors seem to have realized the benefits of PoS, especially in terms of efficiency and scalability. EOS, Cardano, and NEO will be holding strong ground now that the projects get more developed. Recent developments include the launch of EOS’s testnet, and the increased interest in GAS, NEO’s staking reward token.
After analyzing the available data, we can see a trend indicating an increase in adoption of Proof of Stake projects in the crypto sphere. The beginning of 2017 and its first quarter seemed to be a period were PoS projects were facing headwinds. As time passed, we started seeing in Q2 a solid increase in market caps, which climbed to hundreds of millions of USD. The end of Q3 confirmed our trend, with all the projects on the list reaching market caps of nearly 300 million or more. Q4 took us even further, with several projects holding solidly in the top 10 with market caps in the Billions of USD.
The present time can seem misleading due to a notable decrease in market cap. Besides this, we still believe that Proof of Stake coins are holding ground. It seems that investors are now trying to see the real use-value in cryptos instead of only using them as an instrument for speculation. Three Proof of Stake projects (EOS, Cardano, NEO), are holding steady ground behind the 5 most mainstream cryptocurrencies. We should see an increase in interest in PoS projects throughout the year, especially as the Ethereum Proof of Stake change takes place.
This investigation seems to have revealed a rising trend in Proof of Stake interest and adoption. If PoS becomes the norm, we will start seeing additional issues that have to be addressed. Amongst them, there is the issue of staking centralization. Fortunately, Pool of Stake aims to solve this by creating decentralized forging pools fully run on Smart Contracts. Proof of Stake coin holders will be able to stake together on a given PoS blockchain in order to raise their forging rewards. This lowers entry requirements for forging and secures decentralization, while always guaranteeing PSK members ownership of their coins. We are hoping to contribute to the future of distributed ledger technology without sidelining the central values in the blockchain world: security and decentralization.
Note: All numbers taken from https://coinmarketcap.com/ Data that is referred to as current or present was obtained at the moment of writing.