Author: Andrei the Guru

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Ethereum

What is Ethereum?

Ethereum is a one of a kind decentralized platform which operates using what is called SMART CONTRACTS. Smart contracts are software that is pre-programmed to run automatically without issues as relating to censorship, interference, fraud, or downtime.

These smart contracts operate on a blockchain technology built according to a well defined specification. The blockchain is a compelling and widely known technology with the ability to transfer value from one destination to the other, yet, representing the possession of a property.

Ethereum gives developers the room to create their market, store information, validate and initiate payment, transfer funds and numerous other options yet to be invented without the presence of a third-party.

Ethereum was brought to live through one ether presale around August 2014 by her fan base around the world. The Ethereum Foundation, a non-profit organization in Switzerland, developed the platform alongside intellectuals around the globe with Vitalik Buterin, a 19-year-old developer leading the team.

Ethereum’s intent was to create a better means through which applications could be developed without the interference of a third party and to provide a distinct pair of tradeoffs, useful for a wide variety of decentralized apps. Thus, emphasizing circumstances where security for rarely used and small applications, fast timing, and the capability of various applications to interact very efficiently, are crucial.

 

What are the problems that Ethereum solves?

As good and revolutionary as the bitcoin platform is, Vitalik believes that the platform implements the blockchain technology wrongly which has limited the operations of the applications built on the blockchain.

The bitcoin platform was designed as a peer-to-peer digital platform, availing prospecting developers just two options:

  • To either expand the functions laid down in the existing or current application which would definitely consume a lot of time and could also be a very rigid and rigorous process
  • Or these developers would have to design a new platform or application which asides from consuming a lot of time, can be very expensive

This implies that platforms like the mastercoins, bitshares, colored coins and others that were developed on the bitcoin technology, have a very narrow focus even though they aimed towards providing an improved variety of functionality for its users.

Although the bitcoin platform is able and equipped to carry out its promises, it is not a reliable and adequate foundation for which another application should be built upon. This is so because developers are usually limited to just three approaches to build their applications. These approaches are:

  • Developing a new blockchain
  • Scripting
  • Developing a meta-protocol

If the developer chooses to develop a new blockchain, there would be a lot of freedom. However, it is time-consuming and requires a lot of bootstrapping effort. Scripting is easy to standardize and implement, but it places a lot of limitation on what it can do. Developing a meta-protocol is good too and very easy but it comes with a lot of faults and issues in scalability.

In regards to these, Ethereum’s intent in solving this is to improve and merge the three approaches offered by the bitcoin platform, granting these developers the freedom to develop decentralized applications based on consensus.

 

How does Ethereum solve these problems?

As easy as the claim to provide developers with the opportunity to develop whatsoever application they desire sounds, there is a need to know how this was achieved.

According to Buterin Vitalik, there are five elements employed by the Ethereum platform to solve the problem it aimed to improve. These elements need to be understood to a certain degree, and they include:

 

  • The Smart Contract

 

These are a set of codes that oversees every trade of value that occurs on the platform ranging from shares and properties to money and information between two or more parties. These contracts operate on the Ethereum blockchain the way it was programmed to, acting as autonomous agents which executes itself whenever a specific condition is met.

For example, the bitcoin platform is programmed to handle simple demands like the sending of a specified amount of bitcoin from user A to user B. Meanwhile, on the Ethereum platform, a contract that stipulates that ‘send a specified amount of ether to user A if he comes online by 7 pm’, can be created. Smart contract executes itself when it is designated without the help of a third party. More so, it could handle more complicated actions.

 

  • Ethereum Virtual Machine

 

The ability of the smart contract to execute and run is made possible by the Ethereum Virtual Machine and the ether. A Turing complete scripting language which handles computational problems is also included in the Ethereum Virtual Machine.

With the help of the Ethereum Virtual Machine, Ethereum is made into a programmable blockchain that helps keep all the contracts working and in synchronization with the network. The ability of the Ethereum platform to handle as many applications as possible is solely hinged on the Ethereum Virtual Machine.

 

  • Solidity

 

Solidity is the programming language of the Ethereum platform just like JavaScript is a programming language. through solidity, developers can write their contracts on the platform, thus enhancing the Ethereum Virtual Machine

 

  • Ether

 

As bitcoin is to the bitcoin platform, so is ether to the Ethereum platform. Without the ether, no operation can be done on the Ethereum network. Through the ether, developers are enforced to provide good and relevant applications, with the network running smoothly.

Asides, ether is also used for trading. Developers pay transaction fees for both storage and services. Ether is that which fuels the Ethereum platform. Hence, any developer that wants to create a decentralized application or user that want to make use of the smart contract would have to make use of the ether.

 

  • Proof of Work

 

Proof of work is a protocol that determines a fake from a real transaction. Since the Ethereum platform is a decentralized system, the way through which transactions are validated and rejected to avoid attacks such as spamming, is through the proof of work.

Also called mining, proof of work helps in the facilitating transactions, dispelling bad guys from fraudulent practices on the network. The proof of work as the name suggests requires that all miners provide a proof showing that a particular work had been carried out.

These five elements make it very possible for developers to develop their objective and arbitrary rules of ownership, formats for the transaction and also the functions of state transition.

What makes Ethereum better than its competitors?

Ethereum’s primary competitor is Bitcoin, and there are different reasons why Ethereum has the upper hand over the Bitcoin platform. The primary reason Ethereum is better than the bitcoin platform is that the Ethereum aims to broaden the use of the blockchain technology using the smart contract.

The bitcoin is a peer to peer platform and does not allow for a complex task. All it does is to send and receive. Meanwhile, Ethereum, through the smart contract allows for way more complex tasks.

Also, the bitcoin offers just a single application of the blockchain technology of which developers could only tweak to the extent to which the technology allowed. Thus, limiting the possibilities of the emerging application.

Ethereum is better than the bitcoin in this aspect as it provides what is referred to as an “ultimate abstract foundational layer” which is a blockchain endowed with a Turing-complete programming language which allows developers to create their contracts and applications, setting up their own rules. As a result, most cryptocurrencies out there are built on the Ethereum platform because of its inherent ability to accommodate.

 

How can Ethereum be categorized?

Ethereum can be categorized into

  • Digital currency: the Ethereum platform has its digital currency called the ether used for operating on the platform. Without this currency, there can be no transaction
  • Smart contract: the smart contract is the reason the Ethereum platform is significant and distinct. All the functions it provides is hinged on the smart contract
  • Build Dapps: the platform allows developers to build their decentralized applications to function based on the discretion of the developer.
  • Platform: Ethereum is a platform on which other platforms or applications can be built upon
  • Token Issuance: Ethereum can also be categorized as token issuance for other platforms.

 

What is Ethereum’s vision on security?

Ethereum vision on security is solely hinged on their launch of the Ethereum Casper Proof-of-stake protocol. This protocol has an inbuilt process through which any element or validator that seems malicious would be detected and punished. In the Casper proof of stake, the validators (synonymous to miners in proof of work) would stake part of their ether then the validating of the blocks begin through placing of bets.

Once the block is attached, these validators will be rewarded based on how much they bet. If during this, a participant acts otherwise, trying to pull a nothing at stake, such would be punished by having their stake slashed. This works best because there is something to lose if caught in the act. The Casper POS seeks to ensure security to the peak as even participants who intentionally or unintentionally go offline would be punished too, therefore, reducing laziness or carelessness.

The issue of security is going to be the biggest achievement of the Casper POS as, if a validator stores up his own money to stake on the network, it implies that he has to do everything possible to protect his investment, which includes playing by the rule since the consequences would be grave. You definitely cannot participate in the validating process if you have not invested or staked.

The vision of Ethereum on security is thus to eradicate whatsoever source of maliciousness capable of ruining the network. The question to ask is no longer IF it would be implemented but rather WHEN it would be implemented.

 

Examples of Ethereum use cases/applications

There are three types of Ethereum use cases/applications, and they include

  • Financial applications: this feature provides users a better way of entering and managing contracts using the money. It includes hedging contracts, sub-currencies, wills, wallets, contracts as relating to employment, etc.
  • Semi-financial application: this feature avails both monetary and non-monetary involvement
  • Non- financial application: this has no financial involvement at all. An example is a use of voting and election processes.

Aside from the above classification, Ethereum use cases are numerous and can be seen individually. Some of them include:

  • Storage system: using the smart contract, the inefficiencies encountered by most online storage platforms like the dropbox, google drive, etc. can be improved. There could be cases of these online storage system interfering with user’s data for investigation purposes for instance. The Ethereum platform provides full confidentiality of users’ data making it a decentralized online storage system.
  • Financial Market: this is the most popular use case on the Ethereum network. A lot of fraudulent practices ranging from deception to manipulation, however, with the use of the smart contract, these activities can be reduced to the barest minimum
  • Reputation and Identity System: using the Ethereum platform, one can create a contract for registering a name with a value that would remain forever. Through the smart contract problems like monopolization of data, identity theft and the like can be well managed
  • Wallets for saving: the Ethereum platform allows users to keep their money securely. If user A wants to save she can decide to open a contract with user B and program the contract in such a way that a certain amount is deducted from user A account into user B account automatically. Anytime there is a need for withdrawal; user A would contact User B. If user B decides to go, rogue, user A can deny user B access to the funds
  • Crop Insurance: through the creation of a contract one can use a weather report instead of a price index.
  • Escrow Replacement: rather than have a third party called an escrow, a contract can be opened as a substitute. However, the contract must be very detailed and equipped with the normal conditions so as not to fall victim to an error.

 

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Ripple

What Is Ripple?

Ripple is the fastest and most scalable digital asset, enabling real-time global payments anywhere in the world. Ripple is a cryptocurrency that allows banks and other institutions to send payments on a global scale without the usual friction of exchange rates, red tape, etc.

The Ripple cryptocurrency has a global network that’s growing by leaps and bounds every single day. It works through the technology of blockchain. Ripple aims to modernize the global payment infrastructure.

When financial institutions become a part of this burgeoning network, they stand to ease up their payment processes. 

In short, such institutions, of which banks are the most common example, can then have their customers’ payments processed just about anywhere around the globe. If the area supports Ripple as well, the processes would be much more reliable, cost-effective, and quick.

Any payment provider or banking institution can utilize Ripple (symbolized by XRP) for cost reduction and access to new markets. The Ripple offices are currently located in Luxembourg, Sydney, London, San Francisco, and New York. It’s used in around 27 countries as of now and is used by more than 75 institutions to date.

What Is the Problem That Ripple Solves?

Ripple mostly solves the main problems which usually cause friction in banking processes. These problems usually arise from the inefficient state of banking payments, especially with regards to bank infrastructure. We’ll be taking a look at the issues banking institutions face and how Ripple can handle them when applied correctly.

The state of banking payments right now is highly inefficient. It may have served the needs of transactions, both corporate and retail, in the past, but these needs have now seen great changes and have evolved to have a number of new requirements, which necessitate the use of more evolved infrastructure.

Transaction banking is quite complex, and attending to it is one of the main priorities and functions of any banking institution. Transaction banking customers now need to send high-value payments along with sending and receiving low-value payments on an international basis. They also need to send these payments in real time or as close an alternative as possible.

These payments should ideally be sent not just across the networks of banking institutions but also on the latest kinds of financial networks. These could be a mobile app, a digital wallet, or a digital payment service such as PayPal.

Unfortunately, the banking infrastructure of the past is quite limited and force financial institutions to operate through a batch infrastructure. This means that the processing costs are quite high, the settlement times become very lengthy, and the customer experience plummets downward.

All of this results in a highly inefficient system that can cost every participant quite a lot, both financially and emotionally. It’s estimated that the total cost for everyone involved could go up to around $1.6 trillion every single year. Along with incurring these costs, the current system doesn’t meet the requirements or needs of the modern banking customer.

This is where Ripple comes in with its blockchain solution for global payments.

How Does Ripple Solve the Problem?

The Ripple cryptocurrency is making waves in the world of online transactions mainly because it presents a solution to the problem outlined above. Ripple basically provides a way for banking institutions to give their transaction banking customers an efficient infrastructure for payment purposes. When used properly and efficiently, Ripple could manage to give customers the on-demand payment service they require for global and online transactions.

The software that Ripple runs on achieves this solution by connecting the siloed banking networks with a protocol that is both open and neutral. This is known as the Interledger Protocol or ILP. With this connection, a fresh aspect is brought to financial settlements that promotes efficiency and trust.

This efficiency is brought about by the enabling of real-time settlements. With such an assurance, settlement risks are significantly reduced and transaction certainty becomes the norm.

With the same Ripple software, there’s also a real-time messaging feature that is provided to all the parties involved in any kind of transaction. This messaging is data-rich and delivers a payment experience for users that is convenient and highly coveted.

What Makes Ripple Better Than Its Competitors?

Ripple is far from being the only player in the cryptocurrency market. It has a lot of competitors, of which Bitcoin is probably one of the strongest. 

However, there are several benefits involved in using Ripple and its range of software. Looking at these benefits in detail would help you realize what kind of a competitive advantage Ripple offers over other kinds of cryptocurrencies.

First off, Ripple seeks to enhance the process of customer acquisition as well as retention. It does so by assisting in the delivery of new and in-demand products and services to customers all around the globe. These could be customers in the corporate sense or the retail sense.

Ripple does this by making on-demand, traceable, rapid, and cost-efficient global payments possible. Whether the channels are assisted or not, Ripple can work toward making them a more integrated and useful part of the global market.

With the ease of such transactions, Ripple is giving vendors all over the world a chance to retain and re-engage their existing customers as well as attract new ones. Plus, the payment experience provided by xCurrent (one of the tools provided by Ripple) is free of friction, meaning that non-bank payment providers and online payment providers are less likely to face disintermediation.

With such solutions on the table, Ripple has quite an edge over its competitors and has several advantages to offer its customers.

Another solution that Ripple provides is efficiency of information exchange. This could be information about rates, senders, fees, payment statuses, receivers, and delivery estimates.

When banks have access to the bidirectional messaging provided by xCurrent, they can stand to control their costs of operation. Since the costs of international payment processing are quite high, lowering them could mean a lot of saving to any banking institution as well as the customer.

These costs are significantly reduced due to the ability of xCurrent to lower or do away with SWIFT fees and increase STP rates at the same time. It also manages to decrease the cost of treasury operations by lowering liquidity costs, compliance costs, counterparty risks, and in-flight requirement for capital. 

Another cost reduced is that of reconciliation since xCurrent provides real-time monitoring of liquidity and the option of immediate confirmation.

How Can Ripple Be Categorized?

Ripple can be categorized in two ways. One category is that of network members, while the other is that of network users. Looking at each category separately would help determine its roles and definitions.

Network Members or RippleNet Enablers

These network members are mostly banking institutions looking for solutions to payment processes for their customers. Some banks may also provide liquidity for other institutions and process payments for them as well. Such institutions can make use of RippleNet to improve their existing services as well as enhance their drive acquisition.

These are also payment providers that want to expand the payout reach for banks as well as supply liquidity to them. This would enhance their payment volumes.

Network Users or RippleNet Originators

The network users of RippleNet are usually platform businesses seeking a solution for sending high-volume, low-value disbursements to their global customers. The latter would include merchants, suppliers, employees, etc.

Another example of such users is the treasury departments in corporations that want to send out large disbursements along their global supply network. This would help them enhance their visibility, control over payments, and capital efficiency.

RippleNet also caters to payment providers and banks that are just looking for payment transactions, not for processing purposes. Ripple helps such institutions rescue their previously high costs and make their correspondent baking more efficient.

The final category of RippleNet network users are those consumers who want to send out global payments through a payment provider or their own bank. This would provide them with a real-time, cost-effective, and traceable manner of conducting such payments.

What Is Ripple’s Vision for Security?

The Ripple network is very much concerned with privacy and security for its customers and the transactions they need to make. To this end, the people behind this cryptocurrency have implemented certain procedures that would help enhance the security system of Ripple transactions and payment processes.

Payment Data Separation

The payment system provided by xCurrent offers a separate and secure layer between the data required for payment and settlement data needed for ILP transactions. The validator would also only have access to cryptographic cases that it can utilize to verify condition fulfillment in a mathematical manner.

These two concepts would mean that data is bounced around banks less than before. The payment data would be encrypted if shared and is guaranteed to only be shared between institutions when absolutely necessary for transactions. Hence, the data will usually only be read by those it is meant for.

Certain kinds of payment data are maintained and updated within internal databases that only their respective banks can access. This data includes:

  •       Identifiers for beneficiaries and originators
  •       PII/CIP information that’s required for both originators and beneficiaries
  •       Invoice numbers or any other payment information that’s required
  •       Any other required metadata

Secure Communication

The internal systems of banking institutions use secure HTTP connections to communicate with the xCurrent software. They also utilize OAuth 2.0 in other to maintain authentication.

xCurrent also has ILP components that use HTTPS for securing the communications between themselves and Messenger. They use CA certificates to assure each other of their authentication. The use of HTTPS is prevalent in the following aspects:

  •       Communication before transactions between Messenger instances within corresponding partner institutions
  •       Any kind of communication between FX Connector, ILP Ledger, or Messenger

Examples of Ripple’s Use Cases/Applications

Messenger

This is a messaging module based on the API system. It ensures that RippleNet banks would have bidirectional communication. It would also connect to exchange risk information, KYC, FX rates, and applicable fees along with the expected delivery of funds and any other payment details required. This information is packaged and presented with the cost structure to the originator bank.

This gives a previously impossible level of visibility to the transaction cost. Any incorrect or missing information would be communicated before the transaction is initiated, increasing STP (straight-through processing rates). Once transaction approval goes through, Messenger would use ILP to settle any funds and notify all parties involved in the transaction.

Validator

This confirms whether the payment was a success or a failure. It would coordinate fund movement along the relevant ledgers to do away with settlement risk and avoid delays.

FX Ticker

This is an xCurrent component that makes the exchanges among ledgers easier by facilitating the FX rate provision by liquidity providers. This means that the exchange rate is configured between the ledgers and the authentication credentials, currencies, and accounts are tracked for every ILP ledger.

The ticker also coordinates IPL ledger transfers for settlements, transfers the payment to the beneficiary’s ledger, and ensures that the FX quotes are valid.

ILP Ledger

This is a subledger that compiles the general ledgers of transacting banks. It’s used to track credits, liquidity, and debits for all transacting parties. This allows such parties to settle their funds atomically, meaning that the transaction would either settle instantly or be rejected instantly.

Fund settlements of millions can, hence, be settled in a manner of milliseconds. Low-value offerings can also be enabled in real time.

Furthermore, settlement risk becomes a thing of the past when all the payment processes are conducted instantly. The transacting banks would have on-demand, round-the-clock availability in this manner. They would, hence, be able to offer on-demand, low-value payments for goods and services.