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Why Tech Matters, a Fundamental Analysis of ADA vs XLM vs XLP

Why Tech Matters, a Fundamental Analysis of ADA vs XLM vs XLP

All Cryptocurrencies

by COINS NEWS 137 Views

Why Tech Matters, a Fundamental Analysis of ADA vs XLM vs XLP

Hi everyone,

After my post on Inflation and Cryptocurrency, I received numerous requests to analyze other aspects of the Crypto market. The valuation battle between XLM, XRP, and ADA has been fascinating. All three have been vying to take ETH 1.0's marketshare, leveraging the POS benefits to latency, scalability, cost,

https://preview.redd.it/oei5pe7d9hn61.png?624&format=png&auto=webp&s=675a2f6b0b6bd745fff1a74bd883f4abcff5c0ba

Before we get started, let me quickly run-through some factors that I used to determine the Fundamental Analysis and subsequent Technical Analysis.

Fundamental Analysis:

Fundamental Analysis is attempting to put an accurate price on a item based upon an objective calculation of its worth. This is normally a nebulous number that roughly correlates to its in-kind purchase power if transferred to a universally traded currency. It answers the question of, given the ability to buy its competitors, what is the value of this good in a fair market setting. Fundamental Analysis generally seeks to answer whether the current price is overvalued or undervalued.

Some Fundamental Analysis include:

  • Market Cap:
    • Current Price x number of coins
  • 24 hour Trading Volume:
    • How much coin is being exchanged
  • Yearly Inflation Rate:
    • How many new coins are introduced over a year

Best sources for Fundamental Analysis data: https://research.binance.com/en/projects

Technical Analysis:

Technical Analysis is to Fundamental Analysis as a crystal ball is to a NYSE ticker quote. Technical Analysis is the attempt to predict the market value of an item given all the outside factors that influence it. A technical analysis is generally done when historic numbers are used to predict future trends. Correlation analysis, candlestick patterns, and social media references are ways analysts assess a coins technicals. Technical analysis generally seeks to predict the future price of a coin.

The White Paper

This, often overlooked, gem is the thesis behind the coin. This is the coin's reason for being and the market space that it intends on owning. A coin with an undefined white paper is a coin with an undefined answer, namely to the question, what makes you so special?

It contains:

  • The type of system
    • POS, POW, etc
  • The coin's answer the Byzantine Fault Tolerance (how a coin proofs consensus of trust in an imperfect environment)
  • Tokenomics of the coin
    • How coins can be received or distributed
  • The coin's "why?"

Valuation and Bubbles

A bubble can occur when there is a deviation between the Fundamental Analysis, what something should be worth based upon its own merits, and the Technical Analysis, where the market places the item's worth based upon outside factors. The idea of a bubble occurring is driven largely by projected future value and real future value. Both types of analysis seek to explain the market evaluation of an item.

A quick word on bubbles and bitcoins. This hits on tokenomics, or the inherent value of the coin based on its function as a store of value, unit of account, and medium of exchange. A coin's risk can be determined by its degree of usability, valuations, inflation rate of the coin, information surrounding the design team, and volume of fees (indicating a rough level of willingness for people to trade coin for other currency).

System Types:

Proof of Work (POW): The basis for traditional Cryptocurrency, where a complex equation is solved, providing the equation solver with a unit of currency. The currency gains intrinsic value through the value of the expended energy used to complete the equation. Thus, the tie between energy and currency allows the valuation of the currency.

Examples: Bitcoin (BTC), Ethereum (ETH)

Pros:

  • The first, and most tested, way to ensure decentralized control over a currency.
  • POW provides incentives for miners to behave well and creates a system to settle transactions.

Cons:

  • The process wastes resources, which is unscalable with the current dominance of fossil fuels in our energy production.
  • The transaction time increases as the system seeks to prevent against double spending through verifying against “double spending”
  • Subject to 51% attacks*
    • Miners can technically control 51% of the currencies computational value
  • This allows them to effectively re-write node history and secure bitcoins from other miners, controlling supply

Proof of Stake (POS): The newer version of POW, favoring efficiency over whole-chain verification. Ouroboro’s Genesis-based POS relies on actors providing collateral to verify reduction of tradable coins in the marketplace. Traditionally, verification was performed through a reduced version of POW, where a portion of the blockchain is recorded and used to verify that the owners had not spent the stake. A second method of verification involves creating a lag time between when the currency being un-staked and the ability to spend the coins.

Examples: Zilliqa (ZIL), Cardano (ADA), Polkadot (DOT)

Pros:

  • More environmentally friendly
  • Reduces latency when compared to POW
  • The required code to obtain the currency can be dynamic, allowing for scalable security

Cons:

  • Environmental pollution, latency, and security varies by the coins design
  • No consensus on how the system is verified
  • Requires users to trust the system as a whole and does not allow for selecting verifiers

So lets get to it:

https://preview.redd.it/mlkdsw7s6hn61.png?1373&format=png&auto=webp&s=6b3f76fc500d4637877849347390944b071c81fa

Ripple (XRP)

Ripple was founded 2004 by Ryan Fugger. Ripple Protocol, outlined in Ripple’s 2018 Whitepaper, describes its model for using the Byzantine Agreement system in conjunction with decentralized trust.

XRP was started by the folks at Ripple, and finished through open source collaboration. As a coin, XRP does not achieve system wide consensus and is instead backed, in part, by the company itself through their verification system. The current trust system utilizes master lists of trusted nodes. XRP supports a limited number of functionalities including: Payment channels, escrows, deposit authorizations, a decentralized exchange, amendments, and invariant checking.

Pros:

  • Oldest coin between the three
  • The system does not require system wide-consensus
  • Developed within an ecosystem

Cons:

  • Master list system for node selection leads to centralized influence on list owners
  • Market share dwarfed by ADA

https://preview.redd.it/0h9xwiiv6hn61.png?1372&format=png&auto=webp&s=45d0f0f476c7604278aee6602ecdda92eab627f1

Stellar Lumens (XLM)

Stellar, was founded by Jed McCaleb, a co-founder of an earlier coin, Ripple. The Stellar White-Paper explains the reasoning for the currency and the market gap it seeks to fill. Stellar seeks to create a word wide financial network, ensured through a Stellar consensus protocol (SCP) built around a decentralized trust model called the Federated Byzantine Agreement (FBA). Through implementing its decentralized trust model, SCP, the Stellar system seeks to ensure:

  • Decentralized Control
    • No gatekeeping or barrier to entry for consensus
  • Low latency
    • Faster processing through spreading work over decentralized nodes
  • Flexible Trust
    • User determined nodes, providing security based upon users predetermined trusted nodes.
  • Asymptotic Security
    • Flexible digital signatures and hash families allowing for scaling for security

Technicals:

Unlike competitors, XLM seeks to fix POW’s latency, trust, and security problems through their SCP model. It’s worth noting that XLM’s SCP model was built before Ouroboro’s Genesis.

XLM allows individual users to select trusted nodes, separating them from Ripple’s earlier attempt to create master sheets with trusted nodes. Rather than individually selected by users, the master sheets employed by ripple ended up transferring the byzantine system of authority from ripple to the sheet owners, leading to sheet owners maintaining control over the term “trusted nodes” within Ripple.

The XLM model diverges from the decentralize admission Ripple attempted in an important way, rather than relying master node lists that are editable, FBA relies on a consensus between decentralized nodes. Turning different nodes into individual owner’s elected officials that verify transactions for them. Thereby allowing for a decentralized consensus along with all the benefits of the Byzantine Agreement. This change, according to XLM, allows their model to create the decentralized consensus that achieves their goals of decentralized control, low latency, flexible trust, and asymptotic security.

Pros:

  • Brainchild of McCaleb, a crypto vet
  • Its tech is consumer focused and better than current market leader ETH
  • Pre-dates ADA as a and has a longer history as a currency
  • Historic ties to ADA and similar functionality may indicate an undervaluation of the currency

Cons:

  • Smaller market cap to ADA, indicating smaller adoption
  • Its tech puts the security onus on the owner

https://preview.redd.it/ztqnvtrx6hn61.png?1370&format=png&auto=webp&s=d1cfb22d5983ab25f947b51980917f8dd1243473

Cardano (ADA)

Cardano was founded by Charles Hoskinson, a co-founder of Ethereum, and was launched in 2017. The main goal of Cardano was to solve Bitcoin’s speed and rigidity, while also addressing Caradano’s stated issues with Ethereum’s scalability and safety.

Technicals:

Cardano, unlike Bitcoin, uses a Proof of Stake (POS) rather than Proof of Work (POW). This difference rewards the first rather than the most powerful, a system known as Ouroboros Genesis, where miners can rejoin their chain and continue where they ended. The goal of POS through Ouroboros was to reduce the amount of energy needed compared to BTC and ETH, which both use POW.

Secondly, like ETH’s ecosystem, the second layer of the Cardano is a layer similar to ETH, enabling using the system for smart contracts and applications. Cardano’s POS and computation layer, when combined, offer the benefits of BTC’s security and ETH’s functionality.

Pros:

  • Largest market cap of the three
  • POS tech that connects security, reduced latency, efficiency, and scalability
  • Not reliant on ETH's current market
  • Has a secondary layer to its code allowing for it to function as a software platform
  • You can end staking whenever you like, with no end period

Cons:

  • Viability after proposed ETH 2.0 in question
  • Historic tie between ADA:XLM:XRP may indicate an overvaluation

Final Thoughts

Cardano as a currency arrived at the right place, at the right time, and with the right tech to allow for it to finally break from its competitors. Its ascendance was owed to its superior tech, and it was able to beat out XRP, a coin with a company backing, and XLM, a POS coin that, while an early entrant to the market, has not kept up with ADA's recent adoption. At the time of writing this, Coinbase pro recently announced that ADA will begin trading on its exchange. This change will likely exacerbate the difference between the currencies. Time will tell if the space between ADA and XLM will close or widen over the long run. At this point, however, I think ADA will prevail in the developing world over XLM.

Edit: This is not financial advice

Edit 2: Thanks to commenter regarding XRP's founder/network permission-less status

Edit 3: Thanks to same commentator regarding BFT and XRP - you the best!

submitted by /u/Ameri-CantBeWrong
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