One of the hottest trends in the blockchain universe is the application of decentralized finance (DeFi) solutions. Today we will impartially review for our readers the Silicon Finance project, a new DeFi initiative aiming to solve a series of industry issues. The project’s team aims to achieve an increase in the safety of DeFi, with obvious benefits for the whole blockchain community. Furthermore, the initiative will look into a way to introduce more democracy and equality on Initial Dex Offerings…
Technical analysis and price predictions are one thing, but fundamentals are another. For those looking for long-term investment opportunities in the digital asset ecosystem, they’ll need information beyond APY and media coverage. What is the value proposition of a given cryptocurrency? What market does it address? Is its tokenomics sound? Is it an outright scam?
These are the questions that a cryptocurrency whitepaper should answer.
What Is a Cryptocurrency Whitepaper?
Though not exclusive to cryptocurrencies, the term “whitepaper” has entered common parlance as the industry matures. A cryptocurrency whitepaper simply explains what a crypto project is and how it works. Whitepapers are marketing material at their core but have more depth regarding their backend operations. They don’t only explain project use-cases to potential users but provide transparency and assurance to potential investors.
With over 14 000 cryptocurrencies listed on CoinMarketCap, whitepapers separate the wheat from the chaff. They distinguish valuable tokens with long-term potential from scams, broken blockchains, and mere redundancies.
Traders everywhere regularly discuss which tokens are most likely to rise and fall in the short-term, speculative market. However, we usually spend far less time discussing which tokens have absolute staying power depending on their whitepaper.
So which cryptocurrency has the best whitepaper?
Analysis Of Top Crypto Whitepapers
For this analysis, we’ll narrow the contenders down to a select few top cryptocurrencies. We’ll also exclude application-specific tokens such as Tether (a stablecoin) or cryptos which are self-evidently ridiculous (Shiba, Doge, etc.).
Today, we’ll compare and contrast the whitepapers for the three blockchain networks dominating the market right now: Bitcoin, Ethereum, and Solana.
The Bitcoin whitepaper – as written by the anonymous Satoshi Nakamoto – was the genesis of cryptocurrency whitepapers. Released in 2008, the ideas laid out within it created the foundation for thousands of crypto whitepapers today. In some ways, it is a near-sacred document for the industry.
Bitcoin’s goal is to be a digital peer-to-peer payment solution that could overcome the double-spending problem. As its whitepaper describes, digital payments previously required a ‘trusted’ central intermediary to ensure neither party fraudulently duplicated their funds. However, this ‘trust’ leads to added transaction costs, reversible transactions, and inevitable fraud in e-commerce.
“What is needed is an electronic payment system based on cryptographic proof instead of trust, allowing any two willing parties to transact directly with each other without the need for a trusted third party.” – Satoshi Nakamoto.
What made Bitcoin different was its use of a “timestamp server” (blockchain), a public record of all transactions on the network. The legitimacy of transactions on the server is regularly verified by network nodes across the world.
Furthermore, it disincentivises fraud through proof-of-work, a system requiring “miners” to spend energy before producing new batches of transactions. Also, the network rejects and bans dishonest miners, who lose money through the energy they spent finding a block. Meanwhile, cooperative miners receive rewards in newly-generated Bitcoin.
Today, Bitcoin is most recognized for having pristine security and near-perfect decentralization in almost every sense. It is also incredibly conservative and has an absolutely fixed monetary policy.
Bitcoiners now typically conceive of Bitcoin as superior money compared to fiat currency.
This combination of nodes, blockchain, and consensus mechanisms were the building blocks for thousands of cryptocurrencies that followed in later years.
Ethereum’s goal is to improve Satoshi Nakamoto’s work on Bitcoin. Vitalik Buterin wrote it in 2013. Also, his whitepaper called attention to the alternative applications of Satoshi’s “underlying blockchain technology.” Furthermore, he mentions its potential use for creating custom currencies representing financial instruments or tokens describing domain names.
Today, both ideas, alongside hundreds of others, have found room for development on the Ethereum network. Unlike Bitcoin, Ethereum is open to these possibilities on its base layer due to its Turing-complete programming language.
“What Ethereum intends to provide is a blockchain with a built-in fully fledged Turing-complete programming language that can be used to create “contracts” that can be used to encode arbitrary state transition functions, allowing users to create any of the systems described above, as well as many others that we have not yet imagined, simply by writing up the logic in a few lines of code.” – Vitalik Buterin.
Buterin originally designed Ethereum to have “tradeoffs” with Bitcoin, focusing on efficiency and rapid development over pure network security. Smart contracts have particularly opened Ethereum to the world of Defi, which is its primary use case at this time.
Other uses include the creation of Non-Fungible Tokens (NFTs) and decentralized domain names through Ethereum Name Service (ENS). While these may become available to Bitcoin through layered development, Buterin strived for the “ultimate abstract foundation layer” on Ethereum that allows these apps to interact with each other.
On the other hand, it is far more challenging to run an archive node on Ethereum than on Bitcoin. Furthermore, Vitalik Buterin’s public presence gives Ethereum an element of centralization that Bitcoin supersedes. Finally, Buterin himself has admitted that Ethereum will need to move to layer-2 development. As a result, network fees have risen immensely, making small transactions extremely impractical.
Anatoly Yakavenko wrote Solana’s whitepaper, which describes the project as a “high-performance blockchain.” Its design aims to ensure “sub-second finality times” using a newly created consensus mechanism called “proof-of-history.”
This method uses a recursive verifiable delay function to hash incoming events, including a unique hash and counts every occasion. In other words, the timing and order of each block can be verified by each node without referring to other nodes on the network. Used together with proof-of-stake, this allows Solana to achieve incredibly high base-layer network throughput without sacrificing security.
To be precise, Solana’s block time is only 400 milliseconds long. This is orders of magnitude faster than Ethereum’s 12-14 second block times and Bitcoin’s 10 minute block times. In total, the network can compute up to over 700k transactions per second. This is a threshold that it has never come close to approaching. Accordingly, its transaction fees are meagre.
Like Ethereum, Solana is also capable of running smart contracts – but using a different programming language. While Ethereum uses “Solidity,” Solana uses “RUST,” a superficial level by comparison. Though more powerful, it requires more work on the part of writers to create contracts. Programmers coming from Ethereum cannot merely copy and paste their innovations into Solana and start development from scratch.
Furthermore, Solana has proven vastly more centralized of a network than Bitcoin. After experiencing network issues earlier this year, Yakavenko summoned Solana validators to execute a network restart. While good for the network, it also proved Yakavenko’s tremendous influence over the community. Furthermore, the insiders hold about half of the network’s tokens.
All things considered, we deem Bitcoin to still have the best cryptocurrency whitepaper available. Its status as the first and foundational document for future cryptocurrencies gives it a timeless reputation within the space. Furthermore, its simplicity and goal-oriented nature make it far more understandable for average readers than Ethereum or Solana’s whitepapers.
However, that isn’t to discount the others: Ethereum and Solana still possess vast advantages over Bitcoin regarding NFTs and decentralized finance. Whereas Ethereum is the most accessible network for developing new protocols, Solana has the best transaction throughput. Ultimately, the choice of which whitepaper is best depends on what use cases its readers subjectively value.