A bull market makes everyone look smart but some projects are still so fraught with issues that users should be aware of the risks involved (not just price action). While some of these projects will undoubtedly have their moment in the sun during this bull run, a crypto user has to think about opportunity cost, centralization bottlenecks, team risk, liquidity concerns, etc. Below are a handful of projects that CryptoEQ.io have deemed "Deficient." Deficient assets have at least one major flaw/issue/vulnerability identified in the 10 Core Categories that outweighs any potential benefits. Many times, these projects have numerous issues across multiple facets of the project. Even worse is that the projects often times do not openly and honestly acknowledge or discuss their own vulnerabilities to the community. Have a read below, make your own decisions based on the information outlined, and enjoy the ride!
BitcoinCash
Overview
Bitcoin Cash is not the same as Bitcoin, but is a different version called a hard fork that was brought about by the idea that Bitcoin was failing to live up to its originally stated goal of serving as “electronic cash”. Bitcoin Cash (BCH) proponents felt that the solution to this problem was to break away from Bitcoin in order to embrace alternative solutions to address network scalability, rising transaction fees, and the inability to conduct micro-transactions.
Bitcoin Cash Strengths
- Largest and most successful fork of BTC
- Very closely tied to BTC, which has allowed exchanges and wallets to easily incorporate support for BCH, thereby adding to liquidity and overall market awareness of BCH
- Well-funded by big names in the cryptocurrency community that were part of the original bitcoin community
Bitcoin Cash Weaknesses
- BCH has negligible use and chain activity which was the entire reason it forked away from BTC. BCH quadrupled its block size from 8MB to 32MB. However, the chain is using just 0.0007% of the daily volume it could support with its 32MB block.
- The BCH network is orders of magnitude less secure and more centralized than BTC.
- Success of BCH is highly reliant upon Roger Ver and Bitmain, as those two entities hold an oversized-proportion of BCH and thus possess great influence over the project
- BCH and Ver run an extremely misleading marketing strategy, which includes running the website Bitcoin.com and subreddit r/btc to the benefit of BCH
- BCH leadership, community, and long-term vision is highly fractured, which has resulted in multiple hardforks of their own
- Numerous vulnerabilities have been discovered in the BCH codebase, including a “critical vulnerability” discovered by a BTC developer and a fork leaving transactions possibly exposed to exploitation for a short time
XRP
Overview
It is important to state that XRP and Ripple (AKA Ripple Labs, Inc.) are not the same things, although they are consistently and erroneously used interchangeably. The Ripple network is a protocol to provide liquidity to global markets for fast, cross-border payments with minimal fees. XRP tokens are the accounting units used within the XRP LEDGER open-source database and serve as a bridge currency between banks. The ledger stores and preserves XRP transactions and account balances.
Alternatively, Ripple Labs, Inc. is a private, for-profit company that sells the closed-source banking software RippleNet which was previously split into three separate products called xCurrent, xRapid, and xVia. It is important to note that only the xRapid product utilizes actual XRP. The other products can be used independently of XRP or any cryptocurrency. This optionality or lack of necessity for banks to transact in XRP within the Ripple network is the main point of contention when it comes to ascertaining XRP’s underlying value.
XRP Strengths
- Extremely well-funded
- Impressive team with close ties to U.S. regulators and powerful financial institutions
- Name-brand recognition and often discussed in media behind Bitcoin and Ethereum
- Large and passionate following on social media
- A cheap ticker price that, while fundamentally meaningless, does attract new buyers who believe other assets like bitcoin are “too expensive”
XRP Weaknesses
- Ripple Labs is currently being sued by the US Securities and Exchange Commission (SEC) for not registering XRP with the agency and illegally selling a security. The case is ongoing.
- XRP is not required (and scarcely adopted) by banks to settle transactions within the Ripple protocol. Banks, in many cases, can settle cross border payments simpler and with less volatility using traditional currencies (USD, Euro, etc.).
- XRP suffers from points of centralization. Roughly 50% of XRP are controlled by the private, for-profit company Ripple forcing users to trust a large entity (like a bank) with the fate of their money.
- Not censorship-resistant - Ripple has an out-sized influence over the Ripple network and can indirectly have funds frozen.
- Lacks the proper “tokenomics” for price appreciation. Value accrual for pure mediums of exchange (i.e. bridge currencies) remains unclear. Banks do not need to hold onto large amounts of XRP to successfully use the protocol, suggesting low demand-side price pressure.
- Increased competition from central bank digital currencies (CBDCs), actual bank coins like JP Morgan, and the proliferation of private stablecoins.
EOS
Overview
The EOS token is used to access the EOS blockchain platform, which allows users to interact with decentralized applications (dApps) on the EOS blockchain, or developers to publish a decentralized application to the mainnet. EOS is aiming to become a more performant operating system that can support industrial-scale decentralized applications with no transaction fees, but at the cost of some loss of decentralization as compared to the Bitcoin and Ethereum blockchains.
EOS Strengths
- Able to handle thousands of transactions per second compared to 15 transactions per second in Ethereum
- Large dApp community with thousands of daily users
- Extremely well-funded thanks to the fact that it conducted the largest ICO ever (~ $4 billion)
EOS Weaknesses
- Extremely centralized (only 21 Block Producers), and not censorship-resistant
- Cost of running a node (being a Block Producer) prohibits most from participating in the network
- Governance system is convoluted, incomplete, and susceptible to collusion and the formation of cartels
- High dApp usage is suspect as a report in June 2019 found that 51% of EOS dApp accounts and up to 75% of dApp transactions were not from actual users but from bots.
- Development activity on the GitHub has declined substantially since launch, and rumors of Dan Larimer’s (EOS creator) waning loyalty to the project have surfaced
IOTA
Overview
IOTA is a scalable, open source distributed ledger aiming to be the infrastructure for the emerging machine-to-machine (m2m) economy of the Internet-of-Things (IoT). It is powered by a Directed Acyclic Graph (DAG) called the “Tangle” which has no fees to transact and no scaling limitations. Its goal is to enable machines to exchange data and value with each other, such as wearable devices, smart home devices, and even emerging smart cities and smart grid systems. IOTA intends to facilitate the shift from hardware ownership to usage leases through real-time transaction economy without middlemen, subscriptions, etc., allowing data owners to maintain control of their data.
IOTA Strengths
- IOTA has numerous notable partnerships including Bosch Venture Capital, Volkswagen, Jaguar, the city of Taipei, Microsoft, Innogy and more
- Team co-founders consists of four very talented and skilled blockchain entrepreneurs that are rooted very well into the German tech ecosystem.
- Well-established and professionally run Foundation that has over 100 employees in 23 countries which boasts many prominent academics in mathematics and computer science.
IOTA Weaknesses
- Entire project centralized around one master node called the “Coordinator” run by the IOTA Foundation. Transactions are only approved after being cross-checked by “milestones” created by the Coordinator.
- In February 2020, the dedicated desktop client “Trinity” was hacked, causing the IOTA Foundation to shut down the entire network for nearly 2 months
- In a move counter to cryptographic norms, IOTA attempted to create their own hash function which was quickly revealed to contain vulnerabilities by an MIT research team. Has since been corrected.
- In December 2019, the IOTA network experienced a bug that resulted in a halt to the network and no transactions being confirmed for 15 hours.
- The success of the network and token are wholly dependent on IOTA capturing a meaningful proportion of the nascent Internet of Things (IoT) industry which is still quite ill-defined and impossible to predict.
NEO
Overview
NEO (previously Antshares) was launched in 2014 by Da Hongfei and was designed as a smart economy platform for decentralized applications (dApps). The smart economy is composed of digital assets, digital identities, and smart contracts, similar to the ecosystems of Ethereum, EOS, Tezos, etc. Just like these other blockchain platforms, NEO allows for peer-to-peer exchange of smart assets without the involvement of third parties.
NEO Strengths
- Strong network effects including corporate partnerships in Asia
- Capable of 1,000 transactions per second, compared to ~15 for Ethereum.
- Recently announced new upgrades as part of NEO 3.0 upgrade
NEO Weaknesses
- Highly centralized and currently cannot be fairly compared to other blockchain projects like Ethereum or Tezos. The NEO Foundation controls six of the eight consensus nodes and handpicks any candidates that might potentially act as consensus nodes
- The main NEO repository exhibits scarce levels of activity since launching, barely receiving generally less than 10 commits per day
- Strong ties with China and the Chinese government, which has exhibited a mercurial relationship with cryptocurrencies in the past
- NEO could be considered a security in the US since it pays out a dividend of sorts in the form of GAS
- NEO also experienced an incident in March 2019 where block production got delayed by approximately 127 minutes. While this was not an attack or bug but rather an anomaly in the consensus design, it still highlights some drawbacks of the dBFT system.
EthereumClassic
Overview
Ethereum Classic is the original Ethereum blockchain that renamed itself “Ethereum Classic” following the infamous DAO Exploit. The key difference between the two projects, at the time of the split, boiled down to ideology. Ethereum Classic prides itself on focusing on immutability, fungibility, and the notion that Code is Law above all else. Ethereum Classic now remains technologically similar to Ethereum, but only a small fraction of Ethereum’s size in terms of network effects, developers, users, liquidity, and security. Since the two chains were formed, Ethereum Classic has struggled to maintain any relevance and, in fact, has seen its blockchain successfully 51% attacked 4 different times rendering the network practically unusable and constantly insecure.
Ethereum Classic Strengths
- Relatively long history (launched in 2015) with small but dedicated users rooted in similar ideological beliefs
- Since it is technologically similar to Ethereum, the chain is highly interoperable with the Ethereum chain and its dApps
- Once Ethereum switches to a Proof of Stake (PoS) model, Ethereum Classic will be the only Proof of Work (PoW) smart contract platform on the market, potentially leading to an uptick in miner participation, and thus security
Ethereum Classic Weaknesses
- Fell significantly behind Ethereum post-fork in terms of community interest, developer activity, users, dApps, mining security, and overall project health
- Suffered at least four successful 51% attacks, deteriorating trust in the network and requiring weeks for a transaction to be successfully completed and validated
- Wealth centralization is among the highest compared to other top-20 cryptocurrencies (Gini Coefficient of 0.75)
- Low developer activity and nonexistent dApp ecosystem
- After one of the development arms of the project, ETCDev, shut down due to lack of funds in 2018, only two development teams remain actively working the project
