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Taking up the analysis of cryptocurrencies Lisk LSK I knew that a difficult task awaits me. In Poland, like anywhere else in the world, LISK enjoys even gigantic interest. This was mainly due to the availability of this cryptocurrency on the former Polish stock exchange Bitbay. For investors, LISK was a cheaper alternative to cryptocurrencies such as Bitcoin, Czy Ethereum.
It is due to the great popularity of LSK and the number of people who are indirectly (due to the LISK community) or directly (if they have a cryptocurrency or belong to delegates) involved in the project, I have made every effort to conduct a meticulous, reliable and objective analysis. Although each of the statements is supported by a possibly rich bibliography, I reserve the right to make mistakes because of how complex cryptocurrencies really are. Despite a lot of experience, each project is different and there is no doubt that not all data about every aspect of the project are publicly available.
Before proceeding with any of my own analysis, I first carefully review all possible articles and studies about a given cryptocurrency, both in Polish and English. I can therefore honestly say that I am giving you so far the largest report and compendium of knowledge about LISK cryptovalts (LSK)that is available to the public. Almost all aspects of the project have been analyzed, many of the conclusions I came to during the report are unique and I hope to help you form your own opinion about LISK.
I also encourage you to start discussions once the report has been made public. Remember that the purpose of my analysis is not to discredit any cryptocurrency, but to look at it with slightly critical and skeptical eyes, ask questions that have never been asked, check their validity and draw conclusions.
Novelty:
However, beautiful software and design will not change the most important thing - your project must make sense from the business point of view. Even when building an open and decentralized system, you sell a product to people or future users. If it is not thought out, no matter how fascinating your code is and how much work has been put into the preparation of every aspect of the project, its development is pointless. Even scattered cryptocurrencies are in themselves a product or based on such cryptocurrencies. In the case of Bitcoin, the product that has attracted millions of users and enthusiasts from around the world is money. Free, safe and universal money for every person in the world.
The new thing used in this report is therefore a strict analysis of the project in terms of business. Of course, in the case of extremely young and modern cryptocurrency technology, it is difficult to put clear business theses, as they are usually products that have never existed before. Due to this, it is not known what is the potential base of customers interested in a particular solution offered by cryptocurrencies. However, for a project such as LISK, which has a three-year internship in the market and a clear, defined vision for the product (sidechain), we are able to look at similar technologies of this type, but offered by other projects. Then check the current interest in them - a good circumstance will be for us, for example, the number of transactions or located capital in side chains.
Below are the key findings of the report, but many of the technological issues discussed are not easy - in order to correctly understand and interpret the conclusions, I recommend reading the full report. I promise you, read it faster than it writes! Respect my work - the report can be freely distributed and distributed: it is public, but it is forbidden to make changes or assign my work. If you want to put its content on your site, please contact me. You can also link it freely as a source.
I cordially invite you
stokarz
About the author
I deal with the analysis and market research and cryptocurrency technology. My reports are private opinions, they do not constitute investment advice. For cooperation purposes, please contact:
E-mail: stokarzlol@gmail.com
Telegram: @start
Key conclusions:
- LSK is not a cryptocurrency, but a utility token.
- The actual network activity is extremely low - the transaction falls on average every 7 blocks.
- LISK, being a platform for sidechain, does not have a single sidechain.
- Sidechain does not provide infinite scalability, it is also expensive to build and secure.
- The flagship product and LISK technology - SDK and sidechain, despite three years of development, have not yet been presented even in the Alpha version.
- The only functionality of the LSK token is sending and receiving, voting for delegates and trading on exchanges.
- Current LISK delegates are able to maintain their power in the network by controlling a significant amount of LSK tokens supply.
- Over the past 3 months, only 5% of all LISK addresses remained active.
- The Lisk Academy portal is sensational and a great educational resource.
- LISK has one of the best designs among cryptocurrencies.
Overall project evaluation:
5.5/10
Warning - Project evaluation is the subjective opinion of the author and cannot influence anyone's investment decision. The metric used in the formulation of the final score is private, however, during the evaluation, factors such as: product, tokeneconomy, team, real use, actual network activity, partners, customers, design and many others are checked. In the case of LISK, the key role in awarding such a low rating was the fact that despite the passage of three years, not even the Alpha version of the key product was released, which means that LISK has no functionality.
The most important part of the report is in the section on sidechain and analysis of network activity. So if you are well acquainted with the LISK project, I recommend you to read this part of the report first of all. This is where most of the key conclusions come from.
LISK - DECENTRALIZED APPLICATIONS
LISK is powered by Java Script project using sidechain technology to solve blockchain scalability problems and build a developer-friendly platform for decentralized applications - abbreviated dApps.
LISK uses the protocol to achieve global network consensus dPOS - Delegated Proof of Stake - POS type with delegates who are elected by democratic vote, secure the LISK network and create a quorum confirming all transactions. IN blockchainie LISK is active 101 delegates. The new delegate can be chosen at any time. Each user is able to vote for delegates - the volume of votes is proportional to the number of tokens held - the cost of voting is 1LSK.
Exact amount TPS blockchain LISK is not specified, however, various sources indicate that LISK is able to process 25 TPS[1], which is definitely a sufficient amount, thanks to which we do not have to sacrifice the decentralization of the network in favor of capacity. The block is propagated every 10 seconds. 101 blocks (17min.) Constitute one "round", during which delegates can add one additional block to the network, for which they receive a prize.
The economic initiative for delegates with nodes are LSK tokens that they receive in a process called "forging". It is the equivalent of digging a currency in a blockchain using a protocol DPOS. Forging is controlled by delegates. LSK is therefore inflationary. Inflation is decreasing from year to year until the 1LSK award for the block and stabilization at 2.19% per year are achieved.
Most of the awards for delegates are distributed among the users voting on them, thanks to which they can also receive passive income from holding LSK in their portfolios.
History of Lisk
LISK was founded in 2016 year on the basis of the source code of a nonexistent project Crypti (XCR). The founders of LISK are longtime enthusiasts of cryptocurrency technology - Max Kordek i Oliver Beddows. Their vision was to create a platform that allows developers from around the world the ability to easily launch their own blockchain as the second layer to the main LISK chain, thereby creating a low "entry barrier" in cryptocurrencies. By assumption, LISK was to achieve this goal with the help of three pillars:
- Accessibility - using development tools such as SDK - Sidechain Development Kit
- Scalability - thanks to the use of child chains technology (another name on sidechain)
- Simple design and dissemination of education - Lisk Hub and initiatives such as Lisk Academy
In 2016 year, the official ICO was also held[2] LISK project. They lasted from 22 February and ended 21 in March. During the ICO, a DDOS attack occurred, which did not threaten the long-term stability of the project. If you wanted to purchase LSK tokens, you could use Bitcoin for this purpose, all other cryptocurrencies operated at that time by Shapeshift and Crypti cryptocurrencies. The chart below shows the scheme for the allocation of LSK tokens at ICO. A big plus is the fact that as many as 85% of tokens were distributed among ICO participants, thus providing a good foundation for the future decentralization process.
Interesting fact: Max Kordek was also a strategic advisor in the SONM project[3]
Lisk also had his own fora in the form of Rise cryptocurrencies[4].
Figure 1: Allocation of LSK tokens
Also on the plus side is the transparency of the founders of the project - Max Kordek and Olivier Beffowa - who 18 months after the ICO published[5] a public statement outlining exactly how the LSK tokens sales strategy will look like. The table shows the number of tokens that can be sold by the founders of LISK over time.
Figure 2: Liquidation of the LSK founding tokens
Project financing
Ultimately, LISK was able to collect 14 BTC and 009 million XCR, which corresponded to over $ 80 million USD. At the time, it was the second largest ICO ever, after Ethereum's successful debut.
Funds have been managed since ICO, located in Switzerland, Lisk Foundation. It is a non-profit organization. The development arm of LISK is, apart from a small group of independent social media developers, a private Berlin company Liqhtcurve, a blockchain development studio set up and managed by the founders of LISK. All changes to the public LISK network are made using LIP - LISK Improvement Proposal - the equivalent of the BIP system known from Bitcoin. The proposal of changes is presented by the developers on the platform Lisk Research, where the democratic vote is then carried out.
The fact that the only LISK product, in addition not yet available on the market, are sidechainy and SDK tools, may worry a bit. At no time at all, the LISK project has no intention of "earning money". Knowing how high are the costs of paying for a large group of technical employees - currently on the development of LISK, 57 employees are permanently employed[6]it can be disturbing. Thus, the only way to pay for the further development of LISK is to sell tokens owned by the Foundation on the free market, simultaneously counting on the project's success and the increase in the stock exchange value of the LSK token.
LSK source code written by the Lightcurve studio is by far the highest quality, which is confirmed by the recent Darpal Rating report[7] dealing with the audit of cryptocurrency codes and their evaluation.
Community
The LISK community is impressive for a project that has not even released its flagship product. The interest of LSK is particularly large in Poland, which can be related to the availability of the Bitbay market, which offers a cryptocurrency exchange gate in relation to PLN.
Figure 3: Statistics showing the size of the LISK community
LISK has a large base of followers on Twitter i Reddit - the two most important media associating the cryptocurrency community. Proper use of them should be the foundation of LISK marketing, because, especially Twitter, it offers a great leverage, thanks to which LISK can learn about hundreds of thousands of potential Twitter users and developers every day.
LISK ecosystem
Figure 4: LISK HUB
The LISK ecosystem is small and consists of:
- LISK HUB - ALL-IN-ONE application for users and developers - it should be praised for its phenomenal graphical interface and intuitive, two things that cryptocurrency definitely lacks
- LISK Academy - a phenomenal initiative with first-class performance. As a person who supports education in the field of cryptocurrencies in Poland, I can say with a pure heart that the Liska Academy is one (right next to Binance Academy) from the best sources of knowledge about crypto-currencies, both for beginners and advanced. It is created surprisingly objectively, each of the short articles explains in a great way complex cryptographic issues. I think that at the moment the Lisk Academy is the unique and strongest asset of the entire LISK project. Let us not forget, however, that this is a secondary initiative. LISK is not an educational platform after all.
- LISK Commander
- LISK Explorer
- LISK Elements
- LISK Core
- SDK - the unfinished flagship product LISK. Work on it has been ongoing for three years, the date of introduction is unknown
Long-term vision
Figure 5: LISK Roadmap
The problems that LISK wants to solve are scalability, low knowledge of cryptocurrencies and difficulty in building blockchain-based systems.
It can be assumed with high certainty that the demand for this type of services, along with the general development of the crypto market, will be high. For now, however, LISK marketing does not reflect the actual state of project development, which was confirmed by the team members[8]so if we want to talk about any major adoption, the key thing is to wait for the final version of the first LISK product - SDK.
However, we can look at how the current state of the LISK network is presented and whether the sidechain technology really provides infinite scalability of the blockchain, and whether it is not just a good solution to a specific set of problems. I would like to invite you to Part II, in which we will examine sidechain technology, tokenoeconomics, network activity and model of delegates in the DPOS protocol.
PART II
Sidechains - The flagship product of LISK
Figure 6: LSK products
The key asset and the biggest promise of LISK is sidechains technology (or childchains), or side chains. It is to be a response to the low scalability of current blockchains. Sidechain and SDK - Sidechain Development Kit - a collection of development tools, thanks to which developers have, in a simple way, be able to build side chains on LISK. SDK and sidechains have always been the focal point around which all marketing and promises were focused LISK.
They are to ensure adoption and recognition to LISK. Let's get rid of all the noise for a moment and let's see exactly what sidechain really is, where it came from and why they should be the answer to the problems with the low scalability of cryptocurrencies.
Figure 7: Visualization of the secondary chain
sidechain[9] is a separated blockchain running parallel to the main chain. The side chain is usually a private network with a specific form of interoperability with the main blockchain. The biggest advantages of sidechain is definitely the fact that they can have completely different characteristics than the main chain. Therefore, the consensus protocol may differ - the main network may reach global agreement using, for example, POW (Proof of Work - a protocol known from Bitcoin), network capacity, its ability to transfer transactions per second.
The history of children's chains
The history of sidechain begins in the 2014 year, when a group of cryptographers currently mostly associated with the company Blockstream[10] published a document presenting the concept of side chains: "Enabling Blockchain Innovations with Pegged Sidechains[11]". Sidechains have been presented as a solution to some of Bitcoin's problems. Instead of changing the entire main network, it was now possible to introduce sidechain - add a "second layer" to the main chain. Thanks to some concessions, such as reduced decentralization within the sidechain, we would be able to process an increased number of transactions per second or indirectly introduce a new class of objects to Bitcoin. It is important that the sidechain is completely independent of the main chain - if any error occurs within it, the main chain will not be put in danger. However, this has its consequences and, like any technology in cryptocurrencies, it is an art of concession. Sidechains are a good solution to some problems - but they will not provide, contrary to what we can read in numerous LISK project announcements - infinite scalability. At least not as advertised.
Sidechains - technology of concessions
Figure 8: Technical drawing of sidechain
Sidechainythanks to independence from the main chain, they can be completely differently constructed. Their big plus is plasticity - sidechain may have functions that ensure user privacy, greater transaction throughput, or open gates to the previously inaccessible liquidity of capital transfer.
It is a mistake, however, to assume that the use of sidechain in LISK allows for infinite scalability. Within the small-scale project that is currently LISK, these problems are not recognized. Depositing sidechain is currently associated with high costs.
- First, we must provide server architecture, which will be the connection between the main chain and sidechain. There is currently no way to communicate the main chain with sidechain in a peer-to-peer system.
- The main network is completely independent of the secondary chain. Although this is a safe solution for the main blockchain, each of the newly created sidechain must ensure its network security itself. It can not use the resources of the main network, because it is independent of it. So there is a situation in which we have certain concessions. The LISK main chain is "safe" from possible errors on side chains, but the sidechain itself must ensure its own safety.
- Each sidechain must establish a Federation - a supervisory body, usually completely centralized, responsible for propagating blocks and managing native cryptocurrent sidechain. For example, in the case of Liquid Blockstream - Bitcoin sidechain, the Federation consists of 15 supervisory units.
Sidechain also causes further problems. Every sidechain needs its own kryptowaluty. Such a solution can be good for the purposes of capital collection for a project in ICO (Initial Coin Offering - IPO equivalent in cryptocurrencies)however, from the business perspective it is a big problem, because we definitely hinder our business / project. In order for the client / user to use the application we are building, he must use our token. So this adds another layer of complexity.
In the world, apart from cryptocurrencies, convincing anyone to use Bitcoin or Ethereum - which are the most popular cryptocurrencies, possessing both the largest brand and recognizability - is difficult. If the user, in order to use our service, must enter the "realm" of our, very exotic for an external observer, token, it drastically reduces the number of potential customers for our business.
Own token within the sidechain has trumps. As in the case of LBTC in the Liquid sidechain, it can be used for faster transmission of microtransactions, giving up the decentralization and security for a single central body that processes transactions. Therefore, all microtransactions can take place in LBTCand then, for example, when the appropriate number of them is collected, one group can be created from all inputs and outputs within the Liquid sidechain and transmitted as one transaction to the main Bitcoin chain. Nevertheless, we give up the security and high reliability of the settlement that Bitcoin possesses, because Liquid sidechain is based on the central control unit.
Interesting fact: In the case of sidechain, also in LISK, a cryptocurrency sent from the main chain to sidechain, at the time of sending it is located and temporarily impossible to use. Once the security check has been made, the cryptocurrency is available on the sidechain.
The problem is that we do not know now how blockchain would behave, for instance with 100 sidechain. Remember that in a decentralized and secure network, nodes must agree on each transaction. The number of operations needed for processing by already scattered computing resources, with such a high complexity of the system, could lead to delays and even network paralysis. Of course, these problems can not be seen if the system has only a few side chains and, additionally, users' activity is small
Sidechain brings a bit of complexity to the system. As you can see, they have their advantages, but they are associated with concessions that we agree on. Why? Yes, as I said before, the independence of sidechains is an asset for the main chain - it is not exposed to errors that can occur on the side chain - each sidechain must ensure its own safety. For this purpose, it is not possible to use the computed capacity on the main chain. What's more, each sidechain is forced to form a Federation, usually a group of a dozen or so representatives (that is, a large centralization) responsible for propagating blocks and managing sidechain. Thus, sidechain is usually much more centralized than the native chain and not very secure, making it vulnerable to potential attacks. Using sidechain, the user has to ask whether I want to abandon a decentralized and secure main chain that I can not trust (as is the case with Bitcoin) for a sidechain managed by a small group of established organizations.
A good visualization of the concessions to which we are forced to go in the case of sidechain is an example Liquid sidechainwhich I have already mentioned. It is managed by a consortium of stock exchanges and companies such as Blockstream. However, as historical data show, even the latest Binance hack, stock exchanges are susceptible to attacks and, consequently, the theft of cryptocurrencies of users. Bitcoin, thanks to the amount of computing power that secures the chain, is relatively safe to use, and conducting a successful attack with 51% of the computing power would involve unbearable costs for the attacker. In most cases, this makes Bitcoin safe. We do not have to worry about our funds being intercepted by dishonest attackers. In the case of the less secure Liquid sidechain, which has its own currency - LBTC, which is the equivalent of BTC on the main chain, we entrust our cryptocurrency to the Foundation. She manages our LBTC (a BTC equivalent in the side chain). The foundation, however, consists of a group of exchanges and cryptocurrency companies. Exchange possible to attack. Stock market, which have been successfully attacked and robbed many times. Using Liquid sidechain, we reject the security of Bitcoin in favor of transaction speed. It only depends on us whether we are able to go for such a high concession and whether it is profitable for us.
Of course, problems with low security sidechain can be overcome, or at least make it more difficult for potential dishonest actors to attack the side network. One of the solutions is to create a new, decentralized server architecture, distributed throughout the world. However, the attentive reader will immediately notice the high costs associated with such a task. Creating a properly secure sidechain is therefore an expensive and time-consuming process.
So, yes, we can scale the main chain using sidechain - to do this indefinitely, as the representatives of the LISK project say, we would have to have only infinite monetary resources, infinite server architecture and infinitely long time to build it all. So let's put in an argument about infinite scalability between cartoons. Sidechain is an interesting technology and it is worth having it in mind. However, like all technical solutions, it must be used to solve the problem and involve concessions to which we must go.
After extensive analysis, I conclude that there is no indication that sidechain would be anything better in solving the problem of blockchain scalability from even sharding. They are just a different route, which we choose - expensive and providing other types of benefits - not necessary.
Now let's look at sidechains from the business side. Why?
Because cryptocurrencies need such a look. We have the year 2019, not 2017, so the time has passed when it was enough to have a beautifully made logo and a few modern passwords in which the words blockchain were best combined with Big Data i AIfor the cryptocurrency to be considered a breakthrough. It's high time to invest capital and support projects that represent a real chance to improve a given part of our lives and create technology that is important in the world. The laws of economics apply to the cryptocurrency market in the same way as to any other. It is thanks to the fact that Bitcoin is one of the best money we have, is characterized by high security and partial anonymity and availability, while having the well-deserved name of internet cash, it is used today all over the world.
Checking new technologies in terms of business sense is extremely difficult and I do not intend to make clear answers here. You can not and should not say in "certainty" that a given product or technology will be accepted on the market or not. We do not know that. What can we do, however, is to take data on the same technology, but developed by other projects, and then check how they are accepted and how they differ from the sidechain proposed by LISK. We are also able to analyze the market for decentralized applications (dApps) and determine if there is room for LISK in its current form.
Blockstream Liquid - Bitcoin sidechain
Figure 9: How Bitcoin's sidechain - Liquid by Blockstream works
One such example is Bitcoin - Liquid sidechain. Its task, thanks to integration with the largest stock exchanges in the world, enables the momentary transmission of BTC in the form of LBTC on sidechain. According to the assumptions, exchange clients would be able to transmit BTC from one stock exchange to another within a few seconds. What would it look like? For users, nothing would change, however, in BTC exchange systems, they would be converted into LBTC, then sent via sidechain to a specific exchange. When the transfer was completed, LBTC would be converted to BTC on the main chain.
Figure 10: How the Liquid network works
Blockstream is an incomparably larger and more recognizable company than the LISK project. It would seem, therefore, that the demand for Bitcoin sidechain should be large. But what does reality look like?
These are data for 11.05.2019 - Liquid has been developing for over several years and this is how the current network activity looks like. Sidechain has not yet been integrated with global stock exchanges.
Figure 11: Number of transactions on Liquid - Source: The Block
The Liquid network, Bitcoin sidechain, at the moment only had 60 thousands of transactions. A microscopic fee is charged for each of them, so we can say with high certainty that development costs and ensuring proper server architecture have not yet been returned.
Transactions in the Liquid network, from November 2018 to May 2019, were responsible for only 20% transactions from one day on the Bitcoin main chain. The Bitcoin network approves on average 370 thousands of transactions per day[12].
Figure 12: Quantity $ on hot Liquid wallet
The figure shows the amount of BTC (specified in $) kept on the hot Liquid portfolio. It corresponds to approximately 40 BTC.
For comparison, a similar technology is to ensure Bitcoin scalability by creating the so-called The "second layer" - the Lightning Network, currently has 1037 BTC in its network[13].
What does this data tell us about LISK and its sidechain?
Sidechain proposed by LISK are to serve completely different purposes. Liquid data shows, however, that the actual adoption of sidechain even within the cryptocurrency community is still a long way off. In my opinion, we are talking about a minimum of two years before sidechain begins to be used. As for their use in dApps, this may never happen, on the scale LISK would expect. Why? The answer is not far away.
Recall that Liquid is a private Blockstream network - sidechain are mostly private by definition. The network aims at decentralization by introducing as many members as possible to the Federation body. At the core however, Liquid is managed by Blockstream. So, using Liquid sidechain, we entrust all our trust to one company.
Pros and cons of sidechain
In conclusion, the current weak points in the case of sidechain are: security, the need to establish a central management body - the Federation (the attack aimed at the Federation effectively paralyzes the network) and servers connecting the main blockchain with side chains, costs and own token (sidechain must have some "unit of measurement") and that the Federation controls your cryptocurrency within their sidechain.
We do not know how the sidechain architecture works and works in the case of a large number of users and many users actively using the main network and sidechain.
However, big pluses are: modularity of sidechain and the possibility of adapting them to specific problems, such as for example ensuring a higher liquidity and speed of cryptocorrency transfer between large, centralized points such as stock exchanges. In addition, with the help of sidechain we can introduce various technical innovations as a second layer to the blockchain without risking the main chain.
The scale of the dApps market
The LISK sidechain is inextricably linked to decentralized applications. LISK is a platform where we first deposit sidechain and then prepare the ground for our dApp. With our own token in sidechain, we are able to conduct ICO, collect funds and finally present their application to the world.
However, it turns out that the dApp market is much smaller than we may think[14]. Decentralized applications are only a marginal slice of the entire cryptocurrency market. Data from the end of last year show that only 20 dApps could boast 1000 with active users per month[15]. DAppps, which is therefore the most successful worldwide, can count on average 6 transactions per day.
These numbers may be surprising. Would not dApps be the ultimate target for cryptocurrencies like Ethereum? Reality has shown that users are much more likely to prefer classic applications that can be downloaded from the App Store or Google Play. We can only speculate what is the reason for this because no clear data is available on this subject. In my opinion, this has to do with the early stages of the entire cryptocurrency market, as well as the problems faced by potential dApps receipts. Decentralized applications are not only dingy in design, but also have a high "entry barrier". To use them, we need the Metamask extension and a high level of knowledge of the functioning of the Ethereum cryptocurrency.
Figure 13: dApps - statistics
The largest number of decentralized applications is at Ethereum. As we can see, dApps at ETH attract only thousands of users per day to 19, together creating a volume of 36 of thousands of transactions. On average, one active dApp user generates two transactions in the Ethereum network per day. The situation is better on the EOS platform which, thanks to its popular casinos, can boast of 99 with thousands of users and a daily volume of 2.5 million dollars.
Figure 14: Active dApps
As we can see, only a few 1.5 thousand out of almost 3 thousands of dApp remain active. When it comes to decentralized applications, we are very early with this technology and it will be until the coming years to show whether it will be able to take over part of the traditional applications market.
Figure 15: Increase in the amount of dApps
Developers seem to not go down in the creation of an application that will achieve the success that no dApp can currently boast of - over the past two years, the amount of dApp has been increasing exponentially.
Possible business perspectives for LISK technology
Can LISK be a better platform for dApps than Ethereum or EOS?
If we want to deposit dApp on the Ethereum main chain, all we have to do is prepare the contract. With the current commissions charged by miners from the transaction, the cost of setting dApp on ETH is around $ 15 USD[16]. Even if the level of sophistication of our application requires us to deposit several smart contracts, the total cost should not exceed 0.3 ETH / $ 54 USD.
Assuming our user uses our application for half a day per month, generating an average of 3 transactions per day, this would give us 1 transactions per year. Thus, the total cost that users would have to pay for using our dApp on ETH would be approximately $ 080 USD per year.
EOS requires RAM to set up a dApp. The cost of depositing a decentralized application on EOS is approximately $ 720 USD[17]. But that's not all. The dApp developer has to pay for each new user of his application. With 1000 users, it would cost around 10 EOS, or over $ 000 USD[18].
Unfortunately, we do not have clear data about the costs of dApp on LISK. Whitepaper[19] says about the cost of 500 LSK for depositing dApp, unfortunately these are outdated estimates. Assuming, however, that it would be true, the cost of dApp LSK at $ 1.99 USD for LSK[20] would have been $ 995 USD.
The cost of LSK dApp would therefore be 1842% greater than ETH and 38% greater than the same EOS service. Operational costs are not taken into account, but only the deposition of dApp, as the costs of adequate security and server architecture in the case of LISK sidechain are unknown.
The last developer's proposals are to set the price for LISK dApps at the 25 LSK level. Thanks to this, it could compete with EOS, but this cost would still be higher by almost 100% compared to ETH.
As you can see, both the costs and maintenance of dApp is currently horribly expensive and simply unprofitable in most cases. It is much easier to build a classic app that will be cheaper and easily used by potentially billions of people around the world. In addition, the use of LISK for this purpose is simply not economically viable. We do not know whether the LISK SDK development toolkit will offer sufficient benefits that will make the cost of depositing dApp on LISK reasonable.
As of today, LISK does not even have manually deposited sidechain[21]. Nothing, therefore, indicates any adoption. The GNY project promises to migrate to the LISK platform in the future.
Summary
The analysis showed that the costs associated with the construction and securing of sidechain exceed their profitability as a tool for building decentralized applications, abbreviated dApps. The solutions proposed by Ethereum are cheaper, more effective, safer and have much more developer support globally.
What's more, the market that LISK wants to take over is microscopic, the turnover of cryptocurrencies inside dApps is a small fraction of the total daily volume of transactions. There are also no indications that the scale of the dApps market will increase exponentially in the near future, which would allow LISK to position itself as a competition for ETH and take over one of the niches. The key product of LISK, which is the SDK, despite the period of three years, has not been released into the market even in the form of an unstable version of Alpha.
TOKENEKONOMIA
According to Max Kordek, LSK - the native cryptocurrency of the LISK network is in fact a usable token, with which we can pay for various transactions occurring in LISK.
Figure 16 Max Kordek - LSK token, Source: Reddit
Types of transactions within the LISK blockchain[22]:
- Ordinary transfer used to transfer funds between wallets - fee: 0.1 LSK
- Class transaction: registration of an additional password to the portfolio - fee: 5 LSK
- Registering a delegate - payment: 25 LSK
- Voting for delegates - fee: 1 LSK
- Multisignual account security - payment: 5 LSK
What, besides the ability to perform several of the above types of transactions within LISK, makes the LSK token gain value? Well, according to the CEO - not really much:
Figure 17: About LSK Token Value - Source: Reddit
The key problem faced by all new cryptocurrencies is - how to give it value. How to ensure that a given cryptocurrency is not only considered valuable through trust in the project and pure speculation, but also has real value. In the case of Bitcoin, the value is obvious: Bitcoin is the internet cash, real money. Around him was built a huge infrastructure of exchanges, exchange offices, applications, systems, etc. Bitcoin's features such as privacy, convertibility and universality create its value.
If we assume that the main factor strengthening the demand for a given cryptocurrency (demand, not its value!) Are to be carried out on a given ICO platform, we can unfortunately calculate (I remind you that in the sidechain section I proved that LISK is not currently the recommended option to create dApps, and sidechain are much better suited for payment channels). It seems that this is the situation we currently observe in the case of LISK, which I intend to confirm with the analysis of network activity.
In summary, the LSK token is used for sending and receiving transactions, voting, investing in ICO on the LSK platform and trading on exchanges. In addition to these features, he has no other uses for that moment. Developers do not seem to have a clear plan that would increase the value of LSK. An example of network activity will show that you can not count on increased adoption for this purpose. Even with the already active LISK sidechain, they use their own tokens instead of LSK.
Activity of the LISK network
For the purpose of this report, with the help of publicly available data, I conducted a LISK blockchain analysis and the actual use of the network to determine the degree of adoption and the involvement of developers and the community.
8640 blocks blocks in the LSK blockchain every day. The total weekly number of transactions is only 8996. This means that on average every 6.72 blocks LISK network processes one transaction. So we get the number of average 0.15 transactions per block. Every minute and 10 the second blockchain LISK processes one transaction.
Figure 17: Source: Lisk Chainalysis
For a year, delegates through "forging" created almost 11 million LSK, thus maintaining annual inflation of LSK at around 11%. Coiffed coins accounted for over 10% of total LSK supply:
Figure 18: Source: Chainalysis
The portfolio activity survey showed that only 5% of all wallets were active in the last 3 months:
Figure 19: Activity of LSK portfolios
In the last three months, delegates have processed 174 transactions. For comparison, the BTC network confirms an average of 350 per transaction on a daily basis.
Figure 20: Number of LSK transactions - 3 months
The number of LSKs sent at that time is 46 million and accounts for around 38.5% of the total supply of the LSK token.
Figure 21: Number of LSKs submitted
LISK has 16 thousands of addresses. In the chart below, we can see how their number changes since the beginning of the LISK, or 2016, year.
Figure 22: Number of LISK addresses
The LSK token is currently available on the 56 pairs and only 15 has the appropriate liquidity for any trade[23]. According to the BTI institute report, 38% of the daily volume of LISK is wash-traded[24]. At the same time, I remind you that it is not the fault of the developers or the project, but the dishonest exchanges.
While checking the sentiments of investors with LSK tokens, I came across an interesting statement of one of them:
Figure 23: Source: Reddit
Conclusions:
- The LSK network has very little activity
- Blocklist LISK is practically unused
- The total number of processed transactions, compared to the advertised project scale, is very small
- The LSK token is used mostly to trade on stock exchanges and speculations
- 95% of LISK portfolios remained inactive during the last 3 months
DPOS - Democratic model of LISK delegates
Let's start with the fundamental issue regarding consensus protocols - an economic initiative for nodes to impartially encourage them to use their resources to secure the network. It would seem that LISK and Bitcoin do not differ much in this respect, and both of them offer an interesting economic model. However, if we are considering an economic initiative in the case of dPOS and POW, they are, however, clearly different.
For a better visualization, let's create a simple thought experiment. First of all, we will establish two different models, with two different initial rules. One model will be illustrated by a blockchain based on the dPOS consensus, the other model reflects the system we know from the POW. Consider in this case the factor of trust and security of the network, bearing in mind that we strive for a situation in which the network would be as independent as possible from individual participants, decentralized and thus would increase its security. It is also important to note that we need a clear economic initiative that would make it possible for any nodes / miners / delegates (no matter what we call those responsible for maintaining the network, validating transactions, etc.) be profitable to sacrifice external resources to participate in the network.
In the case of our first model based on dPOS, inflation is such an initiative.
The second model, which bases the global agreement on the POW protocol, rewards miners with a certain number of cryptocurrencies (eg Bitcoin is BTC) for solving cryptographic puzzles, which is secured by blockchain. Miners, with their computing power, also transmit user transactions.
At first glance, a few percent inflation in the model no. 1 is no different from receiving the extracted units of cryptocurrencies in the model no. 2. Initial initiative in both models is clear and similar. The differences, however, become distinct when we let our system work. Time in this case causes significant differences in the functioning of both systems, and although we apply similar start rules, the final result is significantly different.
Another important thing we have to assume is that the potential participant of our model is completely selfish - which means that by putting a specific amount of work in the model, it expects the greatest profits for itself.
In the dPOS model, the key role for a potential egoist participant wishing to gain from participating in the network as much as possible for themselves is played by "gathering". We know the initial rules of the game - the more cryptocurrences you accumulate, the more weight your voice has, which in turn allows you to vote on the future state of the network. At best, you would like to keep as much impact on the network and power in your hands - so how should you behave to reflect this idea? Collect as many cryptocurrencies in your own hands as much as you can. This will cause that if new participants will want to join the game, the amount of cryptocurrency that allows them to do so will be in your hands in a large part.
So we have more or less the behavior of a potential network participant wanting selfishness (eg egoistic behavior is the only option in this case) to gain as much as possible. Now, let's increase our model to 101 participants struggling with each other for influences and the inflation resource of cryptocurrencies. Remember, each of them fights for control over the resource of a given "resource", because it allows him to stay in power and get the most out of the network. So what will we get?
Simplified economic model of the functioning of the LISK network.
Once the LSK delegates have already accumulated a certain number of cryptocurrencies providing them with a place at the top of the hierarchy of delegates, it is doubtful that they would like to share the resource. For a potential new delegate, even assuming his honest motives and willingness to increase the trust of the network through his candidacy, it is difficult to collect the number of LSK hegemony required to break, because they are possessed by the current delegates. Therefore, there is no access to a sufficient amount of cryptocurrency, because it is entirely controlled by current delegates.
In the case of Bitcoin digging, we are dealing with computing power, so it is completely independent of Bitcoin itself. So no matter how much computing power a miner or miners association has, even if it led to a monopoly with most of the computing power, a new participant may have a computing power from outside, because its resource is not dependent on the Bitcoin network itself.
Therefore, computing power is an external source and independent of the BTC itself! BTC accumulation does not work for anything in POW. There is no economic initiative to collect BTC, and a prospective miner should get rid of BTC in order to obtain a profit (by deducting the cost of computing power).
Yes, if you believe in project growth and greater adoption in the future, BTC collection has economic sense, but it is a completely different factor, not based on the initial rules of the system!
In the case of LSK, it is the other way round. The longer a delegate stays in office, the more LSK he has, the smaller the pool of potential new potential candidates. The only disputes can therefore occur within particular groups of already active delegates, in order to obtain even more control over the LSK resource. It seems that this is the situation with the GDT, Elite and Sherwood groups.
By accumulating LSK, you gain power in the system. There is also no external "resource" (as in the case of Bitcoin computing power that is independent of our system) that could be used to deprive you of power. It can only be done by a collective, a group of equally strong delegates who, thanks to the combined forces, gains more power in the system from you.
Let's now see if our hypothesis is confirmed by blockchain data. The portfolios of the LISK team and stock exchanges were excluded from the dataset.
Figure 24: Number of addresses with more than one million LSK
Figure 25: Number of addresses with over 100 LSK
Almost $ 40 million LSK is held by LNUMX 154 addresses. The number of addresses with this amount of LSK (see the graph in the section about network activity) does not change over time. Thus, from the beginning, more or less equal number of addresses has a significant amount of LSK tokens. Taking into account that the activity of portfolios is at the level of 5%, these addresses have a significant advantage in the process of democratic voting for delegates and can maintain their hegemony if there is no internal struggle between them.
In the case of LISK, you can often hear about "cartels" - a monopoly on "democracies" of particular groups of delegates is defined. I think that the definition of cartels is wrong and unfair. LISK developers established specific system rules, and when users started using it, the economics and the free market caused that we are currently observing a situation in which it is extremely difficult to break the monopoly of delegates groups without fundamental reorganization of the network. This is only the fault of the LISK developers who have set the rules of the game.
Anxiety about cartels is illustrated by numerous sources[25][26][27][28]. LISK developers have begun to take steps to change this state of affairs[29].
The delegates' case is important, but let us remember that this model is only a way to reach a global consensus that uses LISK. DPOS is therefore not in itself any plus or minus for the overall perception of the project. It is only a tool used to achieve a given goal - confirmation that the funds stored on the LISK portfolio are really yours and no one else is able to use them. Delegates, although it is an extremely interesting system, are not an asset to Liska, something that attracts developers or lead to wider adoption.
I would like to present one more observation about the DPOS system and democracy in the blockchain.
Trust and delegates
It would be trivial to assume that network users will always choose the honest and reliable delegates. Why?
Roles and duties of delegates:
- Ensure that their node is always active
- Propagation of blocks
- Signing and sending these blocks, transaction validation.
- In the event of problems with the network consensus, solve it through the voting mechanism
1. Delegates are also users in which the initiative is to have as many cryptocurrencies as possible.
2. Voters may not have complete information about the conduct of a given delegate in the network.
3. Voters may simply not care about the best state of the network, and for example another economic initiative, provided for example by a dishonest delegate.
4. Voters may simply not care about the network - without making the necessary efforts to determine which of the delegates is the best option for network security, which in turn translates into the security of its own crypts of the voter.
I would also like to add that voting becomes profitable only when you have at least 1000 LSK. We can then count on (minus the voting fee) 7-8 LSK per month, which is about PLN 60 of passive monthly income. With annual inflation at the current level of around 11%, very little is left of our bonus funds. The economic initiative to vote is therefore small.
Hacks and bugs of the LISK network
Blocklist LISK has never been hacked and the money has not been stolen. There have, however, been cases of serious errors. The biggest of them was the arrest and total paralysis of LISK blockchain on 12h[30]. The topic on the Reddit platform in which CEO Max Kordek announced this has been removed[31][32], however, the archive from this event has been preserved, in the post published on forum.bitcoin.pl (see footnote No. 30).
Figure 26: Statement by Max Kordek on Reddit
The problem was that the LISK blockchain could not process negative numbers and when they were introduced, the network crashed. The situation took place in the 2017 year.
Figure 27: Blockchain LISK did not accept negative numbers
Summary of the LISK cryptocurrency analysis
Although I would not praise LISK for its great design and amazingly prepared Lisk Academy, it will not cover the lack of any product and very low network activity. It is also impossible to hide missed deadlines and the problem with too strong groups of delegates. The shortcomings of the project also include the failure to adapt the technology to the problem - as the analysis showed, sidechains are currently not the optimal solution to the scalability problem. The costs of their establishment effectively make it impossible to use them to build decentralized applications, which is confirmed by the lack of LISK adoption despite several years of project development.
stokarz
Downloadable report in pdf: https://www.docdroid.net/1PCleep/lisk-lsk-raport-by-stokarz.pdf
Reports archive:
https://ambrosus.pl/latwe-wejscie-w-blockchain-amb-net-masternode-system/ – Ambrosus (AMB)
https://www.docdroid.net/bmUvPow/neo-raport-by-stokarz.pdf - NEO
https://www.docdroid.net/WS10r86/stellar-konsensus-raport-by-stokarz.pdf - Stellar (XLM)
If you are interested in cryptocurrency technology, you can find my articles on the websites:
https://ambrosus.pl/
https://cyberkrypto.pl/
[1] https://www.reddit.com/r/Lisk/comments/94yf71/lisk_tps_and_scaling
[2] https://blog.lisk.io/lisk-ico-terms-25ca3ecd5a4d
[3] https://medium.com/@MaxKordek/advising-sonm-586da71e93e2
[4] https://steemit.com/rise/@lexiconical/rise-a-formerly-promising-lisk-fork-that-crashed-93-in-february-crypto-collapse
[5] https://medium.com/@MaxKordek/liquidation-strategy-60f055d75049
[6] https://lightcurve.io/about-us?positions=
[7] https://medium.com/@DPRating/darpalrating-github-audit-for-200-blockchain-projects-march-2018-3c6b839abdaa
[8] https://cryptobriefing.com/lisk-devs-learn-hard-way/
[9] https://github.com/ambrosus/sidechannel-bridged-token-PoC/blob/master/Sidechannel+PoC+documentation.pdf
[10] https://blockonomi.com/sidechains/
[11] https://blockstream.com/sidechains.pdf
[12] https://www.blockchain.com/charts/n-transactions?timespan=180days&showDataPoints=true&daysAverageString=7
[14] https://www.stateofthedapps.com/rankings
[15] https://ylv.io/how-much-does-it-costs-to-run-dapp-in-2018/
[16] https://ylv.io/how-much-does-it-costs-to-run-dapp-in-2018/
[17] https://ylv.io/how-much-does-it-costs-to-run-dapp-in-2018/
[18] https://www.eosrp.io/#calc
[19] https://github.com/slasheks/lisk-whitepaper/blob/development/LiskWhitepaper.md
[20] https://coinpaprika.com/waluta/lsk-lisk/
[21] https://www.liskdiscovery.com/sidechains
[22] https://lisk.io/help-center/getting-started/does-lisk-have-transaction-fees
[23] https://coinmarketcap.com/currencies/lisk/#markets
[24] https://www.liskmagazine.com/blog/2019/04/19/38-of-fake-trading-volume-on-lisk-according-to-bti-april-report/
[25] https://medium.com/coinmonks/lisk-the-mafia-blockchain-47248915ae2f
[26] https://www.reddit.com/r/Lisk/comments/8c1r5m/lisk_cartel/
[27] https://captainaltcoin.com/crypto-projects-with-no-future-elite-cartel-dominated-dapp-platform-lisk-lsk/
[28] https://blog.goodaudience.com/the-time-for-independent-lisk-delegates-has-come-2e70db451319
[29] https://captainaltcoin.com/lisk-lsk-about-to-dismantle-delegate-cartels-new-roadmap-is-out/
[30] https://forum.bitcoin.pl/viewtopic.php?t=21652&start=13720
[31] https://www.reddit.com/r/Lisk/comments/8o033l//?utm_content=body&utm_medium=post_embed&utm_name=ee1aeb0dde72406bb54888194697d1ab&utm_source=embedly&utm_term=8o033l
[32] https://www.reddit.com/r/Lisk/comments/8o73ap//?utm_content=body&utm_medium=post_embed&utm_name=8afecac244284f99b8ed2b8d62e5f645&utm_source=embedly&utm_term=8o73ap
