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Will Blockchain Protocols Create More Value Than HTTP Protocols?

Blockchain Sandwich on a Table

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The HTTP boom only benefitted the projects that developers built on top of the application layer of the network (sites like Amazon and Facebook), but blockchain technology may offer a more balanced growth for other layers.  

Blockchain Is Right Now

The past two years have seen cryptocurrencies through a significant rise and crash in value, however, blockchain technology is continuing its evolution. Changes and upgrades continue to pop up, industry wide.

Currently, most applications on the web are based on HTTP protocols, which were great at creating value. In this approach, all of the value it created is held by the applications themselves.

Blockchain introduces a different approach to handling the value of a protocol. Instead of storing the value in the application directly, blockchain creates and holds the value. Thus, the protocol itself is always valued more than the application built on top of it.

Token Economics

The token is the most essential element of the whole blockchain economy as it combines the sum of long-term value and speculative value. In order for tokens to hold value, they need to be recognized and used outside the protocol. For example, the Bitcoin token holds value because many cryptocurrency users store their money (value) in it. Ethereum, on the other hand, holds value because it is recognized as a developer platform and numerous protocols and applications use it as a foundation.

When it comes to fat protocols, whether the foundation is Bitcoin or Ethereum makes no difference. However, when you are looking at it from an economic perspective, the difference in the type of outside use for the protocol explains the value-drop during the market crash.

Fat Protocols X and Y Axis of Value

Fat Protocols.

(Source: USV)

While Bitcoin’s external demand remains solid enough to keep the currency relatively stable, Ethereum is not doing as well. Because of the unstable market, developments and projects involving Ethereum have dropped, and this led to the serious fall in its value.

The Middle Layer Protocols

To avoid the dependability on the token, blockchain app builders should focus on creating applications which are not placed directly above the protocols, but rather on  middle layer protocol.

The middle layer protocol serves as the level that separates the blockchain layer protocol from the application customers are actually using. This separation will improve customer satisfaction as this approach creates a small economy of sustainable elements for each application available. As in every economy, this one too will need a currency, and the currency for every application will be the native token the blockchain protocol utilizes.

Thus the middle layer protocol will be the place where the value is stored, while the blockchain protocol will create the value.

The Internet vs. The Blockchain

The most important difference between the way the Internet and the blockchain are built is the structure of their protocols. The Internet stack is predominantly contained in a large HTTP protocol, and this protocol powers the most important applications on the web. The blockchain stack, however, will have several middle protocols.

This difference is necessary because it allows each application to have a specific kind of protocol and structure, which suits its’ functions best. The separation of the blockchain layer and the middle layer allows for a larger and more computation-driven economy.

The Great Crypto Crash

The Great Crypto Crash was the event that propelled the desire for innovation in the cryptocurrency world. The crash began in January 2018, when the value of bitcoin began dropping. In the month between January 6 and February 6, 2018, the premier cryptocurrency plummeted almost 65 percent. After BTC experienced such a huge drop, all other cryptocurrencies followed suit and significantly dropped in value.

However, this significant loss of value among cryptocurrencies sped up the need for improvement, as a precaution for the future. Many new cryptocurrencies emerge every day, and they are gaining popularity. At the time of press, there are more than 2,000 different cryptocurrencies, and the number is still growing.

After the Crash

While bitcoin took a significant hit during the crash, it is still involved in one of the most significant developments for 2019. The Lightning Network is probably the most recognizable initiative involving Bitcoin.

The Lightning Network aims to create an extremely secure and rapid transfer platform. The whole structure of the network is based on the blockchain and the way Bitcoin transactions function.

Ethereum is also expected to perform better, despite the huge fall it took. Joseph Raczynski, a Twitter influencer, predicts that ether’s value, the token used in the Ethereum network, will rise to more than $1,200 dollars a coin by Q4 2019. This is based on the fact that ether is largely preferred by institutional investors. It also supports and improves upon one of the largest developer platforms for cryptocurrencies.

In order for these predictions to come true, blockchain developers will have to upgrade their applications and their currencies. Potential investors in cryptocurrency crave the reassurance that their investments will be relatively safe. This is why the introduction of the middle layer protocol is a good sign for the future of cryptocurrencies. It adds safety and productivity to the applications, which in turn makes these applications more desirable by adding value to the tokens with which they work.

So far, 2019 has not given investors positive outlooks on cryptocurrencies, however, upgrades and innovative developments like the Lightning Network, and the incorporation of the middle layer in the blockchain technology, will definitely boost confidence.

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