Even as bitcoin’s status as a revolutionary payment network is still under debate, another cryptocurrency has staked its claim to the original cryptocurrency’s throne. Launched as XCoin in 2014, Dash has corralled an impressive following among cryptocurrency enthusiasts for its fast processing time and innovations in mining.
“We are the largest (cryptocurrency) in the space that is positioning ourselves as a payment network,” claims Ryan Taylor, Dash CEO. The Arizona-based startup behind the cryptocurrency has inked partnership agreements with four payment gateways, including one with a network that processes payments for the lucrative yet cash-only cannabis industry. In addition, it is developing Zimbabwe’s first cryptocurrency to lower inflation costs and is already present in Venezuela, another region beset by inflation and high transaction fees. These initiatives should drive up transaction volumes for the cryptocurrency, increase its network effects, utility, and valuations.
Even then, Dash hasn’t done too badly for itself this year. The cryptocurrency’s price is up by more than 8,100 percent this year as of this writing. At 13:45 UTC, the cryptocurrency was valued at $6.9 billion and was trading at $897.08.
Bitcoin’s Shortcomings As A Payment System
Ryan Taylor, who previously worked as a payments industry research analyst, does not mince words while discussing bitcoin’s unsuitability as a payment network. “I think there’s a real disconnect between the way that the network is designed and the actual attributes of a payment network,” he says.
On the merchant side, bitcoin requires significant investments in infrastructure and technical know-how for operations. For example, merchants either need to host their own node or interface with third-party applications to process payments.
Customers also get the short end of the stick when bitcoin is a payment processor because of high transaction fees and “extensive coaching” and instructions to be able to make the payment. “The merchant is less price-sensitive than customers,” explains Taylor. “So they’ve put the fees in the wrong place.”
Dash has developed an API (Application Programming Interface) that is accessible to merchant systems through a simple copy-paste operation involving a snippet of code. The code can be pasted onto their checkout page or Point of Sales (PoS) systems.
A Different Rewards System And Faster Processing Time
On the operational front as well, the company works differently as compared to other cryptocurrency outfits. Instead of full nodes with entire blockchain histories, Dash has instituted a selection system of "masternodes" that are responsible for conducting the tasks of a full node and are paid on a weekly basis in the cryptocurrency to balance the global ledger. There are about 4,700 masternodes in Dash's network to ensure faster transaction processing times.
In other cryptocurrencies, miners get the entire reward for making a transaction block. In Dash, the reward is divided between miners (who get 45% of the overall payment), masternodes (again, 45% of the overall payment) and the cryptocurrency’s treasury (10% of the overall reward). The treasury sets aside funds for business development, such as sales and marketing activities. This business model has enabled Dash to proactively seek out customers for its network, instead of being dependent on donations or being bankrolled by large academic institutions like MIT. For example, Dash’s partnership with KuvaCash in Zimbabwe is funded with money from its treasury.
The overall goal of these improvements is to scale the network quickly. “Up to now, we (the cryptocurrency ecosystem) have been missing the broader picture,” says Taylor. “If you can’t find a way to scale the technology, the consequences are enormous.”
Other similar initiatives, such as Bitcoin’s Lightning Network, fall short in his estimates because they are some time away from full implementation. “We need that (fast transaction processing) capacity now,” he says. (See also: Is Bitcoin's Lightning Network A Game Changer?)
To that end, Dash has also partnered with the Arizona State University for blockchain research related to scaling its network. According to Taylor, the research is focused on various technologies that can allow blocks to propagate the network more quickly, such as compact blocks and use of graphene, a blockchain ecosystem, in the market.
The Time Factor
But Taylor’s vision of a cryptocurrency ecosystem will take time because it is also susceptible to the same problems as its rivals. For example, the economics of energy-intensive bitcoin mining may catch up with the Dash network as it scales. Already, the company has shifted to ASIC machines from its initial base of home computers.
The shift towards cryptocurrencies, even in emerging and troubled markets (such as Venezuela and Zimbabwe), will also not happen overnight as the economies grapple with a bunch of different economic problems at the same time. In the meanwhile, adoption rate numbers for commercial transactions in developed countries are pretty low. This limits Dash's current market.
Then, there is the problem with competition. Litecoin and bitcoin’s Lightning Network have more media traction and are present in Asian countries such as Japan and South Korea, which have embraced cryptocurrencies. See also: Is Litecoin The Future of Cryptocurrency?)
According to bitinfocharts.com, Dash’s transaction volumes have increased through the year. But the spike in volumes corresponds roughly with increases in its price; hence, trading volumes may constitute a major part of the bubble. Not that it worries Taylor. “My first instinct is that it is all speculation,” he says.