Market capitalization dynamics of cryptocurrencies by consensus types

This paper presents a comparative analysis of different consensus types based on the market cap dynamics of the most popular cryptocurrencies

By Marina Shkapina

One of the key differences between various blockchain projects is the form of consensus, which helps to ensure that the next block created in the blockchain is the only version of the truth. The type of consensus defines the way the coin is being generated: who verifies the cryptographic puzzle output, how the election process for miners is organized, etc. Also, the distinctive criterion for various types of consensus algorithms is the level of trust to a particular validator and the degree of anonymity of the validators.

Given all the pros and cons of the blockchain consensus algorithms, the question arises as to how a particular type of algorithm affects the value of currency using a specific type of consensus. Answering this question, we divided the most popular cryptocurrencies into groups by types of consensus and compared their market capitalization.

 

Data and methodology

The research addresses a comparison of the market capitalization of blockchain projects, divided into groups according to the types of consensus they use. Accordingly, relying on the available data from the websites – aggregators of information on cryptocurrencies, we conducted a dynamic analysis of the performance of each group for the period from October 3, 2017, to April 5, 2018.

The following blockchain projects were under review (in accordance with the type of consensus):

  • Proof-of-Work (PoW)
–        BTC –        SC –        XMR
–        ETH –        DOGE –        ETC
–        BCH –        HSR –        ZEC
–        LTC –        XZC –        STEEM
–        XVG –        DASH –        BCN

 

  • Proof-of-Stake (PoS)
–        ADA –        PIVX
–        STRAT –        NEBL
–        WAVES –        TRX
–        HSR –        QTUM

 

  • Delegated Byzantine Fault Tolerance (DBFT)

– XRP

– NEO

– XLM

 

  • Directed Acyclic Graphs (DAG)

– IOTA

– NANO

– Gbyte

 

  • Delegated Proof-of-Stake (DPoS)

– BTS

– ARK

– EOS

– LSK

 

  • Delayed Proof of Work (DPoW)

– KMD

 

  • Loop Fault Tolerance (LFT)

– ICX

 

  • Proof-of-Importance (PoI)

– XEM

 

Results

As the dynamics of market capitalization shows, the blockchain projects of all the consensus mechanisms under consideration demonstrate a similar trend with peak values in late 2017 – early 2018. This corresponds to the general market dynamics, due to the increased interest in the crypto sphere in the given period.

Among the market leaders with the largest market capitalization indicators are PoW, PoS, and dBFT, which include most of the blockchain-projects under consideration. DAG, dPoS, and PoI are distinguished among the groups with a lower market capitalization, showing similar dynamics and approximately the same values at the peak (January 2018).

At the same time, dPoW, which includes only one considered project – Komodo (KMD), has the smallest market capitalization. Against this backdrop, the success of the PoI is also noteworthy. Only one cryptocurrency under consideration uses this type of consensus (XEM), but it demonstrates high market capitalization indicators.

In this regard, let us look at the relative contribution of each group to the overall dynamics. As clearly shown in the graph below, the PoW group dominates among all others, which is due to the size of the group and the presence in it of such popular projects as Bitcoin, Ethereum, Litecoin, and others. A significant share of the market belongs to PoS and dBFT. With a general decline in market capitalization by the spring of 2018, their market share has significantly decreased.

The chart below helps to estimate the relative changes in each cryptocurrency compared to each previous day. As can be seen from the graph, the most significant oscillations are observed in PoI, DAG, LFT, and in dBFT.

To monitor the dynamics in the “common coordinate system,” the dynamics of each group was calculated starting from a single point of 100% for all groups. Thus, the most significant fluctuations are observed for the PoS, which shows the highest values. It is followed by the group dBFT, which performed a sharp jump in early 2018. From January to February 2018, the highest rates among all consensus groups were recorded for dPoS.

To conclude, despite the current dominance of PoW algorithms in the market (by the market capitalization), it is obvious that blockchain projects working on other algorithms are also successfully having a significant share of users. This is especially important given the growing fears that market participants have about the insufficient security of PoW (relative to value) and the excessive electricity consumption, which causes the miners to spend too many resources and poses a threat to the environment.

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