Category: Financial Services

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Blockchain Financial Services

4 blockchain real estate startups shaking up property investment

Real estate companies have traditionally benefited from keeping secrets. Try to invest in a property and you’ll likely have to wade through a bureaucratic nightmare and dodge widespread fraud. On the other hand financial advisors mostly agree that buying property is a good investment. So why would blockchain real estate startups show their cards?

Interestingly, several blockchain real estate startups have emerged over the last few years. Each intends to disrupt the way real estate industry work.  Secrecy is not profitable anymore, especially when middlemen become redundant. A blockchain network, after all, can reduce risk aversion through a trustless environment. In turn, this facilitates property transactions without the need for trusted third parties. Of course the expertize of real estate agent is still a great value. However a greater market demand for transparency in the global economy has spurred innovation in real estate tokenization.

Tokenizing assets makes many processes associated with property transactions happen faster and at a considerably lower cost. This, in turn, enables greater liquidity in the market and makes life of real estate investors way easier. Earlier this month, a $30 million New York property became the first asset to be tokenized using blockchain technology.

This article will shed some light on real estate tokenization and ways real estate startups are increasing returns for property investors.

How blockchains work

In order to unpack some aspects of property tokenization, it is essential to understand the basics of blockchain technology. At its core, blockchain is an ever-expanding decentralized public ledger. Individual blocks contain data, secured with cryptography that are impossible to change. Moreover, each block will have access to a cryptographic hash of the block prior to it. This includes a timestamp and transactional data. Having a publicly-accessible unchangeable ledger adds transparency to real estate industry.

Through smart contracts, blockchain real estate startups remove trust from the equation as well. In a market in which trust is of the great value, smart contracts are the perfect solution. Buyers and sellers can streamline the process of a property transaction.

Tokenization of real estate industry

Blockchains prevent any data manipulation once the information is on the distributed ledger. As a result, the technology records data permanently, efficiently, and transparently so that all parties involved can see the history of i.e. real estate transactions.

Moreover, blockchains prove very difficult to attack due to their decentralized, distributed nature. All these features encouraged the development of peer-to-peer transactions with cryptocurrency. Though since the advent of cryptocurrency, investors including future property owners have sought a way of tokenizing other assets. Real estate tokenization is one such example.

Blockchain startups tokenize an asset ensuring that sellers actually own the property and that the buyer has the funds to cover it through cryptographic smart contracts. A blockchain can seamlessly verify all this data instantly, reducing the time and the total cost of the transaction.

Tokenizing a property into cryptocurrency is the way of property management that allows increasing the security and viability of the purchase, and opens up a global market. To many, blockchain technology has a clear application in the notoriously opaque real estate market. Several blockchain real estate startups have filled this niche by driving innovative solutions.

New opportunities, new risks

In an interview with Tom Bill of Knight Frank, real estate expert, Abimanyu Dayal, said blockchain has the ability to revolutionize the property market due to its ability to increase liquidity rates.

“This could revolutionize the real estate market because it provides 100% liquidity 24/7,” says Mr. Dayal. “If you want to invest in London residential property today you are looking at £700,000-plus and are locked in for seven to nine years. Now you can enter and exit whenever you want and that is how people want to invest.”

However, the regulation of real estate tokenization is still something that is yet to fully settle. Mr. Dayal, however, believes that this will not affect property values, as the currency will always be based on domestic currency and not the token itself. If a dollar appreciates against a crypto, the liquidity of the cryptocurrency allows for an immediate adjustment that offers no arbitrage.

Conversely, Oxford professor and real estate expert Andres Baum believes such a liquid market is neither achievable nor desirable. His research document Proptech 3.0 is the leading word on technology and property.

“If real estate traded more like a stock or a bond, prices might rise due to increased liquidity, but equally they might fall because of greater volatility and risks. The global banking system has survived over the last decade because it has not been forced to mark property assets to market.”

This follows a similar theory which states that the banking system relies on marked property asset value. Investors who seek a different avenue than stocks and bonds may suffer from a lower yield due to a lack of diversification.

Blockchain real estate startups

Despite the risk associated with the property-blockchain collaboration, there have been a few startups run by open-minded real estate professionals who have attempted this marriage – with varying degrees of success. No doubt these companies are some of the pioneers in the industry and their experiences could aid anyone seeking to venture into real estate tokenization and new investment opportunities.

Propy

With an initial ICO that attracted over $15 million in investments, Propy is definitely a must-watch company in the blockchain property space. Founded in 2015, the company allows investors to purchase property through blockchain in a variety of locations, the most prominent being in the USA, Dubai, Europe, and Hong Kong. The company claims to aid cross-border property transactions.

As time develops, the amount of Propy users is expected to grow substantially, so early investors may see a reward for adopting the trend early.

Harbor

Launched in 2017, Harbor topped Propy’s initial capital raising endeavors. The blockchain real estate startup attracted over $38 million from its ICO. The token sale has funded Harbor to the point where they now hold a large share of the market in North America.
Meanwhile, the Harbor token is further backed by Ethereum ERC20, which allows for the resale of the currency as a security. Liquidity aspects are an obvious attraction with the Harbor model.

ShelterZoom

ShelterZoom is an easy-to-use platform that offers potential investors a way to infiltrate the blockchain property market from the comfort of a mobile platform. This includes other functionalities like widgets and a dashboard.
Additionally, the property aspects are straightforward and easily accessed. The company seeks to increase the number of sales over the Ethereum network. Transactions are founded by smart contracts, attracting users from over 22 countries.

StreetWire

Espeo Blockchain is proud to be involved in StreetWire’s mission to innovate the market. We’ve aided in blockchain consulting, writing a technical whitepaper, and designing the company’s landing page. In the future, we plan to support their backend operations. StreetWire is building a decentralized clearing house for real estate data and transactions. It will streamline processes around closing, lending and valuing property while returning value and control to data producers.

The project leverages blockchain technology to support the global adoption in an evolution of the technology in real estate.

Blockchain’s utility

While many industries are thinking of ways to apply a distributed ledger ( and whether it’s worth it), blockchain real estate startups have begun to use the technology. Cutting out expensive middlemen, streamlining financing, and removing trust from transactions are just some of the blockchain’s advantages in this traditionally conservative sector. Cross-border property investment may also increase as the decentralized technology reduces risk and verifies financing. Blockchain technology is poised to disrupt a market in dire need of an update.

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Blockchain Finance Financial Services

Token economics explained: tokenomics examples & tips

Nowadays, a lot of projects are popping up within the blockchain industry, claiming to be the next big innovation that will change the world. In reality, only a minority is really disruptive. Because of the innovative character of this blockchain technology, the number of types of tokens and used cases is unlimited: tracking ownership, provenance of documents, supply chain management, insurance and so on.

In this article, I’ll introduce this high-profile concept in crypto space – tokenomics, or token economics. This new paradigm is shaking the traditional economy, but it includes many challenges. I’ll underline its key-concepts, and its main pain points to keep in mind during the creation of a new token ecosystem.

Tokens and token economics

Notion

Token economics (or tokenomics) is the study of a new type of economy that can be defined as the design of a particular ecosystem in a blockchain environment. There are as many ecosystems as startups and projects in the blockchain industry, where tokenization is a popular process. Some of these ecosystems and types of tokens are ingenious and disruptive, others are pretty dangerous and unstable.

Putting it in simple terms every ecosystem is composed of several elements, and the crypto token functions as the central element of this new type of economy. As you might know, a token is a digital asset that can belong to different categories: utility/security and fungible/non-fungible and have a limited supply or lack a maximum supply. Let’s explain what those are, as these are important terms in tokenomics.

Utility or security?

A utility token is a digital asset used to offer the access to products and/or services on a platform. And the other is a ‘security token’ – that derives its value from an external and tangible asset and offers to the token holders a wide range of rights (entitlement to a share of profits, ownership or equity in a legal entity, and so on).

The line between these two categories of tokens is thin, so it can be problematic in tokenomics, given the different regulatory frameworks applicable to these two categories The actual regulatory framework isn’t totally transparent about the criteria for qualifying a token as a security or a utility token. However, there’s still a set of guidelines that allows the blockchain entrepreneurs to create a token that aligns with their expectations as closely as possible, legally and technically. The criteria include (but are not limited to):

  • the possibility of varying returns between the token holders based on their participation or use of the network
  • the manual action that is required outside the network in order for the holder to get the benefit of the token
  • the timing of the token sale.

Fungible or non-fungible?

Depending on the business scope of the project, a token might be fungible or non-fungible. The difference is quite easy to figure out. Fungible tokens are interchangeable and can be divided into smaller token units (example: Binance Coin). Non-fungible tokens are non-interchangeable and can’t (actually) be divided (for example, CryptoKitties. Each token represents a unique cat).

In a tokenomics analysis, the choice between a fungible or non-fungible token will entirely depend on the used case-study. Let’s take an example of a Cyber Security platform where a Cyber Analyst is rewarded for providing insights on cyber security. It wouldn’t make sense for them to receive a non-fungible token. The reward is like a paper bill. Imagine that the token is worth 10 dollars, and the reward is worth 5 dollars. The Cyber analyst won’t care about a 0.5 token, because the value is the same for him or her. Now, let’s imagine a diamond supply chain platform. Each non-fungible token is linked to one diamond. It makes sense for the buyer of a diamond to receive THE token that has his diamond as asset-back, and not a random non-fungible token.

The Ecosystem

Token-flow

Designing an ecosystem requires a careful analysis of the token-flow. When doing your tokenomics analysis, ask yourself these questions:

  • What are the values that the ecosystem is trying to promote and how is the incentivization organised to adopt a determined behaviour?
  • What are the sources of input (injection) and output (rewards) of tokens?
  • How can we build a sustainable and stable ecosystem in the long-term?

Building your ecosystem is thinking about the future and drivers that lead the user to come, stay and interact with the platform. That’s the core of token economics! Plenty of projects have badly designed ecosystems. The system is based on a disproportionate allocation of tokens. Combined with a hard cap of tokens emitted, this can lead to the collapse of the ecosystem because there won’t be enough available tokens.

Architecture: dual or simple structure

In order to choose between a simple and a dual token architecture, you should take several criteria into account. The alignment of the interest between the users of the platform developed and the investors, cost of development (e.g. listing of tokens on the exchanges) but before all: a real raison d’etre. Tokenomics make sense only if you know what the goal of the project and the purpose of the token is. So you must design the ecosystem of the project to be suitable for a given structure. In some cases, a simple token structure will fit better with the goal pursued by the project.

Steemit is the best example of a dual-token Ecosystem. The raison d’etre of the Steem Dual Token structure is to incentivize the commitment of the community in the long-term. So, it affords a long-term growth of crypto assets rather than a short-term one.

Stabilization mechanism

It’s important to manage the threats linked to a crowdsale bonus that can have a negative impact on the token economics. Indeed, some blockchain startups are proposing high bonuses (up-to 80% bonus) to early bird investors. This can lead to various dangerous situations where a single investor can have a critical influence on the coin price stability.

Monetary policy

Token economics and crypto coins are closely linked to a predetermined monetary policy.

A monetary policy consists of measures an institution can take in order to create stability for a certain currency. For example, the central bank has three important instruments to achieve this stability:

  • changing the credit policy towards other banks,
  • buying or selling government bonds and foreign currencies in order to change the money supply
  • and lastly changing the reserve ratio for banks.

These actions form the core strategy of stabilizing a currency.

You have to adopt the right monetary policy for each ecosystem. If an inflationary monetary policy will afford more stability in a non-profitable ecosystem (Steemit), a deflationary system will be more suitable for a profitable ecosystem. So it’s important to build a core strategy in order to maintain a safe value for the potential token holders.

Conclusion

Token economics isn’t easy. Designing your ecosystem has its pitfalls. It’s more than a threat for the future development of a project. A weak ecosystem based on a wrong business model could lead to legal issues and dramatic consequences for the token holders.  I’ve seen some terrible ecosystems in my career and saved people from really bad ideas and failure-gonna-be crypto projects. So don’t hesitate to contact me here at Espeo (box down below). I’m confident that our team will build the most suitable ecosystem for your project that will help you save both crypto assets and your fiat currency.

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Blockchain Finance Financial Services

Customer loyalty management on the blockchain

A spotlight on our client, Gabro, who noticed loyalty program management wasn’t working and decided to fix that using blockchain. We’ve talked to their CEO, Andy Chen, as well as the architect of the blockchain solution, our very own Marcin Zduniak. How exactly will Gabro work, is it a blockchain loyalty program? How will Gabro innovate on customer loyalty program software? Read on.

What made you feel there were problems that needed fixing in customer loyalty management?

Let me start by telling you a little secret about loyalty programs. Most of them don’t work.
What do I mean by that? Our research shows that 78% of customers are dissatisfied with their loyalty programs because they have to carry all these plastic cards/paper coupons or remember so many accounts and passwords. There’s no good customer loyalty program software that can help the user. Not only that, but loyalty program management operators bring in additional obstacles by setting blackout periods and ridiculous expiry dates. So, it’s highly difficult for consumers to redeem their points or coupons.

It’s actually not an accident. Every expired point becomes profit for the company. So you may ask why bother having all these programs in the first place if the redemption is only 7% and all the customers walk away feeling cheated…

So that’s how Gabrotech was born? How did the team come together?

Yes, pretty much – it was born out of frustration. The loyalty programs often seemed like a waste of time and money. I remember how many points I’ve wasted.
So, the 6 of us wanted to resolve this problem: how can we make loyalty programs really work for the customer? We all went and analyzed different solutions, and we have all came to the same conclusion – we need to use blockchain to resolve this – let’s do a big blockchain loyalty program! Only after some time, we then realized that our blockchain solution could really disrupt the loyalty industry. Finally, we decided to create Gabrotech to get more like-minded people on board.

Speaking of like-minded people. How did you find Espeo, and how is our cooperation going?

Espeo has a great reputation in this industry. Like Gabrotech, they are creative in their solutions and our partnership has gone from strength to strength.
Actually, Espeo is part of what makes us different from other ICOs. We incorporated the most innovative blockchain technology with customer loyalty management, thanks to you. Our Token GBO will be a currency as well as a trading tool to use, exchange, and sell on one blockchain-based platform.
Our blockchain solution provides proof of ownership for rewards, contracts (terms) and conversion capability at low operating costs. New partners and coalition could be added to the program almost instantly, with low security risk even if a partner is unknown and not trusted yet.

So what exactly are you offering? Customer loyalty program software? Or an app?

No, it’s something completely different. It’s not the question of having another discount app. At Gabrotech, we have designed a whole new ecosystem based on decentralization. It’s also more than just a blockchain loyalty program. Customer loyalty programs can no longer set these ridiculous rules or charge you with hefty fees, making it hard for you to redeem the points you’ve earned.
Also, users can freely trade their loyalty points between different programs. When you don’t have enough hotel points, how about using your air miles to get the upgrade you want instantly?
As a part of our special customer loyalty program software, our digital wallet 2.0 will allow you to manage all your programs with only one app and one password. And if you have idle points, you can give them to your friends, swap them with something else or even sell them. Additionally, when you’re traveling abroad and don’t have the local currency, you can use your Gabro pre-paid card and spend your air miles just like cash.

Why did you choose blockchain for customer loyalty management? Is it truly as ‘revolutionary’ as people say?

Since we are targeting 60,000 merchant outlets and 60 million customers, blockchain is the secret sauce for our customer loyalty management ecosystem. It’s because:

  1. The complicated terms and conditions and conversion rates could be developed using smart contracts for speed (4 weeks vs 5 mins)
  2. Blockchain is immutable and could reduce fraud or running the risk for being redeemed twice
  3. Adding a new merchant in blockchain is fast and could greatly reduces costs

Let’s take a closer look at the technology behind Gabro. A few words from Marcin Zduniak, Head of Blockchain at Espeo.

The initial scope of Espeo Blockchain’s involvement was to design the architecture of the complete GabroTech solution, both the centralized part of it and all of the blockchain related building blocks and internal components. All the details can be reviewed in the technical whitepaper we prepared (see it here). But let’s look at some of the more interesting technologies we’re planning on implementing.

  • our own Plasma Cash implementation for trustless, cheap and rapid loyalty points transfer
  • private permissioned Ethereum ledger (PoA) for the trustless loyalty points redemption and issuance rules
  • advanced cryptography and schemes (BIP-32, PBKDF2, Shamir’s Secret Sharing) for the secure wallet development
  • user-friendly access and authorization to the wallet (biometric factors like face recognition using 3D scanning directly from the mobile phone)
  • multi-currency exchange (with decentralized and also centralized processes, depending on the needs of given market — like level of trustlessness, liquidity needs, pace of the trading)
  • atomic swaps of the points and tokens where it is technically feasible and economically practical
  • integration with existing loyalty points providers and issuers and the way these legacy points could be fairly tokenized and redeemed and/or exchanged for other providers’ points
  • a scheme of using the blockchain technology in the off-line Point-of-Sale scenarios (similar to NFC in regular micropayment schemes)
  • integrated analytical tools employed with machine learning algorithms and Big Data-type of storages that could suggest the best loyalty point deals for the end-users and points-holders and also suggest ideas for new profitable promotions to the merchants

After an extensive research period, we came up with the technology stack and process flow design. Right now, we can say it’s both secure and economically viable. What’s more, it appears to be attractive to the end customers. Both loyalty points holders and merchants that are about to redeem them will likely find this an improvement on customer loyalty program software. We’re now planning on the next phases of our cooperation, namely the implementation phase and the precise release roadmap.

Why invest in GBO?

The sum of all loyalty points issued across industries globally is more than $500 billion. Most of these points are idle. So, essentially, Gabrotech is helping to monetize your idle loyalty points. This will attract millions of consumers to give up their points in return for GBO. Our merchant partners would also want to hold GBO for hedging purposes. So, when reaching our target of 6,000 merchant outlets and 10 million users, we will become a loyalty currency on our own. The merchants might even reward their customers with GBO directly rather than their own branded customer loyalty points. Just like banks buy air miles to reward the customers spending on their credit cards.
The network effect is created when we add more merchants to our ecosystem. This means they will bring more of their loyalty members into our platform. It will then attract more merchants to join us in order to increase their customer base. Gabro clearly offers more benefits than regular customer loyalty program software.
Our tokenomics model shows that 43 to 50% of our tokens would end up in the hands of consumers and our merchant partners. This creates a huge demand of GBO and boosts up the price steadily. Just like bitcoin, the more widely it is accepted and used, the more the price will go up.

Can I convert my GBOs into real money?

Yes! Our Multi-Currency Conversion Engine allows you to rapidly convert your GabroToken to fiat currency at the real time market value. In addition, Gabro may also be exchanged to points in any blockchain loyalty program.

How do you see yourself and Gabrotech in the future – say, in 5 or 10 years?

Gabrotech will revolutionize customer loyalty program software! It will be the largest loyalty exchange platform in Asia and cover all industry verticals. Closed loop loyalty platforms become obsolete. Gabro releases billions of dollars from the idle points sitting everywhere… sounds amazing, but it’s not unrealistic!

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Blockchain Financial Services

Blockchain – Hyperledger vs Ethereum: a comparison

In some aspects, various blockchain technologies overlap with their intent and in other parts, they differ greatly, with their distinct features and scope. Let’s take a look at Hyperledger and Ethereum.

Hyperledger vs Ethereum: a comparison

Table of contents:

What is a blockchain?

Before we start working on our Hyperledger vs Ethereum comparison, let’s quickly recap what a blockchain is. If you rip off all the buzzwords and advanced crypto jargon, you can try to treat a blockchain as… a stone. What is written in stone will remain forever, right? But there is no single stone that holds the ultimate truth. Blockchain is made of nodes communicating with each other, and every blockchain node has its own stone. Users update it as time passes with new transactions. Before accepting an entry in a stone, information is reviewed and confirmed according to the blockchain consensus algorithm. It’s just a way of agreeing on the acceptance of valid information/transactions.

After an entry’s acceptance, every stone in a public network of such stones must reflect the change. So, when a transaction happens every stone is updated. Stones are compared to deduce the state of the blockchain. So this is the main reason why blockchain is so appealing. You can have a source of true history written in stone without a central authority. This source cannot be changed.

Is that all?

Looking at Hyperledger and Ethereum, we must first introduce all the contenders. While Bitcoin may be qualified as a public blockchain that handles money transactions (decentralized cryptocurrency). Ethereum and Hyperledger Fabric blockchains are much more than that. We call them blockchains 2.0, or evolved blockchain concepts that comprise of Virtual Machine engines. This means they can execute almost arbitrary Turing-complete code that was deployed into the blockchain (a computer program of some sort).

So now using our stone metaphor, we have scripts that can be written into the stone and you can execute automatic actions that alter the stone or make calculations.

What is Ethereum?

Ethereum is a public blockchain created in 2015 by a smart guy called Vitalik Buterin. He had a vision of extending the idea of Bitcoin’s decentralized cryptocurrency to decentralised applications (what are dapps about?). Those applications would comprise of smart contracts. Ethereum can be seen as a open-source platform that runs those smart contracts. They will be executed exactly as programmed without any possibility of downtime, censorship, fraud or third-party interference.

What is Hyperledger?

Hyperledger is not a blockchain in itself. Hyperledger is an open-source project and a hub for many blockchain projects under the Linux Foundation umbrella. Some projects that reside under the Hyperledger umbrella are:

  • Hyperledger Sawtooth: developed by Intel. Uses a brand new consensus algorithm called Proof of Elapsed Time (PoET) which helps to build networks with a large number of nodes with a small CPU consumption footprint. Supports both permissioned and permissionless blockchain networks.
  • Hyperledger Iroha: made by Japanese developers who originally created this solution for mobile use cases. Designed for simple creation and management of assets. It’s aiming to be easy to incorporate into infrastructure projects. Consists of new chain-based Byzantine Fault Tolerant consensus algorithm. Soon they will release iOS and Android support
  • Hyperledger Indy: Was created to provide independent identity on distributed ledgers. Private information is never stored in the ledger. With this solution, you will be in control of sharing your identity with others
  • Hyperledger Burrow: is a permissioned blockchain node that executes Ethereum smart contracts code (usually written in Solidity). You can specify an amount of gas needed to execute given contract. To invoke a contract you need sufficient permissions, not coins or tokens. Provides high transaction throughput thanks to the proof-of-stake Tendermint consensus engine.
  • Hyperledger Fabric: developed by IBM. Supports only permissioned networks. Provides elastic architecture — different components can be plugged in or out to fit the use case.

Comparison:

So let’s get to it — Hyperledger versus Ethereum! We’ll find out what the differences are between those blockchains in a few selected aspects. Then, hopefully, it will be easier to choose one over the other in certain blockchain applications.

Permissioned blockchains vs public blockchain networks

Ethereum is a public blockchain and permissionless network which means that it can be accessible to anyone for both read and write operations. On the other hand, Hyperledger Fabric is a private network aimed at solving problems specific to the enterprise landscape. Fabric is a permissioned network. This means that only privileged entities and nodes can participate in this decentralized platform. To receive access, one must submit enroll and be granted permission from a trusted Membership Service Provider (MSP). MSP is a component that issues and validates certificates, and later handles user authentication.

Private transaction between members

In Ethereum there are no means to issue a private transaction between members. That is, if we ignore the fact that in Quorum, JP Morgan’s fork of the Ethereum implementation, provides that feature. In our Hyperledger vs Ethereum comparison, it starkly contrasts with Hyperledger Fabric’s ability to offer that feature. Hyperledger Fabric can have multiple ledgers.

A ledger here is called a channel. A channel can be available only to certain members. This is a very important use case in enterprise integration scenarios, because it isn’t especially desirable to offer full transparency of internal business processes to the competitors. Certain contractual agreements should stay private.

Consensus Mechanism

Ethereum also shares the burden of most public blockchains: a requirement of costly consensus algorithm like “proof of work” to validate transactions and secure the network.

In the consensus model a transaction from one node, every node must confirm it in the form of a valid block before it’s accepted . The one node that creates a valid block first will get the reward in the form of an incentive for honest transactions validation. Nodes which create valid blocks and are rewarded for their work will get less and less rewards over time.

This consensus algorithm requires a lot of CPU power. At some point in the not-so-distant future, Ethereum will migrate to a proof-of-stake consensus algorithm. In contrast to that, Hyperledger Fabric in its default setup uses a no consensus algorithm (No-op). However, due to its pluggable architecture other consensus algorithms like Practical Byzantine Fault Tolerance can be configured. Consensus is abstracted away in a component called Ordering Service. You can even design and code your own consensus algorithm component if your needs can’t be satisfied with the existing implementations.

Hyperledger vs Ethereum: Cost of execution

Every transaction in Ethereum cost some gas, which is the way in which computing resources (CPU, storage) are valued in Ethereum. My colleague wrote a more in-depth article about Ethereum gas, if you’d like to dive in. Ether is the Ethereum’s native cryptocurrency. You can exchange it on some cryptoexchanges to your local currencies like USD or EUR.

As the Ether value as against national currencies is fluctuating, the gas costs, if expressed as a fixed factor, would also fluctuate. That’s the reason why in Ethereum we have the notion of gas and — separately — gas price (which is the value of the gas in the Ether unit). This way computational costs could stay constant to some extent even with high Ether market volatility. This translates to the observation that every transaction invoked on the Ethereum Virtual Machine will cost some real money.

Cryptocurrency is fuel for the costly proof of work consensus algorithm which secures the network. That gas cost not only incentivizes validating nodes to perform their duties. It also deters potentially hostile nodes from executing DDoS attacks that would cost them a small fortune. On the other hand, in Hyperledger Fabric there is no notion of gas. Every participant knows all the other participants of the network. In a setup like that, it’s easy to detect malicious users and activities and revoke their access to entire blockchain if the need arises.

Smart contracts

When writing smart contracts for Ethereum, the Solidity programming language is the main choice for blockchain developers (here’s our Solidity tutorial). In Hyperledger Fabric, smart contracts are called chain codes. In this case blockchain developers have an option to write chain codes in mainstream programming languages such as Golang or Node.js.

Chaincode runs in a secured Docker container isolated from the other processes. There is also one notable difference: Solidity language was designed to ensure that smart contracts written in that language give deterministic results. Node.js and Go with their runtimes weren’t designed to keep this rule in mind. So, as a programmer, you must be careful not to use non-deterministic functions while designing your chain code.

Hyperledger Fabric vs Ethereum – modularity

Ethereum has no notions of modularity. Hyperledger is designed as modular and different components can be switched on and off.

Transaction flow

In Ethereum, when a transaction happens it basically goes through two steps. The first transaction is added to ledger in some order and propagated to all peers. Then, the transaction is executed by all peers. Transactions must always execute deterministically to be sure that all the peers ends up in the same state. In Hyperledger Fabric, it’s a slightly different story. Clients send the transaction by choosing to endorse peers from those specified in the endorsing policy of channel. Endorsement policies are defined using domain-specific language.

The first transaction gets executed using chaincode in any order by chosen endorsement peers. The submitting client collects endorsements and validates signatures, then the transaction is sent to an ordering service. The order for each channel is specified and a Proposal of the transaction is sent to all peers in the channel. Peers validate the transaction and mark it as valid or invalid and state of the ledger is updated. As you can see, not all peers in the channel execute the same steps, as it was the case in Ethereum.

Which blockchain should I use?

I liked the Hyperledger Fabric vs Ethereum battle metaphor, but in truth Hyperledger Fabric and Ethereum were created to solve different problems. So they shouldn’t really be perceived as competition to each other. They are different products that happen to use the same backbone technology, which is the blockchain itself.

Ethereum vs Hyperledger – conclusion

Hyperledger Fabric was made for a business usage scenario, mostly enterprise solutions. Therefore, organizations can use the Hyperledger Fabric blockchain for their internal (inter-department) integration purposes — or more general cross-enterprise integration scenarios where the parties to the transactions know each other and have valid contractual agreements to communicate with. On the other hand, Ethereum was designed for public blockchain solutions with the notion of fully transparent and objective transaction execution even in an arbitrarily hostile environment. While to some chaos can be a ladder, this doesn’t work for application developers. At Espeo Blockchain, we also help people decide which tech they should pick and guide them through it.