Cryptocurrencies or Blockchains: Comparing Ethereum and Bitcoin

Introduction

In this continuing series on cryptocurrencies we compare Bitcoin with Ethereum, a blockchain platform with a minable crypto token called ether. At the outset, it should be clarified that Ethereum is not designed to work solely as another alt-chain or altcoin. It is also not designed to work only as a payments network, the purpose of Bitcoin. Simply put, Ethereum is a platform and not an application. So what is it for?

Ethereum is the first smart contracts blockchain that has been developed separately from Bitcoin. Ethereum is a blockchain platform for any type of digital smart contracts including digital payments. The Ethereum platform called Frontier is designed to enable building and execution of decentralized applications on the Ethereum blockchain. 

One way to understand this is from a Ripple point of view. Ripple's distributed ledger is a blockchain application and the cross currency exchange and account balances in Ripple transactions can be called a smart contract.

How Ethereum Works – A High Level Overview

For those familiar with Bitcoin and its history, the context of Ethereum and its design is easier to follow and even appreciate. This blog has a complete section on Bitcoin, for Bitcoin newbies. Ethereum has been in public consciousness since Vitalik Buterin’s whitepaper in 2013 and the 2014 crowdsale to fund development. Since the launch of the Ethereum blockchain in July 2015, new developments are reported on a daily basis. 

For purposes of this article, there is a short overview section before moving on to the comparison between Bitcoin and Ethereum. The Ethereum Frontier platform, distributed apps ecosystem and roadmap, will be covered in a separate series of posts. The Ethereum website and Github wiki are go to sources for complete information on Ethereum.

"Say Uncle": The Six Building Blocks of Ethereum. Ethereum's differentiator is the smart contracts language Solidity and EVM that enables decentralized applications to run on the blockchain. 

Smart Contracts Language: Solidity and Ethereum Virtual Machine

The first release of the Ethereum source code, called Frontier, created the genesis block went live in July 2015. Ethereum has a new blockchain with two major enhancements over Bitcoin. The first is a Turing complete programming language for smart contracts called Solidity that supports loops and conditions for contract transactions. Ethereum also includes a runtime Ethereum Virtual Machine or EVM, that executes Solidity bytecode on the blockchain. 

Dapps

Applications which implement the smart contracts in Ethereum are called decentralized applications or dapps. Decentralized applications are different from conventional distributed application architectures. An Ethereum smart contract will execute on all nodes that run the blockchain.

Ether

The digital tokens or coins in Ethereum are called ether.  Ether are used are crypto fuel or costs of transaction. Developers have to use ether to submit smart contract rules/code to the blockchain and users have to spend or burn ether to invoke transactions for an application. Transactions will roll back if they run out of gas (the amount of ether specified).  Ether can be traded against bitcoins and other fiat currencies via cryptocurrency exchanges.

Blockchain 

The Ethereum blockchain in other respects is analogous to the Bitcoin protocol. The blockchain is public and decentralized. New blocks are generated through a mining process. The current version requires full nodes to be downloaded for better security. Ethereum blocks are generated every 12 seconds with uncle blocks allowed to link to the main chain.

Ethereum transactions contain information about accounts and transaction state. Ethereum accounts consist of two types of account (external) user accounts and contract accounts. Contract accounts execute smart contract rules in the EVM. 

Six Differences Between Ethereum and Bitcoin

One: Application

Bitcoins are a cryptocurrency and bitcoins have a complete ecosystem of merchant, wallets, exchanges and payment processors that runs on top of the blockchain. Bitcoins can be used to make payments in the real world. Bitcoin is a decentralized peer to peer network. Two individuals anywhere in the world can exchange bitcoins directly from their wallets without using an exchange. 

Ethereum can be called the next generation of the Bitcoin protocol. The Ethereum blockchain distributed consensus provides for peer to peer contracts without a trusted third party. This has applications for every use case where there is an exchange of value between two parties under a binding agreement or a contract.  Two individuals or parties anywhere in the world can code a smart contract and execute it using ether without the need of a trusted third party. 

The Ethereum website highlights multiple use cases from building your own cryptocurrency to a decentralized autonomous company using Ethereum.  Several industry applications are live on the Ethereum blockchain. We have highlighted some examples such as the solar energy micro-grid in the article on use cases for blockchain applications. 

Two: Ownership

No one owns the Bitcoin platform not even its pseudonymous creator Satoshi Nakamoto or the developer community that continues to maintain it. The network is distributed across nodes all over the world. Bitcoin’s roadmap is driven by the developer and mining community. As the blocksize increase issue has demonstrated, the absence of public owner(ship) and decision making authority is a risk for Bitcoin.

The Ethereum platform is owned and the roadmap defined by the Ethereum foundation. The Ethereum source code is open source. There is also a growing developer and technology ecosystem that is actively involved in 

a) Creating developer tools and infrastructure for dapps e.g. Consensys. Microsoft Azure BAAS.

b) Building new releases Frontier, Homestead, Casper, Serenity through the Ethereum foundation.

c) Building smart contract applications for Ethereum.

d) Building tools such as blockchain explorers and interfaces for the Ethereum blockchain.

e) To a lesser extent, alt-coins forks from Ethereum. 

Three: Blockchain

The Bitcoin blockchain runs on the permissionless network of participating nodes that run in full or light modes. The higher the nodes and longer the block height, the more difficult to attack or take over the network. Anyone can download and run a Bitcoin node. Bitcoin uses SHA256 proof of work algorithm to add valid blocks to the network using consensus method. 

The Ethereum blockchain can be said to be based on the Bitcoin protocol. Ethereum improves upon the problems that Bitcoin blockchain has run into. Miners in the current version download and run the full node and solve proof of work algorithm. Consensus method is used to reward the longest chain. 

Ethereum’s 12 second block rate significantly increases the rate of orphan blocks and forks as well as reducing incentive for miners on a slow network which is handled by including uncle blocks. Ethereum uses an innovative concept of compensation by accepting stale blocks called uncle blocks on the blockchain.

Uncle blocks solve the proof of work but lag behind the winning block. A maximum of two uncle blocks are accepted on the main chain and compensated at a fraction of the main block reward. Uncle blocks should not have parents older than six blocks.

Four: Coins

Bitcoin is a cryptocurrency and payments network. Bitcoins are designed to be in finite supply and deflationary. 21 million bitcoins will be generated through a halving mining block reward. As on April 2016,  15.3 million bitcoins have been mined and the block reward is 25 bitcoins. All bitcoins have been generated through mining.

Ether is the digital token used in Ethereum. Around 72 million ether were pre-mined and distributed through a crowdfunding sale in exchange for bitcoins to launch Ethereum platform development in 2014.  After the Frontier platform went live, Ether are generated as mining block rewards. As on April 2016, there are 78.7 million ether in supply.

Five ether are generated in the form mining reward for new blocks, with five ether per block and uncle blocks are compensated at 7/8th of the block reward or 4.375 ether with a maximum 2 uncles per block which implies a new block confirmation can produce a maximum of 13.75 ether.

Although, the supply of ether is not capped, a final issuance model appears to be under development. The current supply of ether is generated through block rewards.

Five: Mining

Bitcoins are generated by the miners when new blocks are added. Bitcoin uses SHA 256 proof of work method. Bitcoin’s increasing centralization due to high costs of ASIC mining, increased difficulty in proof of work, debates on energy consumed are some of the issues that have emerged as the currency has gone mainstream into public and institutional consciousness. 

Ethereum mining has tried to address the issues that have surfaced with Bitcoin mining. Because ether are not intended as cryptocurrency, there is no limitation on ether mining or changing the block reward. The current Frontier release uses Ethash proof of work algorithm which is ASIC resistant and memory hard. The proof of work is planned to be replaced with proof of stake in the next release.

Six: Market Value

As first mover, Bitcoin rules markets with a $4oo average value and a $6.5 billion market capitalization in 2016. Starting with a near zero market cap, Bitcoin has followed the path of natural evolution and set the stage for other crypto-platforms to follow. Bitcoin’s value is driven by its design properties as digital money (fungible, portable, scarce, divisible etc.). 

Ether has registered the highest growth in market cap starting at $1 USD in August 2015 on launch, and increasing tenfold in value trading at 1 billion or $11 USD in 2016. As the Ethereum protocol takes off, this value will increase based on the intrinsic value of blockchain companies and a potential “dapps economy” running on Ethereum. 

Summary

When comparing Bitcoin and Ethereum, it should be clear that they are not competing systems. Bitcoin can be considered the first successful implementation of a smart contracts platform that makes use of the decentralized nature of the Internet and digital cryptography to enforce contracts between human actors that previously required a trusted third party or intermediary.

As Ethereum matures, it is likely benefit Bitcoin which can go back to its original vision of a peer to peer digital cash payment network. Ethereum may become the defacto standard or protocol for decentralized public or private applications with the same advantages as the Internet and the rise of cheap computing. The Ethereum blockchain has the potential to disrupt many industries that are based on intermediary or arbitrator models. 

While Bitcoin is a public system, Ethereum needs a critical mass of smart contract applications to be feasible. Network security, scalability and using a decentralized datastore is a major paradigm shift to the closed world of technology where the Internet acts as a transport connecting closed application systems.

The evolution and developments of these platforms will be very exciting to watch in the coming months. 

Coins Compared: Seven Differences Between Ripple and Bitcoin

Introduction

In our series on cryptocurrencies we started with mineable altcoins. In this series we explore the non-mineable variety of cryptocoins and crypto assets (generation 2). 

The first in this series is Ripple, the largest pre-mined currency by market cap and also one of the earliest competitors to Bitcoin.
Understanding the concept behind Ripple is a little confusing at first and raises many questions especially if one is looking at it from a Bitcoin point of view. For example, is Ripple a currency like bitcoin or not?  Is it decentralized? Why was it premined? Does Ripple have one universal ledger like the Bitcoin blockchain? Does Ripple share Bitcoin’s goals and use cases? 

This post is for those who like this blogger, grew up on a Bitcoin diet, and want a closer look at other alternatives.

How Ripple Works – A High Level Overview

Since this blog has an entire section on Bitcoin, those interested in a Bitcoin tour, can start with "The Disruptive Innovation of Bitcoin". And if you know how Ripple works, you can skip this section and head straight to the comparison. Note: Ripple’s distributed ledger technology will be covered in a separate post.  

Terminology:Ripple vs ripples vs rippled

Ripple is described as a payment protocol, exchange and remittance platform. In banking industry terms, Ripple Pay is a real time gross settlement (RTGS) platform. 

Bitcoin represents both, a network and the bitcoin currency.  Ripple is likewise, full of similar sounding lexicon with three or four different Ripples or ripples. 

Ripple is the name of the decentralized network. XRP or ripples is the native digital token or currency of the network. Ripple, aka Ripple Labs formerly OpenCoin, is also the name of the company that runs the Ripple distributed ledger which in turn is called Ripple Consensus Ledger (RCL). The software program that runs on the network servers is called rippled.  

Ripple Ecosystem: Transactions, Consensus Ledger and Validators 

Ripple is designed to allow people to make payments to one another in different currencies or commodities. This scope is quite vast. For example, Person A can use a fiat currency like US dollar to pay Person B in bitcoins or even gold, B can pay C in euros and so on, using the Ripple network. 

How is this different from conventional banking and remittances? This is where Ripple’s Distributed Consensus ledger technology comes in. A Ripple network consists of gateways (participating exchanges, banks or any business that accepts currencies), trusted validators and nodes. 

A payment transaction, like an everyday payment in the fiat world, is an IOU between a payor and the gateway. So if A wants to pay B in the above example, A, opens an account with a gateway (Bitstamp is a Ripple gateway)  and purchases a minimum token in ripples (XRP), as an account opening requirement. The transaction is submitted to the Ripple network which validates transactions details such as account and balances and submits the transaction record on a distributed ledger. 

Transactions are cryptographically signed by account holder’s private keys and only signed transactions are accepted by validators.  In the process, the Ripple network also makes programmatic decisions to determine cross currency/commodity conversions. Once the transaction is confirmed, the recipient receives an equivalent payment in (bitcoins in our example) from their receiving gateway (can be the same or different gateway). A small fraction of ripples (0.01 XRP) are said to be used up or burned in the process as transaction fees. The role of ripples is to act as a token asset in the transfer and prevent spam transactions.  

Gateways to Ripple and Market Makers

Gateways form the entry and exit points to the Ripple platform which is a globally distributed network of servers that each maintain a common ledger of transactions. The Ripple Consensus ledger is decentralized and the network uses a consensus method to validate transactions (ledger nodes automatically agree on which transaction block is accepted and added to the ledger chain). 

Ripples can be traded against other currencies on gateways through market makers (similar to an exchange that provides market liquidity and matches orders) and specific cryptocurrency exchanges. 

Seven Differences Between Ripple and Bitcoin

1. Coin Use

Both Bitcoin and Ripple are payment networks for digital cash. The difference is that bitcoins have entered into an ecosystem outside the network. Bitcoins can be used to make payments in the real world. There is a merchant, wallet and payment processor ecosystem for bitcoins. There is also a large trading and asset industry growing around bitcoins beyond currency exchanges. 

Ripples cannot be used as currency to make merchant payments outside the network, although some business had started accepted Ripple in its early days. Ripples exist as digital asset tokens within the Ripple network to prevent transaction spam. Malicious transactions intended to swap the network burn ripples at a higher rate making an attack inefficient. 

Ripples can be traded against other currencies on gateways through market makers and specific cryptocurrency exchanges.

2. Ownership

No one owns Bitcoin not even its pseudonymous creator Satoshi Nakamoto or the developer community that continues to maintain it. The network is distributed across nodes all over the world. 

Ripple on the other hand is a permissioned network owned and currently operated by Ripple. Parts of Ripple code, Ripple Trade and Ripple Charts that provide access to the Ripple ledger , is open source, but the network itself is driven by Ripple authorized nodes.

  

Ripple also determines the operation of the network. For example, Ripple’s own Trading platform, Ripple Trade was recently shutdown, and users had to withdraw funds from their accounts before they could move to the alternative platform Gatehub or other exchanges.  

3. Decentralized

Bitcoin is a true Internet peer to peer network. Two individuals anywhere in the world can exchange bitcoins directly from their wallets without using an exchange. Ripple wallets are available offline but  ripples can be used only via user accounts Ripple’s trading platform or gateways which are needed to access the Ripple Consensus Ledger. 

Ripple’s Consensus Ledger can be described as a decentralized technology. The concept of peer to peer users in Ripple applies largely to the market makers or financial institutions such as exchanges, banks, money transmitters or intermediaries than for individuals. It would be fitting to describe Ripple as a peer to peer payment network for trusted third parties.

4. Network Nodes

The Bitcoin blockchain runs on the permissionless network of participating nodes that run in full or light modes. The higher the nodes and longer the block height, the more difficult to attack or take over the network. Anyone can download and run a Bitcoin node. 

Ripple uses distributed ledgers on participating nodes across the globe but the difference is Ripple ledgers are allowed to run only in a permissioned network on trusted validators and unique nodes.

Ripple secures the network from attack by increasing XRP burn in a concerted attack such as very high transaction volumes from a single source. (Since decentralized, trustless distributed databases are automatically updated, it is possible for someone to take over transactions, although at huge cost, by taking over the majority required for consensus. The probability of attack is lowered by increasing odds or making the costs detrimental to the attacker). 

5. Mining

Bitcoins are generated by the miners when new blocks are added. There is a global mining economy that is actively mining the balance 5.5 million bitcoins from the 21 million limit, igniting several debates on the substantial energy consumed in the proof of work process. 

Ripples on the other hand are pre-mined. A 100 billion ripples were generated and are burned up during transactions. Unless Ripple becomes a global payments network there are enough Ripple waiting to be used. Which brings us to the next point.

6. Trading Value

Bitcoin rules markets with a $4oo average value and a $6.5 billion US market capitalization in 2016. Bitcoin’s value is driven by many factors but a big part lies in it emerging as an asset class with some governments recognizing it as a currency or commodity. 

Ripple has a lower market value and but the high volume and gateways/exchanges platforms have enabled substantial trading of ripples with fiat currencies and even bitcoins. Ripple grew its user base through giveaways from gateways and a Ripple-Bitcoin bridge. It is likely attracting long position speculators if the demand for Ripple as a settlement platform grows or those who believe Ripples may grow into a cryptocurrency ecosystem like Bitcoin.

Ripple’s roadmap at this points appears divided between in the direction of a global ledger for the worldwide financial system that is the Open Ledger project and going down a cryptocurrency path. 

7. Philosophy

Both Bitcoin and Ripple can be called disruptive systems. Bitcoin was launched to the world as an electronic cash network that removed the trusted third party transaction cost barrier for micropayments. Its design as a currency, and decentralized operation has created many more uses, including that as a alternative asset class on fiat doomsday (Greece and Iceland for example) or spurring digital economies in smaller countries such as Estonia. At the same time, Bitcoin’s open evolution and adaption is taking the path of natural selection and has equal chances of success or failure. 

Ripple aims to disrupt an industry process – lowering processing times and fees via a large global distributed ledger with a universal token. Both Bitcoin and Ripple are sometimes compared to the http protocol which made Internet the global peer to peer network today. In that they have adopted decentralized architecture.

But they differ more in philosophy and end goals than in technology.

Summary

The debates around whether Ripple is good or Bitcoin is bad or vice versa may be really for competitive mileage than anything else. 

Ripple is by itself, a significant technical achievement that serves a real need to in the world of settlements, which is not a small task in the globally interconnected, over-regulated and over-leveraged world of fiat currencies and stockpiled commodities. But maybe Ripple was able to leverage the Bitcoin “upstart” wave to come into prominence as a cryptocurrency and got its messages mixed up. That is an association which may ultimately have an impact on the future of Ripple, both positively and negatively.

In the final analysis, both Ripple and Bitcoin can end up having their respective places in the world. Ripple has the potential to create an impact within the financial services industry but Bitcoin’s blockchain, like the Internet, can have applications throughout the world.

Life On A Wrist: Five Use Cases for the Smartwatch

More than a fashionable smartphone accessory? Smartwatch and wrist wearable technologies  are converging in use cases for security, senior healthcare, child safety and docomotion.

Introduction

Year 2015 ended with a phenomenal increase in smartwatch sales led by Apple Watch. Although the market  forecasts remained upbeat in the first quarter of 2016, cutbacks such as Pebble’s staff layoffs and Apple’s $50 reduction in Apple Watch pricing have started waning the enthusiasm. Like any emerging products, industry sentiments on the the three year old smartwatch fluctuates almost daily between short term fad versus a future necessity.

It may be a safer bet to say smartwatches are here to stay. What is likely to happen is a convergence of many wearable uses cases being adapted into a smartwatch. Like smartphones which became more than just telephony (and that is understating it!), smartwatches will come to represent many different applications of electronic wrist wearables.

The use of a smartwatch as a wrist strapped mobile device has variety of applications in everyday consumer and industry use cases where hands-free and/or gesture based communication is required.

In this article we look at the five quietly evolving use cases and value additions of the smartwatch.

Between them, they represent a bright future for the technology as the platforms improve and developers and consumers find innovative applications for the watch.

Use Case 1: Insuring Smartphones from Physical Damage

As smartphones continue to grow bigger in size and price, smartwatches will provide value as a safer and more convenient accessory. Smartphone losses alone make a solid case for smartwatches. Sample some of the statistics reported on lost smartphones. In 2013, Consumer Reports Group estimated that a combined 4.5 million phones were lost or stolen. Dropping phones (into undesirable places) is a major cause of damage. A majority of people were willing to spend equal or more than the cost of the phone to recover stolen phones. When Apple introduced kill switches for the iPhone, an expert estimated the industry would save $34 billion. Mobile insurance premiums offered for theft or damage can cost almost as much as the phone $650 premium including deductible for an iPhone 6s. (Sources: Consumer Reports, CNET, Wired).

Peace of mind on smartphone whereabouts? With a paired smartwatch, smartphone loss and damage statistics might just improve.

Image: A composite from Consumer Reports and Visual.ly. 

By using a smartwatch as wrist accessory, the incidents of leaving smartphones can decrease. In fact a smartwatch accessory can be used to lower the underwriting risk and premium of an insured smartphone.

Use Case 2: Senior Care and Emergency Assistance

Wrist tags indicating serious health conditions and emergency measures are commonly used by sufferers of chronic ailments of all age groups and by seniors living alone. A smartwatch app can enhance this capability. For example, the app can use in built GPS functions to locate nearby hospitals or send location information. Users can use the voice control to look up information, send notifications or alter emergency services automatically in case of an incident. The smartwatch fitness sensors can continue to provide health indicators such as heart rate. By combining timing and alert functions, with Internet access and health sensors, it is possible for users to keep track of critical health indicators such as heart rate and take prompt remedial measures in case of an emergency. The fitness apps monitor health parameters and can retain history in the cloud. If sensors detect readings exceeding a threshold the app can prompt users to take the necessary action such as taking a required medication in a prescribed time limit. Apps can also send notifications to take additional action such as asking users to stop driving, alerting emergency contacts or notifying emergency services.

Lively, a smartwatch for senior citizens provides many such functions. The watch is waterproof and can be used in a bath or shower. An emergency button dials for assistance when needed. The watch communicates with other wellness sensors such as pillbox and food monitoring sensors in the home and sends notifications to users and designated family members.

The Lively smartwatch is specially designed for seniors living alone

Use Case 3: Child Safety

Smartwatches designed for kids are really built for the safety use case for concerned parents. This range of smartwatches provide time keeping as well as location tracking, walkie-talkie and GPS functions to enable parents to monitor the child’s location, receive alerts when they move out of designated safe areas or get in touch using call or voicemail functions. These wrist wearables let parents and their children stay remotely connected when away or in crowded public areas such as malls, amusement parks or airports.

FiLIP and Jumpy are two start-ups that make smartwatches designed for location tracking and call functions using GPS and GSM technologies. The Filip smartwatch is actually described on their website as a wearable phone and locator. The device does not pair with a connected smartphone, instead it works as a locator and sends notifications to a companion app on the parent’s smartphone using their patented technology that combines GPS, GSM and Wi-Fi triangulation.

FiLIP and Jumpy smartwatches feature child friendly designs and combine GSM/GPS capabilities to provide calling and location tracking functions for parents.

Use Case 4: Remote Control

The consumer electronic/IoT industry is grappling with the problem of basket of remotes for a long time. Smart home device management comes equipped with mobile apps that work as remote controls and control centers of smart home devices from TVs and thermostats to garages and entry doors. The smartwatch can perform the remote activation function allowing users to perform actions through gestures or wrist motions. Pebble watch users have built apps to open garage doors, while Apple Watch  has a growing list of apps from leading smart home automation companies that perform functions from security access to controlling connected devices.

Home automation management through remote control apps. Apple Watch app from alarm.com is available on iTunes (left) and (right) a universal remote control app extention on Google Play for Sony smartwatch on Android Wear.

Samsung is building remote management capabilities integrating SmartThings automation into the Tizen OS which powers the Gear smartwatches and Samsung’s new line of smart home entertainment TVs and appliances.

A major concern in this area is the security vulnerabilities in the current range of smartwatches themselves although one can expect future versions will have improved security features.

Use Case 5: Access Control

From public transportation to accessing secured areas in building, a smartwatch access app can be a convenient replacement to the smartphone. A smartwatch can also replace handheld magnetic strip cards such as in office building and hotel room keys, allowing gesture based access without having to pull out a card or smartphone. Similarly, a smartwatch security access can allow photo ids or unique personal identifier such as fingerprints to be stored on the watch instead of a card.

Biometric identification is also a possibility using in built health sensors. Samsung has recently received a patent for a biometric access enabling feature. Samsung’s patent envisions using a unique vein image of a wearer to unlock the watch. This can also have potential use to authenticate access to a home or car in future. FiDELYS is another venture that announced designs in 2014 for a smartwatch that can provide biometric security using iris detection technology.

Samsung's patent for a biometric access mechanism using vein signature (left) and (right) FiDELYS proposed smartwatch design that uses iris scan technology.

These use cases and more are indicators of the future of the smartwatch industries. Like smartphone, smartwatches will eventually come to mean wrist wearables that will have a very wide spectrum of applications from notifications and payments of today to the intelligent voice assistant of the future. To reiterate what we observed in the first post in this series covering the industry landscape, technology companies will ultimately shape the future of this domain.

Smartwatch Comparison Guide: The Six Key Components of a Smartwatch from Case to Glass

Introduction

A smartwatch crams in a lot of features in one and a half square inches of space at an affordable price. The wear on the wrist feels like a conventional watch or better. Smartwatches pack in notifications via smartphone communication, an array of sensors from health monitors to GPS, capability to run apps and personalization through interactive watch faces all delivered in through interactive high resolution display technology. This does come at some loss of convenience that is a given with regular timekeeping watches. Battery life is a major issue that is still to find a satisfactory answer.

This article breaks down key components that go into making a smartwatch. While not intended to be a full technical teardown (iFixit has wonderfully detailed technical teardowns of major models described with style and aplomb), it hopefully gives some context to the features used to advertise these new best selling wearables.

The Six (or Seven) Key Features (excluding price)

From case to glass these are the components that go into the building of a smartwatch.

Case

The case is the watch container. Watch cases come in stainless steel, the standard for most watches, aluminium steel, gold at the high end and plastic in budget watches.  Case design dictates the watch shape. Cases come in square and round shapes with some design contours and profiles. For example, Pebble watch features a curved profile that fits better on the wearer’s wrist.

The case also includes watch band (or strap) attachment, ports for internal built in microphone and speakers for voice control (if included) and user navigation controls such as buttons or bezels on the side. 

Bands (or Straps if you prefer)

Bands attach to the watch case and come in standard 16 mm, 20 mm and 22 mm sizes. The preferred band material matches their conventional counterparts and are available in leather, leather steel, elastomer materials. Flexible silicone bands are preferred for outdoor and sport watches. Smartwatches allow user personalization options through watch faces, providing more than one band to match the watch face. A quick release feature is provided in some brands such as Apple Watch to allow users to change bands securely without using tools.

Battery

Battery could be the number one reason that smartwatches do not succeed in taking over the conventional watch industry. From the 18-hour life for all day use of Apple Watch to 7 days for Pebble watches that use e-Paper technology, battery is dependent largely on the application usage and display (in general, the smarter the watch, the more power it consumes).  

Smartwatches generally feature sealed cases with enclosed industry standard rechargeable lithium ion polymer batteries. Smartwatches rely on wireless induction charging eliminating use of pin technology or ports on a limited surface area. Instead of contact charging,  a magnetic connector or port at the back of the case charges the battery through an internal induction coil when connected to a charging dock.

To lower user exasperation of having to look at a battery drained or switched off display, most watches switch to power saving mode, conserving batteries only to tell the time, a display feature known as “always on”.

Processing Unit

The smarts in the smartwatch are thanks to the processing circuit that includes an integrated processor (ARM processors are the most commonly used), flash storage, wireless interfaces and sensors. The watch software - the operating system, system applications and pre-loaded apps are included with some additional space for user apps and personalization. The smartwatch platform determines compatibility with the host smartphone. 

As we saw in the previous article on the industry, smartwatch lines can support connectivity to Android or iOS phones. Wireless interfaces include Bluetooth connectivity, wi-fi 802.11 and NFC (Apple Watch features NFC allowing mobile payments using Apple Pay). Recent smartwatch editions such as Samsung Gear S2 also include a SIM for 3G connectivity. 

Sensors are a key part of the smartwatch processing hardware. On board sensors can include motion detectors, ambient light sensors and notification sensors (for vibration or audio notifications from phone, when watch is out of wireless range etc.). Fitness tracking sensors can range from pedometers, accelerometers, heart rate monitor and motion detectors. GPS sensors include inbuilt gyrometers, GPS and compass.

Navigation

While most smartwatches feature touch screen displays for user interaction, it is not the only interface. Smartwatches support other forms of navigation, allowing users to scroll and switch between different applications. 

Because watches have small surface area, smart watch makers have turned to innovative ways – from the Digital Crown in Apple Watch, the rotating bezel in Samsung Gear and tactile buttons in Pebble Watch. These controls function similar to the smartphone buttons, which allow users to perform functions such as returning to home screen, using the camera and scrolling through menus. 

Display

Displays are a major selling feature of smartwatches, where, in a limited 400 x 400 pixel area, usability in all environments and battery conservation trump high definition needs. Display screens vary from AMOLED (active-matrix organic light emitting diode) displays which are at the high end, displaying full-color screen and illuminate individual pixels. OLED technology displays allow the same options but support single and multi-color screens as well. Other display technologies include LCD backlit displays and e-ink displays that use less battery and enable viewing in outdoor environments such as in bright sunlight.

Touch screen displays enable users to interact with tap or swipe or pressure touch which brings up more menu or app access options on the watch.

To conserve battery life, some smartwatches turn off the display like a smartphone. Others watches have an “always on” feature where the display shows time like a regular watch instead of coming to life on notifications or user activation.  

Glass

The cover of the watch is made of fortified glass to handle daily use. Chemically strengthened Gorilla Glass or naturally resistant material such as sapphire and sapphire onyx which are known for their scratch resistant and durability features are used in most smartwatches.

This article was a high level overview of the building blocks of a smartwatch. Many comparison and buying guides on manufacturer sites, review sites and shopping sites will feature the highlights and specifications of these components (such as this comparison from gizmag).

In the next article in the series on smart wearables, we will cover uses cases for the smartwatch.

Rise of the Smartwatch Market: The New Best Sellers in Wearables and Watch industries

The smartwatch market has grown at a triple digit rate between 2013 and 2015

Since 2010 or thereabouts, Apple and Google were widely anticipated (and rumoured) to be in the race to introduce a smartwatch. However, the early leaders in this field were wearable tech start-ups. 

The smartwatch industry registered 3 million unit sales in 2013 when Samsung and Pebble introduced the first generation of smartwatches which paired up with Android and iOS smartphones.

Pebble, the most  successful Kickstarter funded project of its time, in particular, is credited with making the smartwatch popular, pioneering design features such as e-paper display and app support (which have grown to over a 1000). 

In 2013 and 2014 smartwatches were a niche wearable/smart phone accessory segment dominated by Samsung, Pebble and wearable and outdoor sports watch makers. The first wave of smartwatch product lines grew when Google introduced the Android Wear platform for smartwatches and wearables in 2014.  Even as the top ten players changed in 2013 and 2014 as companies entered and exited, the entry of Apple, as was anticipated, overshadows all others.  

At the start of 2016, Apple and Samsung account for 8 out of 10 every 10 smartwatches that are sold.

Apple Watch has a 63% market share of the smartwatch just months after launch in April 2015, toppling Samsung who now have a 16% share. Android Wear smartwatches accounted for 10% of the total smartwatches shipped in 2015.

At the time of writing, Apple has also overtaken Swatch as the highest seller of watches in Q3 2015. 

But consumers continue to favour other smartwatch brands and wrist wearables as well.

With the smartwatch market predicted to grow at 28-30% CAGR and reach USD 60-88 billion by 2020 (based on predictions from IDC, Gartner and Smartwatch group), consumers will have an array of choices and competitive prices offered for smartwatches. 

Smartwatch Marketplace Roundup

The smartwatch market competitors market  can be broken down into three categories based on their offering in this space and core product line.

Market Leaders: Mobile Devices and Smartwatch OEM

This is the space dominated by tech giants Apple, Samsung, Huawei, LG, Lenovo/Motorola, HTC and Google, the last through the Android Wear OS. In the foreseeable future, the smartwatch space will be dominated by the mobile leaders who already have a sizable share of the marketplace and the major use case for smartwatch remains as a smartphone accessory. 

Apple Watch

'The Watch Reimagined' is a tagline for Apple Watch. With features such as Digital Crown, Digital Touch and Force Touch, Apple Watch is the market leader with 63% market share.

Re-imaging the watch and nothing less has been at the heart of Apple’s approach to smartwatches. 

Apple’s strategy of perfecting and intersecting launch with consumer readiness has paid early rewards. Many years in the making, Apple Watch was launched in 2015. It seems to have also helped that the hype surrounding the Apple Watch and the evolving versions of other smartwatches, meant consumers postponed buying decisions until Apple came on the scene. 

Apple Watch combines design aesthetics and a full range of smartwatch capabilities that mirror smartphones and fitness wearable capabilities that match activity trackers and heart rate monitors. Apple has introduced multiple designs from sports watch to a gold luxury edition, marketing the “it’s a watch first” approach followed by the conventional watch industry.

Apple Watch in its first release includes patented innovative features such as Digital Touch, Digital Crown, Force Touch and Taptic Engine, designed for a differentiated user experience. Digital Touch allows Apple Watch users to communicate messages between their watches. Digital Crown is a substitute for mechanical crown of conventional watches, allowing users to return to home screen and scroll display. Force Touch emulates a right mouse click function bringing up additional app controls such as music and calendar, with a slight pressure on the watchface. Taptic Engine is a linear actuator within the watch that notifies wearer with a tap (not a slap) on the wrist.

Apple’s the developer toolkit, WatchKit, was released in 2014 ushering in a wide selection of apps designed for the Apple Watch with its launch. 

Apple is serious about continuing consumer mobile and wearables domination with their technologies, filing numerous patents relating to the watch alone. Apple Watch 2 is anticipated to arrive in March 2016 and have improved communication capabilities, watch faces and other enhancements.

Samsung

Samsung has been an early entrant releasing seven different versions in the Gear family since 2013. The latest version, Gear S2 includes the innovative rotating bezel.

Samsung adopted a strategy of evolution with the marketplace and was an early entrant with the first generation of Galaxy Gear line of watches introduced in 2013 on Android OS. Samsung has continued to introduced new lines and improvements with seven successive generations of the Gear Line introduced on Android Wear and Tizen OS.

Samsung’s successive watch lines have focused on different segments of the wearable and conventional watch markets. Samsung’s Gear Live launched in 2014 built on Android Wear introduced the curved AMOLED display to the smartwatch line and included a built in heart rate monitor and sensor. The latest product on the market the Samsung Gear S2 competes with Apple Watch on design and functions. Built on Tizen OS and featuring the rotating bezel, and in-built health sensors. Gear S2 also provides 3G and 4G connectivity with a SIM card slot for use as a standalone smartphone. The Gear family works with Android and iOS phones and S2 iOS compatibility is expected to roll out in 2016.

Samsung aims to remain a serious competitor to Apple on design, with the rotating bezel feature for menu inputs introduced in the Gear S family in 2015, being widely acknowledged in reviews as an innovative feature and a strong differentiator for the Gear line. Like Apple, Samsung has patented the rotating bezel feature as a smart ring technology. 

Google Android Wear

Google is in the smartwatch space as an OEM. Android Wear powers 10% of the smartwatches sold by consumer technology companies and luxury watch brands. Above: LG Urbance, Moto 360 and TAGHeuer Connected smartwatches running on Android Wear.

Google’s leads the smartwatch marketplace as an OEM. Google’s Android Wear platform is a version of Android OS designed for smartwatches and other wearables inclusive of a developer API. Android Wear enables smartwatch hardware makers with a full range of smartwatch capabilities and support for Android and iOS smartphones. Android Wear powers tech brand watches made by LG, Motorola, Huwei, HTC and ASUS brands and the conventional brand watches made by Swatch, Tag Heuer and Fossil, accounting for an estimated 10% market share in 2015.

Google’s Andriod Wear, like Android, enables users to get accustomed to a familiar interface across different brands. The platform includes the notification functions, Google Now cards and voice command features embedded as well as fitness tracking app Google Fit and integration with Google Play Store. 

Android Wear watch owners have an wide array of apps to choose from Google Play store. Incidentally, watch faces are the most popular app on the platform with free and paid versions provided by developers.

Watchfaces are among the most popular apps for Android Wear smartwatches.

Wearable Tech

FitBit Blaze Smart Fitness Watch, Garmin's vivoactive and Microsoft Band are examples of fitness wearables that also provide smartwatch capabilities.

Early day smartwatches were a wearable accessory which allowed wireless notifications from a smartphone. Pebble is the leading example of a smartwatch core product line which initially paired with iOS and Andriod phone but now runs on its own operating system PebbleOS. 

Pebble smartwatches, the first true smartwatch in the market that was designed for Android and iOS. 

With smartwatch operating platforms supporting fitness sensors as well, smartwatches product lines can easily provide fitness app support. Players in the (wrist) wearable space have responded by introducing their line of smart watches to complement or integrate into their existing product lines.

The strategy followed by leaders in activity and health wearables which dominated the wearables market till 2014 is to retain their core product functions and design while integrating basic smartwatch functions such as notifications and clock face designs. FitBit blaze branded as a smart fitness watch is an example of an activity tracker at heart but which also provides smartwatch functions such as watch faces for all day use and notifications, as well as support for Android, iOS and Windows.

Similarly, Garmin, the leader in outdoor, mapping and sport wearables have introduced their range of smartwatches, vivoactive which are retain their core sports activity and GPS tracker functions while adding smartwatch design and notification functions.  

Conventional Watch Makers

Conventional watch brands such as Fossil Q (left), Vector (center) and Seiko have taken different approaches in their smartwatch product lines, without radically altering watch design features.

The conventional watch industry which is largely driven by luxury brands, sport watches, commodity digital watches and gift economy, have responded to the threat of smartwatches by launching or announcing plans for their own branded product lines.  The watch industry has opted for retaining the design of traditional watches with common smartwatch functions or creating a complimentary smartwatch line. 

Product lines are based on Android Wear or custom software, the latter not a watch OS but embedded software that is compatible with smartphones. Vector and Titan Juxt are examples of this category. Luxury brands such as Tag Heuer’s Connected smartwatch powered by Android Wear have retained the premium pricing of their conventional product line, without compromising the design and reliability features for which they are known.

Brands such as Seiko and Casio had taken an initial position of not building a high level of digital technology into their watches which duplicate smartphone functions, requires building new technology capability and including battery recharging, a feature that may not resonate well with the dominant watch industry user base - people who prefer watches for timekeeping or as a luxury accessory. Leading digital watch maker Casio has since announced plans for a smartwatch in 2015.

The strategy for conventional watch makers is to not cede market share, at least of brand loyals. This strategy may ultimately dilute the positioning of conventional watch industry in the smartwatch space.