Blockchain relies heavily on network effects, whereby networks such as telecommunication services, the internet or social networks become more valuable when the number of users increases. This is why ecosystem building is one of the main factors driving the value of Layer 1 blockchain enterprises. Below I will compare how different blockchain projects deal with this problem.
Ethereum was the first smart contract platform. While it was technically possible to implement some smart contracts on the Bitcoin blockchain before, the Ethereum Virtual Machine can execute arbitrary smart contracts in addition to the Turing-complete solid programming language. Arguably, Ethereum may have exceeded its original goals in terms of Turing completeness, as this has led to some vulnerabilities in reliable smart contracts.
Still, with a first-mover advantage, Ethereum is by far the largest smart contract platform and has an active developer and user community. In fact, the Ethereum Foundation doesn’t need to do much in terms of ecosystem building, as there are tons of community-organized events, meetups, and hackathons every month around the world. No other tier 1 blockchain venture (probably excluding EOS) has the same luxury. Therefore, I don't think there are other smart contract platforms that can compete as "Ethereum killers". The only blockchain that will ultimately kill Ethereum is Ethereum 2.0. However, this does not mean that any other layer 1 smart contract platform has no place, but they must find a market niche and tailor their technology specifically for their clients, while investing a lot of time and money to develop it.
Ethereum still suffers from slow transaction speeds and the resulting transaction fees. If something like CryptoKitties can send transaction fees skyrocketing in an instant, it’s hard to imagine any DApp that constantly generates transactions supporting a mainstream user base.
Remember when everyone who called themselves an Ethereum killer boasted about their transaction throughput? Of course, transactions per second are an important metric because they impose technical limitations on the potential use cases of blockchains. However, due to the high transaction throughput, we quickly ran into storage problems, as each full node needed to keep a record of the full transaction history. This will eventually move to a more centralized network of nodes.
One way to address this is to implement sidechains in one way or another, such as Ethereum’s Plasma solution. The problem with such layer 2 solutions is that they are foreign elements to the main chain. In order to move assets from a sidechain to the mainchain, or between sidechains, a smart contract must be used to connect the sidechain to the mainchain. Like any other smart contracts, these bridges can contain loopholes that allow hackers to steal assets and must be executed on the main chain, making them inefficient and costly.
The nature of decentralized development dictates that sometimes multiple solutions for Layer 2 scalability may emerge simultaneously. Whether you consider this a feature or a problem is up to you. Regardless, apart from Plasma, which is heavily backed by Vitalik Buterin, other scaling solutions like Raiden Network and Truebit are also in development. MaTIc is a revamp of Plasma and it has an impressive ecosystem with high value partners such as Decentralization and MakerDAO.
Implementing a multi-chain architecture on the first layer (like Cosmos or polkadotde) avoids these problems because the main chain is bridging from the start. With Ethereum's limited technology in proof-of-concept development, bridging capabilities, Cosmos is promoting itself to enterprise-level blockchain projects such as Akash and Binance Chain, allowing users to develop custom blockchains. In contrast, Polkadot takes a sort of middle ground between established businesses. Therefore, they put more emphasis on making their products interoperable with other blockchains, especially Ethereum. Recently, they announced strategic investments in projects that want to deploy parachain.
Additional Tier 1 Features
In addition to scalability, some Tier 1 projects focus on more functional blockchains to find their market niche. For example, aeternity encourages user-facing DApps to use their naming system, allowing wallets and accounts to have a user-friendly, easy-to-remember name instead of a public address. To execute smart contracts, aeternity runs 3 different virtual machines, allowing developers to choose which language to use to write smart contracts according to their needs. The Aeternity blockchain is equipped with a second layer scaling solution based on state channels for Offline smart contract execution.
After investing in multiple projects, aeternal Ventures recently launched the third round of the Starfleet incubator program in Malta, inviting seed-stage projects to take their first steps from the garage to the commercial world. The fourth round of negotiations will be held in India in 2020.
In contrast, Algorand relies on technological advancements to provide atomic transfers, standardized tokens and smart contracts as layer 1 functions. This means that instead of developing smart contracts themselves, developers can directly instruct the blockchain to perform these functions with the same security and efficiency as simple payments, using a low-level, non-Turing-complete language called TEAL.
This makes the algorithm particularly suitable for transaction-heavy applications in the fields of financial technology, tokenization and DeFi. A good example is AssetBlock, a real estate trading and investment platform. In addition to partnering with universities around the world, Algorand has committed $100 million to a venture fund to help their ecosystem grow.
Traditionally, there has been a lot of overlap between blockchain and chess enthusiasts. To facilitate these joint efforts, World Chess has partnered with Algorand to host the FIDE Grand Prix Series. World Chess is planning a joint hybrid IPO with the London Stock Exchange. In this capitalization model, they will sell a 5% stake as security tokens that can be converted into shares after the IPO.
After 2018, most of the first layer blockchain enterprises have stopped trying to become Ethereum killers. Since then, everyone has tried to find a specific market niche to grow an ecosystem while building a proper tech stack around their ecosystem.
While Ethereum is well suited for the early stages of business development, at some point, the growing adoption of decentralized ledger technology will require DApps to upgrade to blockchains with better scalability. To this end, they have different options, each bringing its own set of benefits.
Typically, the first-tier blockchain has an accelerator program or ecosystem fund that provides venture capital for data applications to help them take their business to the next level and transition to a more mature blockchain solution. In the near future, we will see them put a lot of effort into blockchain interoperability of smart contract bridges and raw transactions, which will eventually pave the way for mainstream adoption.
Responsible editor: ct