Business owners must look for alternatives as Ethereum becomes vulnerable
The advent of Ethereum changed the course of the blockchain industry. Its ability to support smart contracts promised use cases that stretched far beyond peer-to-peer payments. Ethereum was the first to show how big an impact blockchain technology can have on the world.
It is for this that Ethereum has created a legacy and hails as the second-largest blockchain network. Almost 79% of all decentralized applications (dApps) and protocols that constitute DeFi are built on the Ethereum network.
It seems, however, the blockchain space is currently heading through the “age of Ethereum Killers,” so to say. We have witnessed several “third-generation” blockchain networks that have grown to challenge Ethereum. That is primarily because of the delay in promised updates to Ethereum and the unsolved challenges around it.
Yet, it is safe to assume that Ethereum’s legacy is still not jeopardized. But for how long? That’s a difficult question to answer. Ethereum may very well retain its top spot due to its vast community. But as Ethereum’s position as “the” smart contract blockchain stands challenged, it’s a rational thought to consider other options.
How much water do “Ethereum Killers” hold
2020 was a defining year for the blockchain and crypto industry. The COVID19 pandemic catalyzed the need for digitalizing business processes and offering digital services. This has placed blockchain and cryptocurrencies at the forefront because they were the most viable and ready-to-use solution.
It was during this time that Ethereum started facing the real challenge from its competitor blockchains. Let’s see what changed for Ethereum that worked in favor of other blockchains.
Amid the growing demand for digitalization, Bitcoin reached its all-time high and led the entire crypto clan toward wider adoption. Even Ethereum reached its all-time high of $2,000 from around $400. But with that, even the gas fees on Ethereum spiked unprecedentedly, making it highly expensive to transact on the network. The average fee on Ethereum grew from $0.6 in July to over $17.4 per transaction as of writing.
This indicates that although Ethereum proved to be a beneficial investment for traders and investors, it turned out to be a nightmare for those using it as a technology layer to support their applications.
Blockchain implementation increased rapidly during 2020, and so did the use of decentralized finance (DeFi). But as more people turned to crypto and blockchain, the need for more scalable blockchain solutions heightened.
While Ethereum had hitherto been the top priority for developers to deploy DeFi protocols and dApps, its scalability issues became a huge challenge. The delay in the long-anticipated transition of Ethereum from proof-of-work (PoW) to proof-of-stake (PoS) protocol to solve its scalability issues shifted the DeFi momentum further away from Ethereum. This created room for third-generation blockchains like Algorand, Polkadot, and Cardano to prove their mettle.
Difficulty and cost of deployment
The primary language for coding smart contracts on Ethereum is Solidity. The codes are then interpreted into a low-level machine instructions language for Ethereum Virtual Machine (EVM) to execute.
From a technical standpoint, Solidity is a complex programming language that makes coding smart contracts extremely difficult. Due to this, the complexity of auditing the smart contracts increases to the tune that it may cost hundreds of thousands of dollars. In fact, two auditing firms quoted us $300,000 just for smart contract auditing.
Altogether, it’s evident that Ethereum’s scalability, fees, and cost challenges call for alternative solutions. And as it is, we already have high-potential blockchain networks that are racing to replace Ethereum and take its spot. Let’s take a look.
Race to replace Ethereum DeFi
Ethereum laid the foundation of what we today call decentralized finance or DeFi. It still accounts for a majority of all DeFi protocols. The network's hold over DeFi is such that dethroning Ethereum as the top DeFi blockchain would have seemed impossible a few years back. But today, the rise of third-generation blockchains is effectively challenging Ethereum.
Here are some of the major blockchain platforms that have emerged as strong competitors of Ethereum:
Algorand is a relatively new blockchain network that has shown promising performance in recent months. Co-founded by Silvio Micali — a Turing Award winner and the creator of zero-knowledge proof — it is said to be the world’s first open, permissionless blockchain that implements the pure proof-of-stake consensus protocol.
Unlike many other traditional smart contract blockchains for DeFi, Algorand is a blockchain that is able to achieve security, scalability, and decentralization without the need for forking the network.
At present, over 500 companies are leveraging Algorand’s layer-1 smart contract solution and building applications on it. As its popularity increases, Algorand’s team is passionately working to improve its ecosystem. As of December 2020, Algorand was capable of processing up to 1,000 transactions per second and had a block completion time of 4.5 seconds. The team announced back then that it was working to reduce the block time to 2.5 seconds and increase the transaction speed by almost 46 times to 46,000 TPS.
Compared to Ethereum’s 15 TPS and 10 second block time, Algorand clearly seems like a great alternative.
Besides, Algorand uses a custom-tailored programming language called Clarity for its smart contracts. The language is said to offer developers mathematical certainty about how smart contracts will or won’t act, so they are sure about the contract’s ability to function as expected.
Binance Smart Chain, or BSC, is an addition to Binance Chain, which was mainly created to support Binance’s decentralized exchange. While the latter only supported the DEX and Binance’s native token BNB, BSC is a full-fledged blockchain network.
BSC runs on a modified version of the proof-of-stake protocol called Proof-of-Staked Authority (PoSA). The network, like Ethereum, supports smart contracts and a wide range of decentralized applications. In contrast to Ethereum, BSC has a block time of just 3 seconds and much lower transaction fees. For example, the fee for transferring USDT on Ethereum may be around $20, while the same on BSC is close to just $1.
The network launched in September 2020 and has since grown to become one of the leading alternatives to Ethereum blockchain for deploying smart contracts. One of the key features of BSC is its interoperability with the Ethereum network. This allows applications and tokens on the Ethereum network to operate with a greater speed and low cost on BSC.
A major decentralized exchange, Sushi Swap, recently went live on Binance Smart Chain to escape Ethereum’s rising fees and low scalability. This reflects the actual challenge that Ethereum is facing from rival blockchains that are offering better functionalities.
Interoperability is a major issue for blockchains including Ethereum. Every individual blockchain network is restricted within its own ecosystem, unable to communicate with the outer world or other blockchains. Cosmos was founded to create the “internet of blockchains” so blockchains and the applications they host could communicate with each other.
We can say Cosmos is an ecosystem of multiple blockchains. These blockchains are categorized as Zones and Hubs and operate on the Tendermint Byzantine Fault Tolerance algorithm and PoS protocol to validate transactions. The network boasts of a block time of 1 second and the potential to scale to 10,000 transactions per second.
Cosmos also supports smart contracts, meaning developers can create dApps and protocols with cross-chain capability. This sets Cosmos a class apart from other blockchains that fail to offer interoperability between multiple blockchains.
Gavin Wood, the former co-founder and CTO of Ethereum, founded Polkadot. The project was initially built on Ethereum and was migrated to its own mainnet blockchain last year. Polkadot shot to fame in a short time and hundreds of developers started building applications on the network to leverage its high transaction speed of over 1,000 TPS. In fact the development activity on the network increased by 44% on Polkadot while it dropped by almost 20% on Ethereum between July 2019 and June 2020.
However, unlike Ethereum, Polkadot is not solely a smart contract blockchain. Wood believed that smart contract ecosystems cannot support all sorts of applications. So, they created Polkadot as a blockchain that allows developers to code their own blockchains that interoperate with other existing blockchains. Due to this, some believe that Polkadot is not really an Ethereuum Killer but a blockchain that will co-exist with Ethereum. On the other hand, many consider that this is exactly what gives Polkadot a better chance at replacing Ethereum as the go-to dApp blockchain.
Cardano is yet another blockchain founded by a co-founder of Ethereum, Charles Hoskinson. We can say that Cardano is one of those blockchains that is backed by the most enormous amount of peer-reviewed research. It is the first of the many third-generation blockchain networks using proof-of-stake consensus protocol to create a highly scalable smart contract platform. Similar to Polkadot, Cardano also offers a transaction speed of 1,000 TPS.
There are two different layers of the Cardano blockchain. The first is the Cardano Settlement Layer that processes all transactions of its native currency ADA. The second is the Control Computational Layer that supports the creation and operation of smart contracts on the blockchain. Cardano claims that these two layers together offer privacy to users while also ensuring regulatory compliance.
Solana is a blockchain developed by the Swiss company Solana Labs in 2017. It is a Practical Byzantine Fault Tolerance-based PoS blockchain that claims to have solved the scalability challenge of blockchain without compromising its security and decentralization.
Compared to others, Solana offers the cheapest transactions as it costs only around $0.00001 per transaction. In addition, Solana Labs claims that Solana can process between 50,000 to 65,000 transactions per second. The blockchain achieves this by appointing random leaders on the network who can order and write new transactions to the ledger. Transactions are then reviewed by verifiers and approved. Thus, the scalability of Solana is only restricted by the speed computing hardware can offer.
A quick look at all the blockchains discussed above is enough to show how these blockchains challenge Ethereum’s authority as a smart contract blockchain. But still, does Ethereum stand any chance to protect its crown?
How can Ethereum defend itself?
The short answer to that is Ethereum 2.0.
Etheruem 2.0 is the second version of the Ethereum blockchain that will use the PoS consensus protocol instead of PoW. Apart from that, Ethereum 2.0 will also implement sharding to its network to offer higher transaction speed. In his tweet, Vitalik Buterin, the founder of Ethereum, claimed that the ETH2.0 will be able to process as many as 100,000 transactions per second. If true, this can be a big challenge to the existing “Ethereum Killers.”
The catch here is that the update from Ethereum 1.0 to Etheruem 2.0 is running far behind schedule. Phase 0 of the upgrade is only initiated in December 2020, and it may take until after 2021 for the complete rollout.
All in all, the clock is ticking fast for Ethereum. The only way Ethereum can defend its top spot is through a complete rollout of Ethereum 2.0. And by the look, we can only say that it will be a close competition between Ethereum and its rival blockchains.
What if Ethereum loses its position?
The upgrade to Ethereum 2.0 is the last resort for Ethereum to save its top position. If the update is further delayed, chances are, other smart contract platforms will eventually dethrone Ethereum. The existing applications on Ethereum may migrate to faster and more secure networks just like Sushi Swap. But there’s also a handsome chance that Ethereum will retain its crown and co-exist with other smart contract blockchains.
In either of the cases, there are alternatives you can try whether you trade cryptos or build blockchain-based applications.
As a trader, the most common advice is to not put all your eggs in one basket. That is exactly what you must do in this case. If your bet is on smart contract blockchains, you should try spreading your investment across the tokens of blockchains we discussed above. But first, always do your own research.
On the other hand, if you’re an individual developer trying out blockchain or an organization building a full-scale decentralized application, this is the time to weigh the options you have.
Here’s a brief overview for you to understand which blockchain may best suit your requirements:
- Algorand: Algorand is best known for its speed and atomic or cross-chain swaps. So, if you are building a decentralized application, such as a P2P lending platform, that relies on speed and atomic swaps, Algorand can be your best bet.
- Cosmos and Polkadot: These two are well-known for simplifying the interoperability of blockchains. You can use these blockchains if you plan to develop a platform that requires interoperability, say a cross-chain IDO platform.
- Cardano: Cardano promises scalability, security, and regulatory compliance. It can be your go-to blockchain if you’re building enterprise-grade applications to aid an existing business process.
- Solana: Solana is recognized for its high throughput. So, if you envision something like a flash loan or high-frequency trading platform where speed is the game-changer, Solana can be a good choice.
Building a Blockchain Solution? Hire Blockchain Experts
Irrespective of what blockchain rules the DeFi space, one thing that stays constant is that blockchain is poised to have a huge impact on businesses. It is set to change the course of entire industries over time and make business processes more efficient and secure. And there was never a better time than now to build your own blockchain solution.
But we understand that building a blockchain applications from the scratch can be a daunting task. From choosing the right blockchain to coding and auditing the smart contract, it can be extremely challenging and time-taking.
If you have an idea or a vision of a blockchain-based solution, our team of blockchain experts can help you refine your idea, pick the right blockchain, create an effective plan, code a secure smart contract, and deploy a flawless solution. If that sounds like something you’d want for your blockchain application, feel free to drop us a word.