The blockchain universe is expanding. Investors need to follow the developers to find the true … [+]
Ethereum (ETH) used to be the end-all be-all of blockchains for developers building apps and making cryptocurrencies. Others have popped up to rival it, of course, but not until the last year and a half have investors started paying attention to them. Where they look to invest depends on where project developers are turning to, outside of Ethereum.
Instead of following the money, the money is following the developers.
Ethereum was the first kid on the block, but that first mover advantage can melt fast once other platforms prove they are just as good, or even a bit better.
“We are big fans and supporters of Cardano (ADA),” says Vedran Vukman, founder and CEO at Revuto (REVU). Cardano is a proof-of-stake smart contract blockchain platform. “We believe in it due to their edge primarily in significantly cheaper fees, better scalability and higher transaction throughput and speed than what is currently offered by Ethereum’s 1.0 blockchain,” Vukman says. He owns ADA. “It’s had an incredible rally. The smart contracts era has just begun. The best days for ADA and Cardano are yet to come.”
All blockchains face the so-called “trilemma” in which they must choose two out of the three issues to prioritize: decentralization, security and scalability (which leads to cost). Ethereum has chosen decentralization and security which has come at the expense of scalability and makes it more expensive and sometimes a slower service.
This became apparent to developers in 2021 when the “gas” fees to use Ethereum soared as more people used its blockchain. This turned developers and investors on to competing blockchains (so-called “Layer 1” solutions). It’s become clear that the future of blockchain is “multi-chain” – which is great news actually. One would be antithetical to all that is crypto related.
According to industry blog, Electric Capital, their January 5 Developer Report, showed that Polkadot (DOT), Solana (SOL), Avalanche (AVAX), and others are increasing their developer communities faster than Ethereum did at similar points in its history.
Polkadot, a multi-chain platform that is building what some refer to as “an internet of blockchains”, has become home to the second largest number of full-time developers working across all blockchains. Considering Polkadot only deployed its first round of projects including Parallel Finance on December 17 of last year, the potential for Polkadot to surpass Ethereum in total number of developers is possible, thinks Yubo Ruan, founder of Parallel Finance.
“This doesn’t mean developers have given up on Ethereum. But it’s plausible that instead the (new) blockchains are attracting new talent rather than taken from Ethereum,” he said. “I don’t think there will be an ‘Ethereum killer’ in the short term, but I think there will be competitors in specific niche categories,” Ruan says.
He lists Binance Smart Chain among cryptocurrency traders thanks to its tight connection to Binance, one of the largest exchanges out there. Another is Solana, which also works well for the high frequency cryptocurrency traders due to its lower transaction fees. They’re also gaining market share. Emerging market countries may also be turned off by the high cost of Ethereum.
“Polygon (MATIC) has potential to create competition for Ethereum,” Ruan says, citing their partners Reddit and NFT market place OpenSea. “It’s plausible that Polygon could adds more partnerships with organizations that have large user bases. Especially if they can do this faster than Ethereum can move to 2.0.”
Developer Kenny Li, co-founder of the Manta Network, says some developers that started building on Ethereum are looking to expand into other networks because of gas fees. Manta is building on Polkadot and Kusama, which are closely linked. Gavin Wood, Polkadot’s founder, created Kusama in 2019.
“We decided to build Manta Network first on Polkadot for several reasons. We needed to architect the network on layer one, rather than as an application sitting on top of a network,” Li says. “We need to be able to communicate with other layer one networks. These features are native in Polkadot. We are watching the developments of Ethereum 2.0, but our current design requirements can’t be fulfilled by using the existing version of Ethereum.”
Elie Le Rest, CEO of Colony Lab and co-founder of Exo-Alpha, a cryptocurrency hedge fund based in Paris, has chosen another Ethereum alt for Colony – its Avalanche, a proof-of-stake blockchain known for its velocity.
“Avalanche was an easy choice,” Le Rest says, citing that it also uses the Solidity programming language just like Ethereum, but at a lower cost and better speed. “It’s easy to launch on Avalanche C-chain and have this ability to be more independent with a subnet switch, which makes a lot of sense, especially for Gamefi & Defi projects wanting to increase their games/protocols performance,” he says.
Those are the most famous names. Other developers are venturing out on their own, following the prevailing winds to build faster, cost effective blockchains. Johann Polecsak, CTO of the Estonia-based QAN platform (QANX), lets developers build in any coding language and allegedly is a firewall against attacks from quantum computers.
“In the end, developers will only be drawn away from Ethereum if another chain offers a significantly easier or more feasible solution,” Polecsak says. “Ethereum has failed related to quantum security. VItalik’s (Buterin, Ethereum founder) been denying the problem for years, and they are looking for post-quantum cryptographers quietly. We are prepared for the quantum computer hacking threat, which is something you have to consider.”
Blockchain and digital assets are upending many traditional areas of finance and investing.
Cryptocurrencies are valued at trillions of dollars in market capitalization. Adoption is accelerating at all levels, with institutional investors all buying in.
Beyond the legacy coins like Bitcoin and Ethereum, non-fungible Tokens (NFTs) represent additional types of digital assets that are upending areas like art and real estate, Global X, an ETF provider owned by South Korea’s Mirae Asset, said in a recent powerpoint presentation to investors.
Other than Solana, Polkadot and Avalanche, Ben McMillan, CIO at IDX Digital Assets in Tampa Bay, Cosmos (ATOM) and Terra (LUNA) are worth a look for investors diversifying away from Ethereum in their Gemini accounts.
“Cosmos is similar to Polkadot in that it allows interoperability between other blockchains and also relies on proof of stake,” McMillan says. “The key difference is that Polkadot prioritizes security while Cosmos prioritizes interoperability making it easy for anyone to connect a blockchain to the Cosmos network through its Inter-Blockchain Communication protocol. I don’t know if Cosmos can continue its trajectory, but so-far it remains one of the top blockchains.”
Lastly, there is Terra. It’s a blockchain that uses the Cosmos software and its primary focus is creating stablecoins.
“Terra was designed with the market for Asian payments in mind and the South Korean payment app Chai helped jumpstart its user base,” McMillan says. “Their dollar-pegged stablecoin (UST) shot up to $7 billion in market cap in its first year. I think it is posed to even overtake Dai.”
The writer of this article owns Bitcoin, Cardano and Polkadot.