Smart Chains
Carrying on from my last post about Bitcoin and Ethereum, I wanted to talk more about the other smart contract platforms that could and are competing with Ethereum. Each one is unique and the leaders of some of these projects initially started Ethereum in 2013. They left Ethereum because they didn’t agree with some of the decisions that we’re being made and so they’ve created their own smart contract platforms their own way. That’s what makes this space so interesting. Each smart contract platform does things differently. Each of them allows for DApps and any smart contract infrastructure you can think of, but each one is prioritizing different aspects of the network structure.
Binance – No.3 in Market Cap
The first one that currently has the most traffic, even more than Ethereum, is Binance Smart Chain (BSC). BSC is a blockchain with smart contract capabilities. This smart chain runs in tandem with the Binance Chain, which is basically the compani’s trading platform that allows leverage and spot trading. Its platform is similar to Coinbase Pro, but its smart chain is similar to Ethereum. The native Decentralised Exchange (DEx) on BSC is called PancakeSwap and they surpassed Ethereum’s most popular DEx Uniswap on the 19th of February in daily trading volume. The main reason for people switching over to Pancakeswap is the fees. Pancakeswap’s fees are a few cents and, at the peak of congestion, fees on Uniswap were around $100. I just checked and the fees have dropped to around $25 dollars, which is still pretty steep compared to a few cents.
The main problem with the BSC is that it’s still very new. That means that there are fewer projects on-chain, but the smart chain has incorporated a bridge enabling projects to convert to the BSC in order to take advantage of eager investors with lower fees. Currently, there are about 200 coins on Pancakswap and 1500 on Uniswap. Ethereum is benefitting from this first-mover advantage. People argue that it’s not as decentralised as Ethereum as it has fewer nodes, but after a project ran some tests, it couldn’t confirm this. BSC has grown drastically this year and it shows that people are looking for alternatives.
Polkadot – No.8 in Market Cap
Polkadot was founded by Gavin Wood, one of the Ethereum Originals. His plan is to create a smart chain that focuses on the best projects in every aspect of the blockchain universe. This means that the Polkadot ecosystem is limited to 100 parachains (independent blockchains) or projects each serving a particular purpose. With limited spots available that means these projects are going to have to fight for a spot. This incentivises these projects to be the best in their particular field, which obviously improves the quality of the overall network. Each project bids for a parachain slot through a modern candle auction. These projects raise funds for their bids through a decentralised crowd loan. This means that the projects that the community believe in the most will usually receive the most funding. An individual’s tokens are locked during this process, meaning they can’t use them for staking, vesting or governance. Projects will have to incentivise their communities to lock up their tokens and back their favourite projects and I’m interested to see what the different projects come up with.
The most interesting thing about this whole process is that the parachain slots are leased and not permanent. The slot duration is 6 months and a project can bid for a maximum of 4 slots. Meaning if a project fails and can’t make a good enough bid to keep its slot, it will be replaced when its lease expires. These parachain auctions have not started yet, but they are expected to happen this year (2021).
Cardano – No.7 in Market Cap
Another Ethereum founder, Charles Hoskinson, started Cardano another smart contract platform with a very different focus. This project has taken a long time to get to where it is currently, and it still doesn’t have smart contract capabilities on its network yet. It does however have a vast amount of research papers on anything and everything to do with blockchain technology, and it did become fully decentralised on April 1st which is a big step for the blockchain community. “In contrast to Cardano, Bitcoin’s blockchain is largely in the hands of the ten most prominent Bitcoin mining pools, which account for 85% of the network’s block production.” Being fully decentralised means all the blocks are created by the community’s stake pool operators and this secures the network even more by reducing the likelihood of a 51% attack.
What I find interesting about Cardano is that their goal is to bank the unbanked. This means that they have a big focus on Africa. They recently announced a deal with Ethiopia and have some interesting projects in the pipeline. They have teamed up with the Ethiopian government to create a blockchain-based system to track student performance in local schools. Ethiopian certification has been a problem and has harmed many people’s futures as the west doesn’t trust that their certifications are genuine. An identification program with the intent to roll out throughout Africa is also in the works. This can help refugees claim back their land and prove their country of origin. The possibility of this technology blows my mind.
There are a few more blockchains that are actually fully operational and yet have less market share than the ones I’ve mentioned above. The first is Solana(no.15), which uses a proof of history mechanism to improve trust and block speed. Solana can process 50,000 transactions a second, which is much faster than Ethereum at the moment. Three smaller chains are Cosmos(no.33), Tron(no.19) and Tezos (no.40) and I don’t know enough about them yet. People are starting to speak about Solana more and the ecosystem is starting to grow, this could mean possible high returns on some of these smaller market cap projects built on the Solana chain.
This was just a brief look at some of these blockchains to help explain the potential of this technology. There is so much more to each project and so much to learn. They each act as their own internet ecosystem and they go about it in different ways. They seem to be addressing slightly different problems and with cross-chain communication being a possibility there’s a chance that they could all work and operate together. The crypto world seems like a pre-internet bubble and there may only be a few winners at the end. With so many projects and so many unique use cases, I plan on keeping a watchful eye on who comes out on top. Ethereum is obviously the outright leader and an interesting Twitter thread by Spencer noon helps highlight just how big this space is becoming. Definitely check it out.