Blockchain Ecosystems – Overview

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Disclaimer: Crypto is a fast-paced economy and things change quickly. Information on this post might be outdated even if written today. Do your own due diligence and stay safe. I might get affiliate commissions for purchases made through links in this post. Read the disclosure.

Alpha Gained:

The Building Blocks of a Blockchain

Blockchain, while it can work by itself, can be expanded by different dapp’s (decentralized applications). Dapps can also be seen as smart contracts as dapps backend code is smart contracts that run on a decentralized network.

A smart contract on the other hand is a set of rules that live on-chain for everyone to see and run exactly according to those rules. If you think about a car and how the car steers when you rotate the steering wheel. Smart contracts work the same way. For every action, there’s a rule written in code.

Once you deploy a dapp on the blockchain network, you can’t change them. It’s there for good and works precisely as it was engineered and written. Smart contracts can not be deleted by default, and interactions with them are irreversible.

Smart Contract Coding Languages

  • Solidity (ETH, AVAX, FTM)
  • Vyper (ETH)
  • Rust (SOL, LUNA)
  • Haskell (ADA)
  • Bitcoin (C++) – (BIP 0341 / Bitcoin Improvement Proposal) – Nov 2021

Oracles

Oracle is a pathway to the outside world. Bringing data from the outside world into the blockchain for smart contracts to operate from thereon. Outside data can be the number of votes a political candidate received, temperature, electricity consumption, carbon emissions, etc.

The problem with Oracles is that they bring data that could be inaccurate and thus manipulate the input and output for the smart contract. While smart contracts do have a set of rules if the data that is fed to the smart contract is corrupted the smart contract becomes unusable.

Chainlink is by far the biggest Oracle there is. With a market cap of $11B, no other oracle chain comes close to what Chainlink currently has. There will ever be 1B Chainlink tokens as a supply and currently, there are 50% in circulation.

Chainlink was built first and foremost for Ethereum but can be integrated with other blockchains too, like Solana and Cardano (after ERC20 converter bridge). Chainlink seems to become the Oracle of Oracles even though not being a blockchain. 

ethereum_ecosystem
Example of the Ethereum ecosystem (a small part of it)

Launchpads

Launchpads are dapps that help projects get exposure and have a launch “party” for their project into the blockchain. ICO’s usually have a “public” sale, in which fans of the project can grab the project tokens with a price that is far cheaper than what it will be for other “public” (for the ones that are not part of the launch).

Launchpads are a fun and effective way to get the new blockchain project known and get a nice lift-off for people to start using the dapp and contributing to it. What needs to be remembered with launchpads is that the project team is solid and trustworthy. It wouldn’t be too nice that after the launch the project team reaps the rewards and then dumps the project. Having a real pump and dump scheme.

Launchpads are probably the best way to get those 10-100X rewards (even in minutes like happened with the ATLAS token in FTX.com on the 2nd of Sep 2021), but there are risks involved. Usually, a project will see a 500-1000% gain and quickly drops back to a level that is more aligned with the true value of the project (in the beginning). Thus it’s hard to say if it makes sense to even get into the ICO’s.

Overall Mechanism

In TrustSwap for example, you need 4000 SWAP tokens (minimum) to participate in the ICO. Currently, TrustSwap offers ERC20 based projects and you have a guaranteed allocation in relation to the number of tokens you hold. So the more SWAP tokens you hold, the more ICO tokens you will get when the project launches.

Cardano, Binance Smart Chain also have their own launchpads with their own set of rules. CardStarter which is one of the biggest launchpads for the Cardano ecosystem offers a Wild Cards system and the more CARDS tokens you own, the bigger allocation you will gain to a set project.

What is clearly seen in the crypto space is that yet again, there are a plethora of projects/launchpads offering the exact same thing in a different outfit. So finding a launchpad that offers exciting projects and maybe even multi-chain projects is not an easy task. Trustpad is one launchpad that offers both Ethereum and Binance Smart Chain projects.

NFT’s

Non-Fungible Tokens, in short, tokens that you can mint (create), sell, and buy, but that cannot be altered by the owner once it is minted. NFT’s can be in many shapes and forms, currently, however, the most used form is digital art in its many forms. Audio, art, 3d models, card games, and game assets.

NFT markets exploded when digital artists started to make money from NFT’s. NFT’s like CryptoPunks, CryptoKitties, Degenerate Ape Academy, Beeple (digital art) was huge success stories and have inspired many to get their hands on NFT’s.

NFT’s themselves do not carry value, thus the value is only realized after an item has been sold and only after that initial sale will the NFT have any value. Anyone can create an NFT and set an ETH pricing of 100 ETH ($300 000). The reality is that not just anyone can sell their NFT for that price.

NFT’s biggest impact is probably not the actual NFT’s but the way they expand the blockchains ecosystem. When Degenerate Ape Academy launched in Solanart.io, dapp was based in the Solana ecosystem. The Solana token and blockchain saw a massive spike in trading volume and skyrocketed $SOL token to new highs.

NFT’s helps expands the user base on any given blockchain. However, this brings an interesting aspect to the usability of a given blockchain. 31st of Aug 2021 ETH gas fees were as high as 150$ and this was in Ethereum blockchain, using Uniswap to do a simple token swap.

This only shows that when the transactions (trading/swapping, minting, buying, and selling NFT’s) get high, the network congests and becomes unusable, something that ETH 2.0 tries to correct. However PoS has its own downside and sharding is a technology that the Ethereum blockchain doesn’t yet have.

So it could very well be, that even ETH 2.0 development won’t save Ethereum blockchain from the NFT craze.

Play To Earn

Play to earn model got popularized by the huge success stories in Axie Infinity, where players earn a living just playing games. Situation in some cases is that players make more money by playing play-to-earn games than they would by working in a restaurant for example. Some players earn five-figures and it’s all possible because of the value tokens have when you receive them as rewards.

For decades playing has been a passion for many and it has always been in the form of pay to play and no wonder as game companies’ budgets are reaching hundreds of millions per game. So surely they need some kind of ROI (return on investment) for their games. 

Mobile gaming brought free games and micro transactions to the table. Making gaming free but if you wanted to experience more, then you paid a small fee to play better, bigger and farther.

Crypto brought a play to earn model to the table and the world went nuts. NFT gaming is still a young frontier but is growing exponentially as players are making outstanding wealth just by playing games.

Surely esports did bring the money to the table for players, but that price money is reserved only for the best team in a given match or a tournament. Play to earn model brings money for everyone who decides to participate.

At the time of writing play to earn games slack that AAA game development quality, but there are already promising projects like Star Atlas ($ATLAS) that is bringing Unreal Engine 5 level graphics to the game.

DeFi

Decentralized finance is one of the largest growing blockchain themes in the crypto space. DeFi promises high yields, low swapping fees, basically limitless earning potential. DeFi platforms are currently built as dapps in one of the main blockchains (Ethereum, Cardano, Binance Smart Chain, Polkadot). Some have even built a defi supporting two blockchains, but none have created a defi platform that supports more than three. 

Many defi projects promise the same thing. Multi-chain support for all major blockchains out there, yet none have delivered yet what has been promised. Solana is already a working blockchain with a massive amount of daily transactions. 

Binance smart chain isn’t decentralized and Cardano has just launched smart contract (dapp) functionality to their blockchain. Polkadot and their parachain functionality offers a new take on how blockchains work together. However, Avalanche, Ethereum, Fantom are all aligned to work as a multi-chain solution, making the Polkadot innovation maybe a bit irrelevant?

Everything however isn’t just about cross-chain and aggregated DEX’s, we also have to take into account the speed at which blockchains work. TPS (Transactions per second) and for that very reason, Ethereum is at the time of writing unusable.

Digital Wallet

Wallets are an integral part of every blockchain. Without a digital or cold-storage wallet, you cannot use blockchains effectively and DeFi for example. When you create a wallet (Metamask, Gero wallet, Phantom) you will generate a public digital address that acts as the storage for your coins.

Currently, I don’t see a reason why someone would invest in wallets if the token does not have utility build around the token. Many projects offer flashy websites and flashy graphics, but when it comes tokenomics and the use case of a given token, they more than often fail on that part.

Scaling And Performance

Ethereum and Bitcoin suffered performance issues when the networks grew big enough. $150 gas/transaction fees for making a simple token swap (changing one coin to another) inside the Ethereum network only show that the blockchain technology isn’t usable when the network grows big enough.

This is exactly what happened with Ethereum and Bitcoin and thus L2(Layer2) solutions were invented. L2 solutions are also called scaling solutions and their main function is to help the underlying layer to scale per network demand. Layer 1 is for example Ethereum, Cardano, and Solana.

Sidechains, childchains, payment channels, roll-ups, all of the mentioned are different names to the same concept, which is called scaling solutions. Even though L2 solutions bring performance upgrades to the L1 network, they are limited in interoperability, which is crucial when thinking of expanding the usage of a given L2 solution.

From a defi perspective, L2 solutions reside in their own layer and cannot operate with L1 defi layers. Making L2 pretty siloed to their own little domain. Which only strengthens the ideology that the L1 solution should be strong so that L2 solutions wouldn’t be needed. This way L1 solutions can interoperate with other chains, making blockchain usable for many and for many use cases.

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Written By Juha Ekman

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