Crypto Ecosystem Evolution

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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 Information on this post might be outdated even if written today.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:

When Bitcoin launched as a coin, the ideology behind the coin was simple: build a monetary system that no one controls and that everyone can use. The idea is simple, but the architecture to create one system is super complex. After many years Bitcoin has become the store of value like gold in the physical world. Bitcoin can be seen as digital gold and something one can buy to store and increase the value of an asset. When Bitcoin’s network usage grew exponentially, it became clear that the user experience started to lack speed and efficiency (considering electricity consumption and coin mining). That’s Bitcoin. So what is Ethereum then?

Ethereum has been seen in many lights over the years, Bitcoin 2.0, dApps (world computer), ICO’s, utility tokens and collectibles, etc. Ethereum has been many things, but the time has since moved on and new ways to look at the crypto world have surfaced. The most prominent way of looking at crypto is narratives and the reason for this is, is because crypto is a complex subject matter so people want to simplify things for better understanding, thus we have narratives.

Ethereum is still in the spotlight and that’s because the Ethereum ecosystem is the biggest one and also the most used one. However, with great usage comes great needs, and the needs are precisely the thing that started the whole crypto world expansion and crypto gem hunting. So the hunt for the next crypto gem is all driven by one single thing… the present narrative.

The Problems In Crypto

For us to understand narratives, we have to understand the problems crypto has. Whenever a new product is launched in the physical world, it’s usually meant to solve a problem people have. The same principle applies to crypto, the blockchains launched in the crypto space all try to solve a specific or a basket of problems. Narratives are born from problems unsolved, or problems people think there still is. In its purest form, blockchain aims to solve a peer-to-peer data transfer without an intermediary. Blockchain is essentially used to have trust between two or more parties. The only question left is which solution will deliver this the best?

The Blockchain Trilemma

Ethereum went live roughly in July 2015. Years have passed and with the implementation of smart contracts, Ethereum was able to gain mass adoption and growth through the network effect. This brought the issue of performance as the Ethereum chain became congested (high input with little output) and suffers congestion from time to time and more and more as time passes.

The narrative of performance issues arose and thus new blockchains declaring better performance came to the surface, Solana and Binance Smart Chain being the current leaders to overtake the Ethereums crown. To make Ethereum faster layer-2 solutions came to the market, sidechain like Polygon is one of the most known ones.

However, with greater performance, comes a sacrifice and so we get to the trilemma of blockchains (decentralized, security, scalability). When we think about Solana, BSC, Fantom, or some “new on the market“ high-performance chain, we have to ask whether they are decentralized enough (so that they are not centralized) and have the needed security elements (not vulnerable to hacks) implemented in them.

When a chain grows and more and more validators are securing the chain, the more resilient the chain will come and ultimately more usable and decentralized. Solana is on its way there and many other chains too, but the transition from a centralized chain to a decentralized chain, requires users, believers, and the community to pull off the chain’s vision.

Comparison Game

Whenever a blockchain comes to the market with the performance hype there are usually few metrics they bring up. TPS (Transactions-per-second) and time to finality. One comparison they also bring up is the performance of VISA. VISA is able to process 1,700 TPS, but it has been reported that theoretically, VISA can process 56,000 TPS through its servers. 

In the year 2020, VISA processed roughly 188B transactions and that’s only VISA. When you add up transactions made inside stock exchanges, centralized crypto exchanges, and other payment gateways, the payment transactions volume is out of this world. So when we see that a blockchain can handle 4,500 TPS (being better than VISA), we should realize that for the world to use DeFi, 4,500 TPS is far from enough.

Different Ecosystems

Bitcoin

Represents the store of value/wealth in the whole crypto world the same way as gold represents the store of value in the physical world. Even though Lightning Network enables efficient Bitcoin usage as a layer-2 solution, one should question, whether you should use Bitcoin or store it.

Ethereum

A decentralized, secure blockchain that enables dApps to be built on top of the chain. dApps represents use cases for the blockchain. Enables a decentralized interaction between network users. After experiencing high gas fees, layer-2 scaling solutions (Polygon, Arbitrum, Cartesi) have gained popularity.

Binance Coin

BNB acts as the native token when you want to have smaller transaction fees when using the Binance crypto exchange. You can also use BNB when interacting with P2E games and NFT’s in the Binance marketplace. BNB is used with the Binance Chain but also with the Binance Smart Chain (BSC) (smart contracts). BSC was created as an alternative chain, because of the high gas fees experienced with the Ethereum chain.

Solana

A layer-1 blockchain offering high-transaction throughput with minimal transaction fees. Solana is one of the most popular high-performance blockchains out there and is steadily following Ethereum’s footprints. Solana uses Rust as the smart contract coding language and thus is different from the Solidity and Vyper that Ethereum uses. Solana’s rise in popularity is thanks to a successful NFT launch (Degenerate Apes) and dApps being developed for the chain.

Cardano

Slowly but steadily being built blockchain that introduced smart contracts to its blockchain fall 2021, which also made the tokens price rally to ATH. Currently, Cardano can be seen as a slowly built blockchain, but it’s not to say that Cardano is bad by any means. When and if Ouroboros Hydra will be made live to the chain (via Basho development implementation), the TPS is said to easily achieve 1,000,000 TPS with 1,000 validator nodes. Cardano uses Haskell as its smart contract coding language.

XRP

Ripple is a digital asset built for global payments. It is the native digital asset on the XRP Ledger—an open-source, permissionless, and decentralized blockchain technology that can settle transactions in 3-5 seconds. You can use XRP without a central intermediary, making Ripple convenient when bridging two different currencies. What has kept Ripple from achieving its true potential is the lack of smart contracts (though this will be “fixed” with Flare as it will bring the much-needed smart contract capabilities to Ripple and Litecoin).

Polkadot

Polkadot brought parachains to the world blockchains and is said to be a layer-0 blockchain model. Layer-0 acts as a bridge or a web that connects all the blockchains that are its parachains. All the parachains can interact with each other while Polkadot’s layer-0 provides the security and decentralization for the whole network.

Terra

Terra (LUNA, UST) is focused on stablecoins and powering the innovation of money. Terra is a blockchain that is focused on algorithmic decentralized stablecoins and delivering DeFI solution(s) for the masses. So in a sense, Terra is focusing on money and currency and bringing stablecoin versions for different fiat currencies.

Avalanche

Avalanche describes itself as the fastest smart contracts platform in the blockchain industry. The company has also claimed to it has the most validators when it comes to the proof-of-stake protocol (however, it’s hard to believe as ETH has 200,000 (PoS) and AVAX has 1,000 validators, though ETH 2.0 staking hasn’t been released yet). Avalanche is focusing on performance and truly trying to take out Ethereum as it also offers Solidity as its smart contract coding language.

Crypto Ecosystems Overview

Different crypto ecosystems and different ways they are connected to each other. For example, the ERC-20 contract enables Ethereum based token transactions, Solidity smart contract language enables easy transfer of dapps between ecosystems, etc.

The reason why it’s almost impossible to create an overview of the ecosystems present in crypto is because of the sheer volume of projects entering and exiting the crypto market and crypto space. New blockchains pop up daily and weekly and they all bring different use-cases for the crypto space. All trying to solve a present problem within the crypto space or trying to solve a problem present in the legacy world.

A small part of the Ethereum ecosystem

There is one single thing that creates ecosystems and that is the implementation of smart contracts. Without smart contracts, there can’t be dApps, and when a blockchain does not have dApps, its function is limited to layer-1 and what it tries to solve at that level. When dApps are developed an ecosystem is born, so in that sense, developers are in a crucial part of building a thriving ecosystem. It also matters what type of dApps are being built to the blockchain, because it’s those dApps that ignite adoption and thus make the blockchain thrive.

A small part of the ecosystem SushiSwap has created around itself
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Written By Juha Ekman

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