Ethereum Killers

In a prior post on Ethereum ($ETH), we covered how this cryptocurrency allows contracts to be written on the blockchain to represent basically any asset or liability. You can create pictures or videos, titles to off chain assets like cars or trading cards, or just about anything you can imagine. $ETH is by far the largest of these types of blockchains, but it is not the only one. For years, competitors have been coming for $ETH, and today Ethereum’s $500Bn market cap makes up about 60% of the total value of all such blockchains.

There is a concept in the blockchain market called the “scalability trilemma” which holds that blockchains can only prioritize two out of three priorities between scalability, decentralization, and security. Ethereum prioritizes security and decentralization, over scalability. This means it is safe and secure to put assets on the blockchain, and no one entity controls the protocol. The give-up here in scalability means that the network is slow and expensive to record transactions on it.

Will someone figure out a blockchain protocol that solves the scalability trilemma and crushes Ethereum and all its competitors? This is certainly possible and must be watched in the future. However, for now, most of the biggest $ETH killers have focused on sacrificing decentralization to improve scalability, while keeping security as a priority.

One of the biggest $ETH challengers is Solana ($SOL). The whitepaper for $SOL was published in 2018 by Anatoly Yakovenko and Greg Fitzgerald. Their solution was meant to radically increase the transaction speed and throughput relative to $ETH. To do this, they sacrificed some level of decentralization by having their entity Solana Labs retain an amount of control over the blockchain. Solana Labs completed a series of private sales of the $SOL token in the early days to fund development of the protocol. Early $SOL buyers reaped massive profits. Solana opened its Beta in late 2020 and immediately developers began creating products on the chain. By summer 2021, thousands of new projects had launched in art, collectibles, gaming, and more. In the past few months, high profile projects from Alexis Ohanian, the co-founder of Reddit, have started with $100MM+ commitments for blockchain gaming and social media built on Solana. The price of $SOL has soared from around $2 at the start of 2021, to $180 currently. The chain sports a $55Bn market cap and has tremendous momentum.

Another interesting $ETH competitor is Cardano ($ADA), started in 2017 by Charles Hoskinson, one of the original Ethereum founders. Like SOL, $ADA did an early sale of its coin to VCs and other backers to fund development. $ADA is also meant to prioritize speed and low cost, with some level of centralization. Enthusiasm for the launch and the involvement of an Ethereum creator led $ADA to rapidly grow in value. The coin went from $0.02 to over $1 in early 2018, before crashing back below $0.10 by fall 2018. The price of the coin went nowhere for the next two years but started to pick up in late 2020. Throughout this time, the Cardano blockchain did not support smart contracts or assets. Progress toward those eventual milestones led to a massive rally in $ADA, from $0.10 in November 2020 to an all-time high of $3.00 in September 2021. However, with the rollout still slated to happen in the future, $ADA lost momentum and now trades around $1.30 with a market cap of $46Bn. It’s possible that 2022 will see the rollout of exciting projects on the Cardano blockchain, but much of this is already priced into the hefty market cap.

A potential Ethereum killer to watch is $FLOW, launched by Dapper Labs. Dapper was an early player in the digital collectible and gaming space. The company created CryptoKitties back in 2017 on the Ethereum chain. The digital cars were a big hit, but the company saw firsthand the slow speed and high transaction fees on that blockchain. When Dapper landed a deal with the NBA to create digital trading cards called NBA Top Shot, they knew it would bring in millions of fans and that the Ethereum blockchain was not the right solution. The company decided to build their own chain call Flow, designed to be fast, cheap, and secure but more centralized. NBA Top Shot was a huge success shortly after launch in late-2020, and it brought digital collectibles to a massive audience. The Flow blockchain stood up to the volume of users and transactions, and in 2021 Dapper Labs opened $FLOW for trading and use by third party developers. Dapper has raised over $600MM in capital for itself, with the most recent valuation over $6Bn. They have launched partnerships with the NFL and several other organizations in sports and entertainment. Dapper set up a corporate venture arm and is an active investor in dozens of startups, many of whom are now building on the Flow blockchain. The $FLOW coin has been super volatile since it began trading in early 2021. It quickly ran from $8 to $39 by March, but then crashed back to $8 by June. This was followed by another push up to $25 by August, and another crash back to $9 currently. The market cap sits now at $3Bn, but the story of $FLOW is far from done.

The list of other Ethereum competitors is a long one, and a few of these have achieved meaningful traction and sizeable market capitalizations. Avalanche ($AVAX) offers a high transaction speed and low cost, and developers are rapidly building applications on this chain. $AVAX has risen rapidly and has a market cap of $29Bn. Polkadot ($DOT) is another to watch, also focused on speed and security. It has also seen huge price appreciation and now has a $27Bn market cap. There has not been much press on applications built on $DOT yet, but the coin has some very vocal proponents.

All these blockchains are referred to as Layer 1 or L1. This means that they are their own independent blockchains operating at the base level of execution. There is a movement to continue to use the two largest blockchains, Bitcoin and Ethereum, as the guts of new projects and instead use Layer 2 or L2 solutions to write bulk transactions to the Bitcoin or Ethereum chains. The idea is that by bundling transactions for art, collectibles, or gaming, a developer can rapidly use the biggest chains for their projects with a much lower cost of execution. Polygon ($MATIC) and $STACKS are two of the bigger Layer 2 protocols. It was worth a quick mention here, but this is a topic I will cover in more detail in a later post.

When thinking about Ethereum and its many competitors, the important thing long term is which platforms will attract developers. Ultimate demand from these cryptocurrencies come from people building applications in art, collectibles, gaming, music, and more on these blockchains. Ethereum has a huge lead with the developer community right now, but both Solana and Flow are seeing rapid adoption. It seems likely in the next few years, that multiple chains will thrive. However, one of the existing competitors or an entirely new solution could come along and grab all the developer attention in the future. I’ll have more to say on this space in future posts for sure.

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