Crypto asset infrastructure wars
What is Ethereum?
Ethereum was first proposed in 2013 by Vitalik Buterin with the goal of developing a platform on which decentralised applications could be built. As a Bitcoin developer, Vitalik first argued that Bitcoin needed a scripting language for application development. But after falling of deaf ears, he build, developed, raised money and finally launched Ethereum on the 30th of June 2015.
Using the technology behind Bitcoin, Vitalik substantially expanded its capabilities beyond a money transfer system.
Ethereum can be compiled using 4 different programming languages, all smart-contracts are build on a proprietary programming language called Solidity. Ethereum has unique payment systems and most importantly, a decentralised platform that runs smart contracts (programmed applications to execute exactly as they have been coded to do so). Since Ethereum is dencetralised (not controlled or governed by any single entity) there is no possibility of downtime, censorship, fraud or third party interference.
Simply put, Ethereum is the infrastructure on which decentralised applications can be built.
Since then, Ethereum has continually improved and has been extremely successful in its infancy, allowing hundreds of entrepreneurs and developers to build decentralised applications (DApps). However, Ethereum has started to become insufficient to meet the demanding needs of the rapidly expanding and extremely demanding blockchain ecosystem. This has resulted in two key issues:
- Scaling issues – Ethereum can currently handle 15 transactions per second, and with hundreds of applications and increased blockchain adoption, this is insufficient.
- Environmental sustainability issues – like Bitcoin, Ethereum uses a Proof of Work (PoW) consensus which due to Ethereum’s popularity requires huge amounts of computing power and electricity. The increasing number of miners continues to mean an increasing carbon footprint globally.
Key Infrastructure Assets
Given the issues mentioned above, many new players are entering the race to become the infrastructure of choice for decentralised applications to build on top of. Of the top 12 crypto assets, 5 are pure play infrastructures: Ethereum, EOS, Cardano, IOTA and NEO. All of these have their own value proposition and reason they believe they can take on Ethereum and take top spot in a future multi-trillion dollar market as the infrastructure of choice. Each of these competitors have their own unique changes to Ethereum that are meant to either increase transaction capacity, have a reduced carbon footprint, service a different market or service a specific industry. For example:
- EOS – recently launched after a US$4bn ICO, EOS uses a Delegated Proof of Stake (DPoS) consensus algorithm that requires 21 voted in block producers to have control over transaction approval and network improvements.
- Cardano – lead by globally recognised academics, they are taking a very theoretical approach to network structure and consensus. This approach aims to make the infrastructure more easily upgradable and flexible by separating the main protocol from the settlement layer. Cardano uses a Proof of Stake algorithm which requires tokens to be locked to the network to process transactions, rather than computation powers like PoW.
- IOTA – designed to meet the needs of the demanding Internet of Things (IoT) ecosystem. Using and alternate mechanism to traditional blockchain, Tangle, IOTA claims to have zero fee transactions and resolve many of the scaling issues associated with Ethereum.
- NEO –Built initially for the Chinese blockchain ecosystem, NEO aims to build a government compliant infrastructure to suit the needs of a smart economy where digitised assets exist and still need to remain compliant with regulatory bodies.
There are no signs that the competitive landscape is slowing down, with more and more platforms launching every week. There are quite literally 1-2 platforms launching weekly, vying to be the next Ethereum, for example: Wanchain, ICON, AION, ThunderToken, Perlin, Aergo, DxChain, Hashgraphs, Harmony, DFINITY, Solana, Jura, PChain, UChain, Quarkchain, Tezos, Origio, HashGard, FANTOM, EdenChain, GoChain, Hero Node, Seele, Vite and Oasis Labs to name a few.
Ultimately we think there will not be one, there will be several platforms that become the primary blockchain infrastructures of the future (~5ish). This is because each platform provides differing value propositions that will all appeal to different applications. Some are more privacy focused, some are targeting low-zero cost transactions, some are trying to have the fastest transactions, some are building for regulated environments, some are completely decentralised, some are building additional features and so on.
Applications will tend to gravitate to the most trusted, strongest and proven infrastructures that are running hundreds of applications successfully. Further, the consumers will understand the workings of a few platforms and tend to gravitate to applications on those.
Ethereum is very well placed to remain on top in the short term and long term if it can overcome some of the issues mentioned above. It has a few improvement plans (Plasma, Casper, Raiden) that will improve on the scalability (transactions per second) of the network as well as the environmental impact by moving to a PoS consensus algorithm. Further, if it can achieve this, the hundreds of applications already build and launching on the Ethereum network would have no incentive to change chains for convenience, meaning that Ethereum would continue to have a leading role into the future.