The first half of 2020 saw an unprecedented development of the ecosystem Ethereum. The attractiveness of the platform is constantly increasing and some observers even predict that it may one day exceed Bitcoin in use and in promotion. But is it imaginable? Who are the possible challengers to Ethereum’s current dominance in the market?
First question: what is the fundamental interest of Ethereum?
Even though it is possible to program code in Bitcoin or other blockchain transactions, this functionality remains frustrating and basic. Ethereum was the project that created the concept of programmable currency, with the smart contract: a computer program stored on a blockchain, which can receive orders from users, store and send funds, and interact with other smart contracts.
From this fundamental brick have been born since 2016, projects of exchange platforms, loans, insurance, predictive markets or tokenization, to which we collectively give the name of decentralized finance or DeFi. The real strength of these projects is that they are all natively and immediately interoperable: it is thus possible to borrow funds from MakerDAO, place them to earn income on Aave, while taking out insurance on Nexus Mutual.
The ecosystem pushes the limits to create tokens that represent bitcoins, like WBTC or sBTC and which can immediately serve as payment or collateral for DeFi loans.
What are its limits ?
The problems of Ethereum are similar to those of Bitcoin, and can be summed up in one word: scalability. To truly establish itself as a network hosting financial applications, Ethereum must be able to support thousands of transactions per second, prove that the network is safe from both computer and legal attacks, and use a transaction verification model that is not an energy sinkhole.
All of these problems are addressed by the planned release this year of Ethereum 2.0. But other blockchain projects are on its tracks, responding to the same problems and having benefited from the experience of this first attempt. The fundamental question is whether these projects can catch up with Ethereum.
Who are these competitors?
There are two types of competitors to Ethereum: blockchains that implement smart contracts and meta-blockchains.
The first are the best known: EOS, Tezos, TRON and Cardano are the ones that have experienced the most significant development. In theory, they offer functionalities close to Ethereum, distinguishing themselves on specific aspects.
Tezos works from day one as proof of stake, earning an income through staking, and tries to carve out a niche in the world of corporate blockchain. EOS and TRON are betting on speed and the number of transactions, to the detriment of decentralization.
Cardano looks a lot like Tezos but imposes restrictive development processes which make him fall far behind. The network supports basic functions but you cannot always create its application there, despite more than comfortable market capitalization.
The second type of competitor that Ethereum faces is meta-blockchains, these projects which aim to build bridges between all existing blockchains. Although this is indirect competition: such projects would only absorb the functionality of Ethereum to make them available to other possibly compatible projects. In this category, we can cite Polkadot, Cosmos, or Avalanche. All these projects are however at an experimental stage, and represent a development complexity far from negligible.
What are the killer apps of Ethereum’s competitors?
There is not much at the moment. The only applications that show significant trading volumes are currently on EOS and are almost exclusively for video games and gambling, according to https://www.stateofthedapps.com.
Even if Tezos is making progress in the business world and already offers an efficient proof of stake system, none of these platforms currently offers consumer products, with a significant volume and the potential to disrupt the world of traditional finance. And it is very regrettable.
According to a study by Outlier ventures, the number of EOS blockchain developers has dropped 85% in one year. That of 50% TRON. However, it is the developers and their projects that are the lifeblood of an ecosystem.
As the number of applications, libraries, developers increases on Ethereum, talents are attracted more and more strongly. This network now represents 80% of decentralized applications, and this number is likely to continue to increase in the future.
This concentration is reinforced all the more since the interoperability of decentralized applications immediately enriches any Ethereum project on the very day of its launch.
Do we have to bury Ethereum’s competitors?
Not immediately. First of all, Ethereum 2.0 is currently absorbing a good part of the development resources on the platform. This is a very complex project, even from the developers working on it. If it did not succeed, or only with problems that would greatly diminish its interest, it is a safe bet that application developers would quickly seek alternatives to host their projects.
But above all, there is the planned arrival of the meta-blockchains of which we have spoken. The question of knowing on which blockchain to develop may not arise soon, since their objective is to make them all compatible. Ethereum would then be only one choice among others, depending on the needs of a particular project, and interoperability would become transparent.
Today, it is clear that Ethereum largely dominates the blockchain market for smart contracts and that this domination even tends to strengthen, making the work of direct competitors to catch up difficult. The valuation of the Ethereum asset should probably reflect this state of affairs in the coming years.