Market Niches for Blockchain Ecosystems
Blockchains depend heavily on network effects, i.e. the notion that networks such as telecommunication services, the Internet, or social networks become more valuable when their number of users grows. This is why ecosystem building is one of the main factors that drives the value of a Layer 1 blockchain enterprise. Here is a comparison of how different blockchain projects handle this.
Nevertheless, having the first-mover advantage, Ethereum is still the largest smart contract platform to date and they are blessed with a vibrant community of developers and users. In fact, the Ethereum Foundation doesn't have to do much in terms of ecosystem building, as there is a ton of community-organized events, meetups, and hackathons happening every month around the globe. Any other Layer 1 blockchain enterprise, maybe excluding EOS, doesn't have the same luxury. As such, I don't think that there are smart contract platforms in the race viably contending to be an "Ethereum killer". The only blockchain that will eventually kill Ethereum is Ethereum 2.0
. This however does not mean that there is no place for any other Layer 1 smart contract platforms, but they will have to find a market niche and tailor their technology specifically to their customers, while simultaneously investing a lot of their time and funds into ecosystem development.
Ethereum still has the issue of low transaction speeds and the resulting transaction fees. If something like CryptoKitties can make transactions fees explode in an instant, it is hard to imagine that any DApp that constantly generates transactions will be able to support a user base with mainstream adoption.
Remember the times when every self-proclaimed Ethereum killer boasted about their transaction throughput? Of course, transactions per second is an important metric, as they pose a technical limitation for the potential use cases of a blockchain. However, with a high transaction throughput, we quickly run into a storage problem, as every full node needs to keep a record of the complete transaction history. This will ultimately transfer into a more centralized node network.
One way to address this problem is to implement sidechains in one way or another, like for example Ethereum’s Plasma solution
. The problem with such Layer 2 solutions is that they are foreign elements to the mainchain. In order to move assets from the sidechain to the mainchain, or between sidechains, the sidechains must be bridged to the mainchain using smart contracts. Like any other smart contracts, the bridges may contain exploits that allow hackers to steal assets and must be executed on the mainchain, making them inefficient and costly.
The nature of decentralized development has it that sometimes multiple solutions for Layer 2 scalability may emerge simultaneously. Whether you consider this a feature or a problem is up to you. Anyway, next to Plasma, which is heavily backed by Vitalik Buterin, other scaling solutions like the Raiden Network
are being developed. Matic
, which is an adapted version of Plasma, features an impressive ecosystem with high-value partners, such as Decentraland and MakerDAO.
Implementing a multi-chain architecture on Layer 1 like Cosmos
avoids some of these problems, as the mainchain has bridging capabilities from the get-go. While the technical limitations of Ethereum for proof of concept development, garage startups, and small companies, Cosmos markets itself to enterprise-grade blockchain projects such as Akash
and Binance Chain
, allowing users to develop custom blockchains. In contrast, Polkadot takes somewhat of a middle ground between garage developers and full-fledged enterprises. As such, they put more emphasis into making their product interoperable with other blockchains, most notably, Ethereum. Recently, they have announced to make strategic investments
in projects that want to deploy a parachain.
Additional Layer 1 Functionality
Besides scalability, some Layer 1 projects focus on more functional blockchains in order to find their market niche. For example, Aeternity
encourages user-facing DApps with their naming system, allowing wallets and accounts to have a user-friendly, memorable name instead of public addresses. For smart contract execution, Aeternity runs three different Virtual Machines, giving developers a choice in what language to write their smart contracts depending on their needs. The Aeternity blockchain comes equipped with a Layer 2 scaling solution based on state channels for off-chain smart contract execution.After having already invested a multiple projects
, Aeternity Ventures has recently started the third round of their Starfleet incubator program
in Malta, inviting seed-stage projects to take the first steps from the garage into the business world. The fourth round is set to take place in India in 2020.
After 2018, most Layer 1 blockchain enterprises have turned away from trying to become the one blockchain that kills Ethereum. Since then, everyone is trying to find a specific market niche to grow an ecosystem, while building the appropriate technology stack around their ecosystem.
While Ethereum is perfectly suited for the early stages of business development, an increasing adoption of Decentralized Ledger Technology will at some point require DApps to graduate onto a blockchain with better scalability. For this purpose, they have different options to choose from, each bringing their own set of benefits.
Typically, Layer 1 blockchains have an accelerator program or ecosystem fund that provides venture capital to DApps and helps them in both taking their business to the next level and transitioning to a more mature blockchain solution. In the near future, we will see them put a lot of effort into blockchain interoperability through smart contract bridges and atomic swaps, which will ultimately pave the way towards mainstream adoption.
Disclaimer: This is not Financial advice, the views expressed by the author above are merely his opinion on projects and businesses mentioned here
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