Using cities to metaphorically represent blockchain: Ethereum is New York, what are other public chains?

By Haseeb Qureshi, Managing Partner, Dragonfly Capital

Translation: Wu Zhuocheng on Blockchain

This article is translated and reproduced with permission from Haseeb Qureshi

Will we live in a multi-chain world, or one chain to rule the world? It depends on your mindset towards blockchain.

People often describe L1 blockchains as networks, such as the ETH network, the Solana network. This means that blockchains can scale infinitely like the Internet, Telegram, or Facebook. If blockchains are networks, then network effects (translator's note: that is, demand economies of scale, most common in social networking services: the more people use a certain social software, the higher the use value everyone gets) will dominate, so a blockchain will eventually win.

But it is wrong to use the network as an analogy for blockchain. Blockchain is subject to physical limitations and cannot expand the block space infinitely. Because blockchain requires many independent small validators, if the block is infinitely large, the blockchain will no longer be decentralized. In fact, the smart contract public chain is more like a city. If you accept this mindset, then the evolution around L1 becomes less mysterious.

Everyone loves to complain about Ethereum. It's expensive, congested, slow, and hasn't become what it should have been for so long, and it doesn't seem to be getting any better now. It's so ridiculously expensive that only rich people can afford to live in it, like New York.

Of course, New York is a novel place! It has the world’s largest banks, the most billionaires, the hottest brands and celebrities. Similarly, Ethereum has the largest DeFi protocol in the crypto world, the highest TVL, the hottest DAOs and NFTs.

If you bought assets here early, you may have made a fortune. But if you start now, the prices will eat you alive, and there will not be enough space for everyone. The billionaires will be comfortable, but if you are a latecomer, you will be eliminated by this city and eventually have to go somewhere else.

So, how to expand New York? There are three ways to expand the size of the city.

Path 1: Building upward

Land may be limited, but you can grow vertically. By building higher and higher floors, you can fit more people on the same piece of land.

But building upwards isn’t a perfect answer. There are limits to how high a skyscraper can get, and even skyscrapers can’t escape the congestion of the city below. If I live in a high-rise in Manhattan and you live in another high-rise, and I want to see it you have to go down to the ground floor, hail an expensive taxi, and battle Manhattan traffic. We can’t escape the basic constraint — Manhattan is crowded.

L2 and Rollup are the blockchain equivalent of skyscrapers. Each Rollup is like a vertical blockchain extending from the L1 ground. The Rollup space is huge, but to access one from another, you must first go back to Ethereum, the bottom layer. Although it allows more users to integrate into L1, if Ethereum is crowded now, then Rollup will still be crowded later (only billionaires can afford the fees of L1).

Path 2: “Interoperable networks” such as Polkadot or Cosmos

Polkadot and Cosmos provide SDKs for developers to launch application-specific blockchains - small blockchains dedicated to a single application. All of these blockchains are connected by a routing system - the relay chain for Polkadot and the Cosmos Hub for Cosmos.

In the city metaphor, it's like creating small towns that do just one thing. There's a mining town, a factory town, an agricultural town, a retail town, and everything is connected by a massive highway system.

It works! Some places will be built this way. But these towns are places for production, not places for people to live. It will take more than a few small towns to absorb a growing population.

Path 3: Another City

Here’s the final approach on how to scale a city: build another city. This is what Solana, Avalanche, and Near are each doing.

When you build a new city, you have to replicate a lot of the infrastructure first. This may seem redundant, but every new city needs its own roads, its own police station, its own schools, its own hospitals. Likewise, every new L1 needs its own block explorer, its own block entry, its own native AMM, its own NFT marketplace. This is redundant, but every L1 needs this infrastructure to get started.

The great thing about building a new city is that each one can be built differently.

Take Solana for example — Solana is like LA , only big, wide, and cheap compared to Manhattan. You can be a starving actor and get by in LA! Ignore the East Coast’s obsession with decentralization — move your app to Solana, launch your NFTs, and get your 10 minutes of fame. While Solana isn’t the most decentralized, games and NFTs don’t need that much decentralization to begin with. The weather is great, fees are low, and that’s enough that no one takes it seriously.

What is Avalanche? I would say Avalanche is Chicago : trying to be the next Wall Street, but newer, cheaper, and more aggressive. It's cold there, but Avalanche's expertise in finance and trade has given the city a vibrancy and confidence. It's hard to guarantee it won't continue to rise.

What about Near? Near is San Francisco , built for Web3 technicians. It is an idealistic city full of people who want to realize the dream of ETH3.0. In their view, sharding is the only long-term development direction.

What’s important about these cities is that they are not only large, but also open to business. Each has a different vision of what a city should look like and how it should be governed. They each accept different trade-offs, adopt unique values, and attract different industries.

So will we live in a world of multiple chains, or one chain ruling the world? Or will we live in a world of multiple cities, or one city ruling the world? The answer is obvious. Although the monopoly of large cities has a power law distribution phenomenon, other cities are also very important.

No metaphor is perfect. But I find this mindset useful for predicting how L1 will evolve. Here are six predictions based on this mindset:

1. The future will be multi-chain.

2. Ethereum is probably the most valuable chain, and to quote a famous bank robber: “Because that’s where the money is!”

3. Other L1s will also be valuable, but they will continue to be differentiated. New York, Los Angeles, Chicago, and Houston have become enduring cities because their institutions and cultures are different from each other.

4. L2s are important—skyscrapers are essential to the expansion of any city—but they are not the end of the story. L2s are an “and,” not an “or.”

5. Application-specific blockchains will remain niche.

6. In the real world, transportation accounts for almost half of housing GDP. If we see something similar in cryptocurrencies, cross-chain bridges will become extremely valuable.

Original link:

https://medium.com/dragonfly-research/blockchains-are-cities-564327013f86

Appendix: Shenyu once gave an analogy for Chinese cities
BTC is the Forbidden City, a historical and cultural relic, and will not be moved.
ETH is the main urban area of ​​Beijing, and it is extremely congested;
L2 is Tongzhou, Xiongan, Yanjiao, etc., and the new public chains are Chongqing, Hangzhou, Shanghai, Shenzhen, etc.