An in-depth analysis of seven potential challengers to Ethereum: Can they replace Ethereum?

Clearly, Ethereum’s dominance has begun to shrink, as reflected by TVL.

Ethereum 2.0: An Introduction

The Ethereum blockchain is currently undergoing a multi-phase upgrade. The upgrade, called Ethereum 2.0, is designed to address the scalability, security, and sustainability of the network. The upgrade is planned to be divided into three main phases:

• Beacon Chain

• merge

• Shard Chain

The Beacon Chain went live in December 2020, with the most notable goal of transforming the Ethereum network from a Proof of Work (PoW) consensus mechanism to a Proof of Stake (PoS) model. In its current form, the Beacon Chain operates independently of the Ethereum mainnet. Most importantly, it introduces staking to the Ethereum ecosystem. Currently, the options available for staking Ethereum include:

• Running a validator: This requires staking 32 ETH (Ethereum) to activate the validator software. As a validator, you are responsible for storing data, processing transactions, and adding new blocks to the blockchain. At Staking Rewards, we consider this type of staking to be “very difficult” when it comes to complexity.

• Participate in Staking Pools: A relatively easy way to participate in ETH is to participate in the available staking pools. This does not require a minimum of 32 ETH for staking like running a validator, nor does it require technical expertise. Here is a list of staking pool services.

For details on the APR for each option and more, check out our dedicated Ethereum 2.0 page, there’s even a list of basic FAQs to help you better understand. Currently, there is a total of 8,034,525 ETH staked by a total of 242,621 validators (source: Ethereum website).

Sharding

The future of Ethereum 2.0 is to integrate the Ethereum mainnet into a proof-of-stake system controlled and coordinated by the Beacon Chain (estimated delivery time: Q1/Q2 2022). After this, sharding will be introduced to increase Ethereum's scalability and capacity (estimated delivery time: 2022). In short, sharding is the process of splitting up a database to distribute the load. In the context of the Ethereum network, sharding will reduce network congestion and increase transactions per second (TPS) by creating new chains called "shards".

According to Ethereum founder Vitalik Buterin, once implemented, ETH 2.0 will increase network speeds to up to 100,000 transactions per second (TPS). To put this into perspective, Ethereum’s current network speed is around 12.5 TPS (September 30, 2021; source – Etherscan), which equates to nearly 1 million transactions per day. Imagine what 100,000 TPS could bring!

With Ethereum 2.0 in the background, let’s jump into the seven projects trying to overthrow Ethereum. For convenience (and without any bias), these projects are listed below based on their market capitalization.

1. Cardano (ADA)

Founded by Ethereum co-founder, Cardano pip bills itself as a third-generation blockchain that aims to solve scalability and other issues facing Ethereum. Cardano is a proof-of-stake blockchain platform that was launched in 2017 by Charles Hoskinson.

How does Cardano stack up against Ethereum?

Cardano implements the so-called Ouroboros Proof-of-Stake protocol. Ouroboros first processes blocks of transactions by dividing the chain into epochs. Epochs are then further divided into slots. Each slot elects a slot leader who is responsible for adding a block to the chain.

As per Coinmetrics, as of September 30, 2021, Cardano (ADA) has a TPS of 1.03, which is much lower than Ethereum. In order to maximize throughput, minimize latency, and have low or zero costs, Cardano is currently working on implementing a layer 2 scaling solution called Hydra. Hydra has the potential to scale Cardano to 2 million TPS.

Staking ADA

Check out our detailed guide on how to stake Cardano (ADA). Currently staking ADA earns over 6% APR. To give you an idea of ​​how popular ADA is, there are nearly 902,016 stakers with a total staked value of $51.9 billion. The participation rate, which is the percentage of eligible tokens that are staked, is currently 70.63%.

2. Binance Smart Chain (BSC/BNB)

The Binance Smart Chain (BSC) blockchain launched by Binance provides a mature environment for developing decentralized applications. It also boasts smart contract capabilities and compatibility with the Ethereum Virtual Machine (EVM). In short, the EVM runs execution and smart contract deployment on the Ethereum blockchain. Relatively young, BSC was launched in September 2020. However, it has been successful among projects trying to overthrow Ethereum, covering ground in terms of speed and cost.

How does Binance Smart Chain compete with Ethereum?

BSC introduces the so-called Proof of Stake (PoSA) protocol. This requires network validators to hold a certain amount of BNB tokens in order to participate. In addition to this, by adopting a dual parachain system, Binance allows users to make fast transfers on the Binance Chain while using BSC's smart contract capabilities. One area of ​​concern for BSC is centralization. BSC has 21 active validators, making it one of the most centralized platforms. To put this in perspective, ETH has 248,287 active validators.

BSC offers low costs and faster speeds, and is taking over Ethereum's dominance in certain areas. According to DeFi Prime, of the 242 DeFi projects listed on its platform, 41 are built on BSC (220 on Ethereum). According to BSC scan, the BSC network currently processes 77 TPS (September 30, 2021) and more than 6 million transactions per day. The network recorded 13.1 million transactions on July 29, 2021 (source: BSCScan). In comparison, Ethereum set a record of 1,716,600 transactions on May 9, 2021 (source: Etherscan).

Staking BNB

Staking BNB can earn you very competitive returns. Currently, the APR for staking BNB is over 10%. Moreover, the staking process is easy. For a quick overview, check out the Staking Rewards page on BNB. There is even a handy tool to calculate the expected returns from staking.3.

3.Solana (SOL)

If you didn’t hear about Solana last year, you’ve most likely heard about it (probably a lot) this year. From a price of $1.54 per SOL on December 31, 2020, it’s currently trading at $136 with a market cap of over $40 billion (as of September 30, 2021), making it the seventh largest crypto project. Solana is a blockchain platform for decentralized applications. An open source project, it is maintained by the Geneva-based Solana Foundation and built by developers at Solana Labs in San Francisco. Solana’s co-founders are Anatoly Yakovenko and Greg Fitzgerald.

How will Solana stack up against Ethereum?

Solana does not rely on sharding or layer 2 solutions to scale. Instead, the Solana network is made up of 8 key components, one key being Turbine. Inspired by BitTorrent, Turbine uses UDP (User Datagram Protocol) to transmit data, achieving a random path for each packet through the network when the leader (block producer) transmits data. The leader breaks blocks into packets of up to 64KB and transmits each packet to a different validator. The validator retransmits the packet to a set of peers, called neighbors.

As of September 30, the Solana network is processing 2,000 TPS (source: Solana Explorer). The project claims to have a capacity of 50,000 TPS. Loopring has reached the Ethereum L2 network with its TPS, and after Ethereum 2.0 goes online, Loopring's TPS can rise to 100,000 TPS.

Staking SOL

Running a validator on Solana can attract 7.36% APR, while delegating SOL will yield 6.64% APR. We have put together a detailed pictorial guide on how to stake SOL.

4. Polkadot (DOT)

Created by Gavin Wood, another co-founder of Ethereum, Polkadot seeks to solve Ethereum's scalability and cost issues. Dubbed by many as an Ethereum killer, Polkadot focuses its attention on achieving interoperability, allowing blockchains to communicate with each other. The project promises economic and transactional scalability.

How does Polkadot compete with Ethereum?

At the core of the Polkadot infrastructure is the Polkadot Relay Chain, which is the main blockchain for the DOT ecosystem. The Relay Chain is responsible for the network's shared security, consensus, and cross-chain interoperability. The DOT network scales by processing transactions across multiple parallel blockchain shards, called parachains (single dedicated blockchains). Interactions on parachains are processed in parallel, enabling high scalability.

Currently, Polkadot processes approximately 1.70 transactions per second (data from September 30, 2021; source – Coinmetrics). While this is significantly lower than Ethereum, according to Gavin Wood, the DOT network can provide more than 1,000 TPS even without parachains. With parachains, Wood expects this capacity to reach 1,000,000 TPS. Progress in this area will certainly be closely watched.

Staking DOT

Staking DOT currently offers a very competitive APR of about 13%. You can choose to run a validator node, delegate DOT, or lend Polkadot. In order to fully understand staking DOT.

5. Avalanche (AVAX)

A relatively young blockchain, Avalanche was launched by the US-based Ava Labs team over a year ago, in September 2020. The core team behind Avax Labs includes Kevin Sekniqi, Maofan “Ted” Yin, and Emin Gün Sirer. Avalanche claims to be the fastest smart contract platform in the blockchain industry, measured by completion time, and it is trying to solve issues such as blockchain scalability, transaction fees, and interoperability.

How will Avalanche challenge Ethereum?

To address the speed and scalability issues facing blockchains, the Avalanche team chose to build the Avalanche network from three interoperable blockchains: X-Chain, C-Chain, and P-Chain. Each blockchain plays a different role. For example, X-Chain can create and exchange AVAX tokens and other digital assets. C-Chain allows developers to create smart contracts for DApps. P-Chain coordinates network validators, tracks active subnets, and allows the creation of new subnets.

The Avalanche platform currently claims to have a processing capacity of over 4500 TPS. Currently, it has recorded a TPS of 3.9.

Staking AVAX

We put together a step-by-step guide to staking Avalanche (AVAX), which is worth it since the APR for staking AVAX is over 9.6%.

6. Tezos (XTZ)

Initially designed in 2014, the Tezos mainnet went live in 2018. Tezos describes itself as an open-source, self-upgradable blockchain designed to support and run smart contracts. It was developed by Arthur Breitman and his wife Kathleen Breitman and is currently overseen by the Tezos Foundation.

How will Tezos stack up against Ethereum?

Tezos’ blockchain consists of two distinct parts, the network shell and the network protocol. The network shell processes transactions, manages operations, and modifies itself based on how users vote. The network protocol sends proposals to the shell for review. Tezos uses Liquid Proof of Stake (LPoS), which requires users to stake tokens, a process known as “baking” XTZ. Validators on Tezos are called bakers.

Based on an average daily transaction volume of 316,396 over the past 30 days (source: Tzstats). According to Coinmetrics, Tezos clocks in at 3.2 TPS.

Staking Tezos

For detailed guides on Tezos and staking XTZ, please consult official staff. Here, the available delegated XTZ has an APR of 5.5%, while independent baking XTZ can have a return of more than 6%.

7. Near Protocol (NEAR)

After launching as a machine learning project by Illia Polosukhin and Alexander Skidanov, NEAR became a blockchain development platform. Research into program synthesis led the team to explore programmable smart contract platforms and crypto payments. The network was eventually launched in April 2020. Today, NEAR bills itself as an open source platform that enables creators, communities, and marketplaces to drive a more open, connected, and consumer-empowered world.

What is NEAR’s attitude towards Ethereum?

NEAR uses sharding to shard the network, dynamically allocating computation to increase the network's processing power. Its innovations include a new view on sharding, called Nightshade, and a new consensus mechanism called Doomslug. Nightshade differs from commonly used sharding systems in that each shard produces a small portion of the next block, also called a "block".

Despite being a newcomer, NEAR is rapidly increasing the number of transactions it processes. According to NEAR Explorer, based on data from the past 15 days (as of September 30, 2021), NEAR has recorded between 254,048 TPD and 351,993 TPD, with an average of 303,020 TPD. This equates to approximately 3.50 TPS.

Staking NEAR

Staking NEAR is fairly easy and can bring over 10% APR.

Summary

Clearly, the competition to dethrone Ethereum is fierce, as shown in the chart below. Projects such as BSC, Solana, and others have already surpassed Ethereum in terms of scalability. More importantly, however, the race to the top is set to heat up in the coming months and years. Many of the challengers are planning major upgrades and are facing off against ETH 2.0. It’s clear that every public chain is vying for the top spot, so there is little room for complacency.

However, this competition goes far beyond scalability. Next, we’ll take a deeper look at these projects, evaluating factors including ease of use and developer interest, degree of decentralization, governance framework, security setup, functionality, and more. Could one of these projects have the ideal combination to dethrone Ethereum and take that coveted spot?

Decentralization

One way to assess the degree of decentralization of a blockchain is the number of validators. The following chart shows the number of validators for each of the seven challengers outlined:

Among the selected projects, Cardano has 2076 validators, Solana has 1065 validators, and Avalanche has 1057 validators, clearly leading the rest in terms of the number of validators. The greater the number of validators, the more decentralized the network is.

Going a step further, it helps to understand what is known as the Satoshi coefficient. First proposed by Balaji Srinivasan (Chief CTO of Coinbase in 2019, PhD in Electrical Engineering from Stanford University), the Satoshi coefficient is a quantitative measure of how decentralized a system is. It helps determine how many entities need to be compromised to control the system. The larger the value of this minimum Satoshi coefficient, the more decentralized the system. Of the three listed above, Cardano (ADA) has a Satoshi coefficient of 24 (source: ADApools.org), Solana has a Satoshi coefficient of 19 (source: Solana Beach), and Avalanche's Nakamoto Satoshi coefficient is 26 (source: Industry Report).

Another measure of decentralization is the level of collateralized tokens, which is basically the percentage of eligible tokens that are staked. As shown below, Solana (77.93%), Binance (76.54%), Tezos (75.53%), and Cardano (70.86%) hold more than 70% of eligible tokens.

Developer Interest

A recent report by Outlier Ventures presented some interesting statistics (period considered: July 20th – June 21st) regarding developer interest in some of these blockchains. Here are some highlights:

• Cardano ranks highest in terms of average GitHub commits per month (CPM). Its average CPM is 701. Ethereum ranks second with an average CPM of 447. Solana, Avalanche, and Polkadot have CPMs of 247, 237, and 221, respectively.

• Avalanche is the clear winner in terms of the overall increase in its blockchain submissions. AVAX has seen a 709.7% increase in total submissions over the last 12 months compared to the previous one, increasing from 1,553 submissions per year (CPY) to 12,575 CPY.

• Ethereum shows a large number of monthly active developers, averaging 168 per month, and Cardano has 165 monthly active developers. Polkadot has an average of 68 monthly active developers.

Expanding on this, which of these platforms is taking the lead when it comes to the fashion space in blockchain? Think, DeFi, NFTs, gaming .

Decentralized Financial Institutions

According to data aggregator DeFi Llama, over $256 billion has been locked in DeFi protocols. Of that, nearly 67.5% involves DeFi projects built on Ethereum. However, it’s worth noting that Ethereum’s dominance has fallen from 97.6% at the start of the year. Looking at the projects included in this comparison, networks including Binance, Solana, and Avalanche have been eating into Ethereum’s market share. To put it in perspective, Solana has grown significantly in popularity among DeFi projects over the past few months. The total value locked (TVL) of all DeFi projects built on Solana currently stands at $14.9 billion (5.8% of the total share), compared to $592 million (0.50%) as of June 30, 2021. Avalanche has also been making inroads into the dominance of Ethereum and Binance, with TVL growing nearly 47x since 2021.

NFT

When it comes to NFTs, Ethereum dominates with most collections, marketplaces, and dApps (source: App Radar). However, due to well-known shortcomings in terms of limited scalability (we mentioned TPS in the previous section of this article) and high transaction fees, other blockchains have made their mark in this space. On the one hand, Binance Smart Chain offers significantly lower fees and faster transactions. However, BSC has limited appeal in the NFT space. Solana, however, has been making rapid inroads into the space. Its ecosystem has 193 NFT projects.

game

In the gaming space, Ethereum-based Axie Infinity dominates ($2.3 billion in 30-day trading volume and over 661,000 users). However, BSC’s focus on gaming is already evident. According to DappRadar, 15 of the top 20 blockchain games are based on BSC.

Supported programming languages

Solidity is a popular programming language among Ethereum developers. It is designed for developing smart contracts that run on the Ethereum Virtual Machine (EVM). Here are the programming languages ​​supported by each blockchain outlined:

Governance Framework

Compared to off-chain governance methods (both Bitcoin and Ethereum use off-chain governance processes), on-chain governance expands the number of participants in the blockchain governance process. This helps limit the threat of chain splits and forks. Of course, both mechanisms have their pros and cons and are expected to continue to evolve over time. Here is a quick look at the blockchain governance frameworks discussed.

Cardano (ADA)

• Run an off-chain governance model.

• Input Output Hong Kong (IOHK) and the Cardano Foundation develop and implement protocol updates.

• The off-chain governance model will continue until the network reaches the Voltaire era.

• Participants will then be able to use their shares and voting rights to influence the future development of the network.

Binance Smart Chain BSC

• Binance provides on-chain governance through Proof-of-Stake (PoSA) consensus.

• BSC has system parameters that determine network behavior, including slashing amounts, cross-chain transfer fees, etc. These parameters are defined by the BSC validator set using the proposal voting process on Binance Chain.

• Anyone can submit a proposal to update BSC parameters on Binance Chain.

Solana

• The Solana Foundation is a non-profit organization that owns Solana’s intellectual property (IP) and helps determine development direction alongside Solana Labs.

• Solana Labs will remain a core contributor to the protocol.

• There are no plans for on-chain governance yet. It has a delegated proof-of-stake (DPoS) system that allows token holders to choose the validator set. However, there is no roadmap for a token-weighted voting system.

Polkadot (DOT)

• Parity Technologies built the Polkadot protocol and Substrate framework and initially controlled much of the process.

• In July 2020, control of the protocol shifted to the network’s proposed on-chain governance system.

• Network participants are now the primary source of upgrade submissions and approvals.

Avalanche (AVAX)

• Avalanche provides on-chain governance for key parameters of the network, allowing participants to vote on network changes and network upgrades.

• However, Avalanche does not allow for unlimited changes to any aspect of the system. Instead, only a predetermined number of parameters can be modified through governance.

Tezos(XTZ)

• Tezos uses an on-chain governance system.

• The governance mechanism enables bakers (validators) to vote on upgrade proposals.

• A proposal can only be accepted if it obtains a supermajority (more than 80%).

• The Tezos Foundation operates eight bakers, which together account for nearly 30% of the voting power (Source: Messari).

Near Protocol (NEAR)

• Open to community contributions, anyone can submit or comment on NEAR Improvement Proposals.

• Governance discussions take place on the NEAR Forum.

• The timing of the proposed implementation will depend on the urgency of the change.

Security Settings

The move to ETH 2.0 has raised concerns in several areas, including network splits, security vulnerabilities due to possible bugs in the code. For its part, ETH 2.0 is designed with a focus on security, making potential attacks extremely costly. ETH 2.0 requires at least 16,384 validators. Organizations including Least Authority and Quantstamp are conducting security audits of the ETH 2.0 code. The Ethereum Foundation has also set up a security team to research possible network security issues.

Although most of the blockchains listed here are not very susceptible to vulnerabilities such as 51% attacks, given the wider adoption of the Proof of Stake model compared to Proof of Work, there is still a focus on improving the safety and security of all networks. The following are some of the unique security measures implemented in some of the blockchains considered here.

Polkadot: Polkadot builds a system through the relay chain to incentivize different blockchains to pool resources and protect the entire system. This makes it more difficult for attackers to control the consensus process.

Binance Smart Chain: Some "rug pulls" and vulnerability exploits on BSC often raise questions about the security of the chain. BSC's security algorithm, called Proof-Of-Staked-Authority (PoSA), is controlled by 21 node operators. The BSC Security Alliance recently released a security white paper highlighting concerns about potential vulnerabilities and outlining measures beyond security audits, bounty programs, and dApp monitoring.

Community

Here’s a quick look at each project’s communities on two popular crypto social media channels, Twitter and Telegram:

In summary

Ethereum’s network effects as a technology remain unmatched. Furthermore, given its pedigree, it enjoys a far superior level of trust, security, and reliability. Ethereum’s future success depends heavily on layer 2 solutions. With the potential to move a large portion of transactions off-chain, these layer 2 solutions could be the key to solving some of the Ethereum network’s current struggles, transaction processing speeds, and gas fees. While some of these layer 2 solutions, such as Matic (Polygon), have successfully proven their effectiveness, a large number of layer 2 solutions are still in development or testing. This is where the opportunity for other blockchains lies.

Clearly, Ethereum’s dominance has begun to shrink as reflected in TVL. From over 97% dominance in TVL (Dec 31, 2020), Ethereum holds approximately 67% of TVL today.

As seen in the previous part of this series, blockchains including Solana and Binance Smart Chain have far surpassed Ethereum in terms of TPS and cost per transaction.

Cardano, with an average of 702 commits per month (for the 12-month period ending June 2021), outpaces Ethereum with an average of 447 CPM. The DeFi space has been gaining traction over the past few months, with the likes of Solana and Avalanche making their way into the dominant positions of Ethereum and Binance.

Over the past year, layer 1 platforms have emerged that threaten to dethrone Ethereum. It is clear that competition is fierce and newer layer 1 platforms must focus on retaining users. The lure of capital returns in the cryptocurrency market is so great that blockchains will have to demonstrate niche use cases and be nimble to keep up with emerging trends in the space.

By Fareem Chagla