The challengers to Ethereum are many. In this two part series, we go through seven potential challengers, aiming to cover what each of them brings and where they stand in this race to the top. The first part includes an introduction to each of the projects, their technology and how they’ve been taking on Ethereum.
Ethereum 2.0: An introduction
The Ethereum blockchain is currently amidst a multi-phased upgrade. This upgrade, labeled Ethereum 2.0, aims to address the network’s scalability, security and sustainability. The upgrade is planned in three broad phases,
- The Beacon Chain
- The Merge
- Shard Chains
The Beacon Chain, which went live in December 2020, most notably aims to switch 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 separately to the Ethereum Mainnet. It has, most importantly, introduced staking within the Ethereum ecosystem. Presently, the options available to stake Ethereum include,
- Running a Validator: This requires staking 32 ETH (Ethereum) to activate validator software. In the role of a validator, you are responsible for storing data, processing transactions, and adding new blocks to the blockchain. At Staking Rewards, we view this way of staking as “Very Hard” when it comes to complexity.
- Participating in a Staking Pool: A relatively easier way of staking ETH is by participating in available staking pools. This, neither mandates the minimum of 32 ETH for staking as is the case with running a validator, nor requires the technical expertise. Here’s a list of staking pool services.
For details around the APR for each of these options and more, check out our dedicated page for Ethereum 2.0. There’s even a list of essential FAQ’s to better your understanding. Currently, a total of 8,034,525 ETH has been staked through a total of 242,621 validators (Source: Ethereum.org).
What lays ahead for Ethereum 2.0 is the integration of the Ethereum Mainnet into the proof-of-stake system, controlled and coordinated by the Beacon Chain (Estimated delivery: Q1/Q2 2022). Following this, sharding will be introduced to improve Ethereum’s scalability and capacity (Estimated delivery: 2022). In a nutshell, sharding is the process of splitting a database to spread the load. In the context of the Ethereum network, sharding will reduce network congestion and increase transactions per second (TPS) by creating new chains, known as “shards”.
As per Ethereum founder Vitalik Buterin, ETH 2.0, once implemented, will boost network speeds of up to potentially 100,000 transactions per second (TPS). To put that in perspective, Ethereum currently offers a network speed of around 12.5 TPS (30 Sep 2021; Source – Etherscan), translating to nearly 1 million transactions per day. Imagine what 100,000 TPS could bring in!
With that background to Ethereum 2.0, let’s jump into seven projects attempting to dethrone Ethereum. For the sake of convenience (and devoid of any bias), these projects are listed below based on their market capitalization.
1. Cardano (ADA)
Founded by an Ethereum co-founder, Cardano pips itself as a third-generation blockchain aiming to solve the scalability and other issues faced by Ethereum. Cardano, a proof-of-stake blockchain platform, was launched by Charles Hoskinson in 2017.
How is Cardano taking on Ethereum?
Cardano has implemented what it calls the Ouroboros Proof-of-Stake protocol. Ouroboros processes transaction blocks by dividing chains, firstly, into epochs. The epochs are then further divided into time slots. A slot leader is elected for each time slot and is responsible for adding a block to the chain.
As per Coinmetrics, as on 30 Sep 2021, Cardano recorded 1.03 TPS, which stands significantly lower than Ethereum. In an attempt to maximize throughput, minimize latency, incurring low to no costs, Cardano is currently working on implementing a Layer 2 scaling solution called Hydra. Hydra has the supposed potential to scale Cardano up to 2 million TPS.
Please check our detailed guide on How to Stake Cardano (ADA). Currently staking ADA can earn an APR of over 6%. To give you a perspective on how popular staking ADA is, there are nearly 902,016 stakers, with a total staked value of $51.9 billion. The participating ratio, percentage of eligible tokens that are being staked, currently stands at 70.63%.
2. Binance Smart Chain (BSC / BNB)
Introduced by Binance, the Binance Smart Chain (BSC) blockchain has put together a full-fledged environment for developing decentralized applications. It also boasts of smart contract functionality and compatibility with the Ethereum Virtual Machine (EVM). Put simply, the EVM runs execution and smart contract deployment on the Ethereum blockchain. Relatively younger, BSC launched in September 2020. It, however, has made its mark among projects attempting to dethrone Ethereum, covering ground when it comes to speed and costs.
How is Binance Smart Chain taking on Ethereum?
BSC introduced what is called the Proof-of-Staked-Authority (PoSA) protocol. This requires that network validators stake a certain number of BNB tokens to participate. Besides this, by adopting a dual parallel-chain system, Binance lets users make fast transfers on the Binance Chain while using the smart-contracts functionality of the BSC. One area of concern when it comes to BSC has been centralization. BSC has 21 active validators, making it among the most centralized platforms. To put that in perspective, ETH has 248,287 active validators.
Offering low costs and faster speeds, BSC is making inroads in Ethereum’s dominance in certain segments. As per DeFi prime, of the 242 DeFi projects listed on their platform, 41 of them are built on BSC (220 on Ethereum). As per BSC Scan, the BSC network currently handles 77 TPS (30 Sep, 2021), translating to over 6 million transactions a day. The network has recorded a high of 13.1 million transactions on Jul 29, 2021 (Source: BSCScan). By comparison Ethereum has recorded a high of 1,716,600 transactions on May 9, 2021 (Source: Etherscan).
Staking BNB can return very competitive yields. Currently, the APR on staking BNB is in excess of 10%. Besides, the process of staking is easy. For a quick insight, check out the Staking Rewards page on BNB. There’s even a handy tool to calculate expected returns from staking.3. Solana (SOL)
If you hadn’t heard of Solana last year, chances are you have pretty much heard of it this year (probably, a lot of it) . From a price of $1.54 per SOL on 31 Dec 2020, it currently trades at $136, with a market capitalization of over $40 billion (as on 30 Sep 2021), making it the 7th biggest crypto project. Solana is a blockchain platform for decentralized apps. An open-source project, maintained by the Geneva-based Solana Foundation, it has been built by developers at San Francisco-based Solana Labs. The co-founders at Solana are Anatoly Yakovenko and Greg Fitzgerald.
How is Solana taking on Ethereum?
Solana does not depend on sharding or Layer 2 solutions to scale. Instead, the Solana network is built of 8 key components, a crucial one being Turbine. Inspired by BitTorrent, Turbine transmits data using UDP (User Datagram Protocol), implementing a random path per packet through the network as leaders (block producers) stream their data. The leader breaks the block into packets up to 64KB in size, and transmits each packet to a different validator. Validators retransmit the packet to a group of peers, referred to as a neighborhood.
Running a validator on Solana can attract an APR of 7.36%, while delegating SOL yields a 6.64% APR. We’ve put together a detailed pictorial guide on how to stake SOL.
4. Polkadot (DOT)
Created by another of Ethereum’s co-founders, Gavin Wood, Polkadot seeks to solve Ethereum’s scalability and cost issues. Dubbed by many as the Ethereum Killer, Polkadot has focused its attention on enabling interoperability, allowing blockchains to communicate with each other. The project promises economic and transactional scalability.
How is Polkadot taking on Ethereum?
Central to the Polkadot infrastructure is the Polkadot Relay Chain, the main blockchain of 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 known as parachains (individual specialized blockchains). Interactions on parachains are processed in parallel, enabling high scalability.
Currently, Polkadot processes around 1.70 transactions per second (data from 30 Sep 2021; Source – Coinmetrics). While this is significantly lower than Ethereum, as per Gavin Wood, the DOT network, even without parachains, can deliver in excess of 1,000 TPS. With parachains, Wood expects this capacity to go upto 1,000,000 TPS. The progress in this will most definitely be keenly watched.
Staking DOT currently offers a very competitive APR of approximately 13%. One has the option to either run a validator node, delegate DOT or lend Polkadot. To get a comprehensive understanding on staking DOT.
5. Avalanche (AVAX)
A comparatively younger blockchain, Avalanche launched a little more than a year ago, in September 2020, by the Ava Labs team in the US. The core team behind Avax Labs includes Kevin Sekniqi, Maofan “Ted” Yin, and Emin Gün Sirer. Claiming to be the fastest smart contracts platform in the blockchain industry, as measured by time-to-finality, Avalanche is attempting to tackle the issues of blockchain scalability, transaction fees, and interoperability.
How is Avalanche taking on Ethereum?
In order to tackle the speed and scalability issues faced by blockchains, the team at Avalanche has opted to build the Avalanche network from three interoperable blockchains: the X-Chain, C-Chain, and P-Chain. Each blockchain takes on different roles. X-Chain, for example, can create and exchange AVAX tokens and other digital assets. C-Chain lets developers create smart contracts for DApps. P-Chain coordinates network validators, tracks active subnets, and allows for the creation of new subnets.
The Avalanche platform claims to have a capacity of processing over 4500 TPS currently. Currently, it is recording TPS of 3.9.
We’ve put together a step-by-step guide to staking Avalanche (AVAX). It’s worth it, given staking AVAX yields an APR of 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 built to support and run smart contracts. It has been developed by Arthur Breitman and his wife, Kathleen Breitman, and is currently overseen by The Tezos Foundation.
How is Tezos taking on Ethereum?
Tezos’ blockchain is made up of two distinct parts, the network shell and the network protocol. The network shell handles transactions, administrative operations, amending itself based on how users vote. The network protocol sends proposals to the shell for review. Adopting a Liquid Proof-of-Stake (LPoS), Tezos requires users to stake tokens, a process known as “baking” XTZ. A validator on Tezos is referred to as a baker.
Average daily transactions, based on the past 30 days, is 316,396 (Source: Tzstats). As per Coinmetrics, Tezos clocks in at 3.2 TPS.
We’ve put together a detailed guide on Tezos and staking XTZ, available here. Delegating XTZ comes with an APR of 5.5%, while baking XTZ independently can return over 6%.
7. Near Protocol (NEAR)
After having been started off by Illia Polosukhin and Alexander Skidanov as a machine learning project, NEAR became a blockchain development platform. Researching program synthesis led the team to explore programmable smart contract platforms and crypto payments. The network eventually launched in April 2020. NEAR, today, calls itself an open source platform that enables creators, communities, and markets to drive a more open, interconnected and consumer-empowered world.
How is NEAR taking on Ethereum?
NEAR adopts sharding to split the network, dynamically distributing the computation to increase the network’s processing capacity. Its innovations include a new take on sharding, known as Nightshade, and a new consensus mechanism known as Doomslug. Nightshade differs from the generally used sharding systems, in that each shard produces a fraction of the next block, also known as a “chunk”.
Despite being a newcomer of sorts, NEAR has seen a rapid rise in the number of transactions processed. As per Near Explorer, based on data from the past 15 days (as of 30 Sep 2021), NEAR recorded between 254,048 TPD and 351,993 TPD, averaging 303,020 TPD. This translates to approximately 3.50 TPS.
Staking NEAR is fairly easy and can bring in an APR in excess of 10%. We’ve got a detailed set of FAQ’s on staking NEAR, accessible here.
Clearly the competition to dethrone Ethereum is stiff, as the chart below summarizes. Projects like BSC, Solana have already surpassed Ethereum when it comes to scalability. What’s more, however, is that this race to the top is bound to get heated up in the coming months and years. Many of the challengers have major upgrades planned which take on ETH 2.0 head-on. What’s clear is there’s little room for complacency as each blockchain vies for the top-spot.
This competition, though, goes a lot more beyond scalability. In Part II of this post, we will delve deeper into these projects, evaluating factors including ease of usability and developer interest, level of decentralization, governance framework, security setup, features and more. Could one of these projects have the ideal mix to dethrone Ethereum and claim the coveted spot?