T.O you who believe! The public blockchain provides a second opportunity to build a digital economy. Applications built on top of such blockchains work with each other, and the information they store is visible to all. The notion that a new kind of “decentralized” digital economy might be possible has been reinforced over the past year as the number of applications built on top of various blockchains has increased in size and functionality.
Perhaps the most significant part of that economy is the decentralized-financing (DeFi) application, which enables users to trade assets, get loans, and save deposits. Now there is a fierce battle for market share in this area. Importantly, Ethereum, the leading DeFi platform, seems to be losing its near-exclusive. Struggle shows how DeFi is subject to standard warfare that has spread to other emerging technologies – Sony Betamax Vs. VHS Videocassettes from the 1970s — and explain how DeFi technology is advancing lightning-fast.
The idea behind DeFi is that blockchain-databases are distributed across many computers and protected by cryptography-helping to replace central intermediaries such as banks and technology platforms. The value of assets accumulated in this nascent financial system has increased from less than $ 1 billion at the beginning of 2020 to more than $ 200 billion today (see chart).
Until recently, the Ethereum blockchain was the undisputed host of all these activities. It was created in 2015 as a more general-purpose version of Bitcoin. Bitcoin’s database stores information about transactions in the corresponding cryptocurrency, providing proof of who owns what at any given time. Etherium stores more information, such as lines of computer code. An application that can be programmed in code can be guaranteed to work in writing, eliminating the need for an intermediary. But as Ethereum has evolved over Bitcoin, it too is now being taken over by new, advanced technology. The fight is similar to the competition between operating systems for computers, says Jeremy Allier, boss of a firm circle issuing USD Currency, a popular crypto-token.
Current blockchain technology is complex. Both Bitcoin and Etherium use a process called “work proof”, where computers compete to solve mathematical problems to verify transactions in exchange for a reward. It slows down networks and limits capacity. Bitcoin can process only seven transactions per second; Ethereum can only handle 15. Transactions during busy times are either too slow or too expensive (and sometimes both). When the demand to complete a transaction on Ethereum’s network is high, the fees paid to those computers that verify them and the settlement time increase. Your correspondent paid মতো 70 to convert $ 500 to ether and waited a few minutes to transfer from one crypto-wallet to another.
Developers have long been trying to improve Etherium’s capabilities. That’s a prong, virtually rewiring it. Plans are afoot to transfer Ethereum to a more easily measurable method called “Proof of Steak” later this year. Another idea is to split the blockchain, through a process called “sharding”. Shards will share the load, expand the power. Some developers are also working on ways to bundle transactions, reducing their number which must be verified directly.
The problem is each comes with an advance cost. Proponents of her case have been working to make the actual transcript of this statement available online. But by making the platform less secure or less decentralized, the gains on the scale can come at a price. Pooling transactions are done by a centralized entity before reaching the blockchain. And it can be easier for hackers to attack a single part of a blockchain than the whole thing. As a result, Ethereum developers have been slow to change.
This laziness weakens the network differently – encouraging competitors. By early 2021, almost all of the resources locked into DeFi applications were on Etherium’s network. But recent research notes JPMorgan Chase, a bank, estimates that share of DeFi applications using Ethereum will drop to 70% by the end of 2021. Now a growing number of networks, such as Avalanche, Binance Smart Chain, Terra and Solana, now use betting proofs to run blockchains that do the same basic work as Ethereum, but faster and cheaper. Snowfall and Solana, for example, both process thousands of transactions per second.
Its experience USD Currency illustrates these changes. The token was launched on Ethereum just three years ago, but has since been introduced on several competing networks, including Algorand, Hedera and Solana. Mr Allayer said that while transactions at Ethereum were subject to cost and speed constraints, those in Solana could handle “visa-scale volume” “with a final settlement of about 400 milliseconds and a transaction cost of about one-twentieth of a penny”. Other DeFi applications, such as SushiSwap, an Exchange based on Ethereum, have been introduced in other blockchains.
The planned change to Ethereum could take at least a year, if not more, “the risk is … the Ethereum network will lose more market share,” wrote Nikolaos Panigirtzoglou of JPMorgan. For Mr. Allier, the picture is pleasantly competitive: “As with the web, where Windows, IYou And while Android is competing, so are competing blockchain platforms. “He thinks the ultimate winner will be the platform that attracts the best developers to create applications and therefore cuts network effects.
But the operating-system metaphor can only extend so far, partly because of the open, nature of the public blockchain. Anyone can access the data they create and view their operating codes, making it possible to create bridges or applications that work across multiple blockchains, or aggregate data from different blockchains. Some applications, such as 1 Inch, already scan the exchange on several blockchains to find the best working value for various crypto transactions. “Multi-chain” blockchains like Polcadot and Cosmos act as bridges between different networks, making it possible to work across them.
As long as decentralized money keeps its promise, the competition for the network of choice will naturally intensify. But the idea that the ultimate winner will take over everything, gain overall control over the digital economy, and how it will develop, may one day seem as old as video cassettes. 3
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This article was published in the section on finance and economics in the print edition, entitled “The War of the Blockchain”.