Table of Contents:
As Ethereum emerged to provide smart-contract functionalities that the Bitcoin network could not support, Ethereum competitors rose to provide alternatives to its lingering problems.
So-called “Ethereum killers” may pride themselves on being novel ideas but, until now, most of their success is largely attributed to the limitations of the second most valuable blockchain network in the world. As they attempt to outperform the leading smart contract blockchain, valuable trade-offs have enabled them to make unexpected progress.
We have lately seen developments that indicate that the Ethereum network’s competitors are on the verge of taking steps that will forever differentiate them. Even though the leading smart-contract-capable blockchain platform has a roadmap with upgrades and transitions that will address its current challenges in the long term, its competitors have been able to make huge inroads at its expense.
In this article, we will look into Ethereum and its different issues. We will also explore how competitors address the Ethereum blockchain’s disadvantages while highlighting the tradeoffs they have had to make along the way.
In 2015, Ethereum emerged as an alternative to Bitcoin and its perceived simplicity as a general-purpose blockchain. Although Bitcoin was a breakthrough blockchain innovation, it was limited to payments and serving as a store of value. Ethereum changed the narrative of the crypto space when it introduced smart contracts. Nowadays, it is the second-largest cryptocurrency by market capitalization and the most popular platform for decentralized finance (DeFi) and non-fungible tokens (NFTs). It allowed developers to build and deploy decentralized applications and consequently enabled users to leverage many advantages of blockchain technology in the real world.
After powering the 2017 ICO craze, Ethereum began to experience exponential growth. Decentralized applications sprung up rapidly on the network, and the price of its native cryptocurrency, Ether (ETH), began a steady climb (although it isn’t immune to the crypto market’s characteristic swings). Since its early years, Ethereum has witnessed massive adoption, boasting a majority of the dApps in the ecosystem and powering the growth of Decentralized Finance.
Ethereum's widespread adoption has turned out to be a bittersweet occurrence. On the one hand, its growth drives innovation and users towards the crypto space, allowing ideas to become a reality. It is also the ideal framework for DeFi, blockchain gaming, the metaverse, and other blockchain applications. On the other hand, the network’s first attempt at mass adoption exposed its frailties, as it struggled to remain scalable and economical due to the increased adoption.
Let’s take a look at the Ethereum blockchain’s disadvantages:
The lack of scalability has always been one of the disadvantages of blockchain technology. It is also one of the top Ethereum problems and likely the most talked-about issue the blockchain network faces, mostly because it is more evident than others. Through the ICO boom and DeFi summer, transaction volumes on Ethereum surged astronomically, as expected with widespread adoption. One small problem, however, arguably stopped further expansion: the network’s speed, or lack thereof.
Ethereum today can only process about 15-30 transactions per second. With surging transaction volumes, slow TPS figures will lead to network congestion, resulting in delayed transaction finality and humongous transaction fees (see below). With dApps like games or decentralized exchanges needing instant transaction finality, Ethereum's processing power is a real challenge for applications built on the network, and arguably a reason many use cases, such as automation or machine learning, haven’t found adoption on Ethereum.
Back when Ethereum first launched, many believed that it could increase its number of transactions per second by ramping up its network nodes’ size (the amount of data a user needs to store to run a node) over the long term. Nodes are active participants that run the blockchain and store its data. Increasing node size to combat scalability challenges will lead to centralization, as only a few powerful entities can participate in a “huge node” system.
It’s worth noting here that increasing the block size to scale a network is a thing of the past. In recent years, the scalability conversations have moved on to Layer-2s and Rollups as solutions to scale the network without the challenge of centralization. However, centralization fears still persist, especially with the recent transition of the Ethereum network’s consensus mechanism from PoW to PoS.
Increasing Transaction Costs
Vitalik Buterin claims that Ethereum's gas fees should be around $0.05, ideally. During the DeFi boom and the gas wars that followed, average gas fees on Ethereum soared to around $60-$70. Within the Ethereum ecosystem. gas fees are simply bids for including a set of transactions in the limited block space. In case of high demand, these bids go up as users attempt to fast-track their transactions to gain an edge. This results in extremely high transaction costs.
At such levels, interacting with applications on Ethereum is beyond the reach of the average Web3 user, making developers opt for cheaper blockchain networks like Solana and BSC.
It is important to note that the Merge has not solved Ethereum's gas fees challenges. However, recent upgrades and the crypto market mood have seen average gas prices drop from around $40 to $15.55 as of the second half of 2022.
When Ethereum existed as a proof-of-work blockchain, some mining pools were considerably larger than others and, as such, had more consensus power. Of course, this model sparked talks of centralization, which defeats everything Ethereum represents: a secure, scalable, and decentralized blockchain network.
Today, Ethereum has completed its transition (known as The Merge) to a proof-of-stake model after launching a Beacon chain in 2021 in preparation. This model, some argue, reduces the possibility of a 51% attack because it makes an attack more costly. The new arrangement has phased out the miners, replacing them with validators who staked Ether (ETH). More centralization fears have emerged as institutional capital and large exchanges vie for a large chunk of ETH staking power.
Privacy is almost non-existent on the network and many other Layer-1 blockchains, which presents a problem. Ethereum is a fully transparent blockchain, which means that every interaction is not only stored on the ledger but accessible to the public. While transparency may be a good thing, its extreme form turns it into one of the Ethereum blockchain’s major disadvantages, especially for institutional players and DeFi traders.
Zero-knowledge rollups built on Ethereum have solved the privacy challenge to some extent, but these solutions cannot pass off as traditional blockchains. Many of them are limited and unable to support smart contract deployment. For example, zkEVMs are still in a work-in-progress stage, and without EVM compatibility it would be impossible for Layer-2 privacy solutions to reach mass adoption.
MEV stands for Maximal Extractable Value, a concept regularly associated with the Ethereum network (however, MEV is not Ethereum-specific). MEV represents the highest value that miners can extract from changing the position of transactions when creating an Ethereum block. MEV is not exactly a bad thing, although malicious attempts are now common. Protocols have used MEV to balance prices across decentralized exchanges.
While MEV was known as Miner Extraction Value in the proof-of-work era, Ethereum has since become a proof-of-stake blockchain. Still, the network is susceptible to several kinds of tactics for extracting MEV, like sandwich attacks, liquidation, and front-running. Due to how profitable MEV is for validators, independent searchers, and other network participants (MEV extraction since 2021 was allegedly worth over $600 million), MEV is not going away anytime soon.
So-called Ethereum killers have sprung up everywhere in the crypto space, each addressing one or more of Ethereum's lingering problems. Here are how Ethereum's competition lines up and the challenges they mitigate:
Ethereum competitors that aim for scalability (Solana, Polkadot, Near)
Ethereum averages 15 to 30 transactions per second, making it less scalable than several of its competitors. The top Ethereum competitors that prioritize scalability are Solana, Near, and Polkadot.
Solana uses a proof-of-history mechanism, as opposed to Ethereum's proof-of-stake, to validate transactions. With an emphasis on scalability, Solana transacts at breakneck speed, boasting TPSs of up to 65,000 per second. It’s worth pointing out that Solana's claimed TPS numbers are vastly inflated due to consensus voting messages being included on-chain. As of a report in January 2022, Solana’s actual TPS stands at around 3000.
Gas fees on Solana are usually less than a fraction of a cent, making it a more scalable option than Ethereum. As a tradeoff, Solana has few validators and is a less decentralized network than Ethereum, and its speed and low transaction fees make it susceptible to DDOS attacks. Solana Labs' Co-Founder Anatoly Yakovenko has repeatedly denied the network's susceptibility to DDOS attacks. Yakovenko blames Solana's network congestion and halts issues on its cost model for computing which requires the transactions to specify all the resources they use up-front. Some major financial organizations, including JPMorgan and Bank of America, have shown their confidence in Solana, even suggesting that it might become the "Visa of the digital asset ecosystem." This suggestion is not far-fetched, as Visa has recently expanded its stablecoin settlement capabilities to the Solana blockchain, in addition to its existing Ethereum-based services. Visa is also working with merchant acquirers Worldpay and Nuvei to enable faster and cheaper cross-border payments using Circle’s USDC stablecoin.
Near is a Layer-1 blockchain solution that uses a proof-of-stake model and a powerful sharding technology that ensures the network is never congested, even during peak periods. As a result, block finality on Near takes under two seconds, making it more scalable than Ethereum. As with Solana, Near trades decentralization for scalability, as it has fewer validators than Ethereum and Solana.
Polkadot is another highly scalable blockchain, although it employs a different approach than the other Ethereum alternatives and Ethereum itself. Polkadot's infrastructure connects multiple parallel blockchains, and it achieves transactional scalability by spreading the transactions across the parallel blockchains. When all parachains and parathreads on Polkadot go live, it is expected to achieve speeds of up to one million transactions per second (it’s always recommended to always take TPS estimation claims with a pinch of salt).
Ethereum competitors aiming for interoperability (Cosmos, Cardano)
Interoperability means interactions between blockchains. Most traditional blockchains do not have infrastructure that allows them to speak to one another. Although Ethereum supports cross-chain bridges, the network's interoperability pales compared to Cosmos and Cardano.
Cosmos is an open-source community project originally made by the Tendermint team. It defines itself as "A decentralized network of independent parallel blockchains, each powered by a BFT consensus algorithm like Tendermint consensus." This means that, unlike Ethereum or other Layer-1 competitors, Cosmos is not just a blockchain but a network of many of these blockchains operating in parallel with one another.
Since every blockchain in the Cosmos network is powered by the same BFT consensus mechanism called Tendermint, these blockchains can operate independently and yet interoperate with each other. That way, Cosmos network aims to create an internet of blockchains. Presently, blockchains built on Cosmos do not enjoy their underlying layer's security, although the introduction of interchain security will solve this problem.
Cardano is another blockchain network geared towards interoperability. It claims to be “the first blockchain platform to evolve out of a scientific philosophy and a research-first driven approach.” While Ethereum's interoperability is valid within its ecosystem and based on the ERC-20 standard, Cardano uses side chains to facilitate blockchain-to-blockchain communication. Currently, Cardano does not have any notable tradeoff for its interoperability functionality.
Ethereum competitors aiming for security (MEV Mitigation) (Solana & Osmosis)
MEV extraction threatens Ethereum's viability, and here's how its competitors have managed to combat MEV extraction on their networks.
Osmosis is a decentralized exchange built on Cosmos, and it has introduced a threshold cryptography mechanism that effectively limits validators' ability to MEV. Using threshold cryptography, Osmosis encrypts trade values before they hit the mempool, ensuring that front-running is impossible.
Learn more about how Osmosis aims to leverage threshold cryptography to mitigate MEV in this video podcast of Osmosis Labs’ co-founder Sunny Aggarwal:
Solana's infrastructure also makes it less susceptible to MEV extraction techniques like front-running or the utilization of searchers, as there is no mempool. The lack of mempools also prevents sandwich attacks. On this network, front-running bots can be mitigated with taxes on invalid transactions and increasing the cost of sending spam requests.
Also, only leading validators in a cluster can access transaction information before finality. If any validator engages in malicious activities, they will be penalized. As said earlier, Solana trades decentralization for better transaction speeds, MEV mitigation, and scalability.
Ethereum competitors aiming for privacy (Secret Network, Oasis, Panther)
Secret Network has strong claims to be the first privacy-first Layer-1 blockchain solution. The network is built with the Cosmos SDK, and it leverages a proof-of-stake consensus mechanism.
With encryption protocols, private keys management, and a Trusted Execution Environment, Secret Network provides what is known as Programmable Privacy. This is a form of privacy that supports smart contract deployment. While Secret Network prides itself as a privacy-first blockchain, it does not improve on Ethereum's scalability challenges and has suffered congestion with even lesser transaction volumes than Ethereum.
Oasis is another privacy-first concept, and it uses a proof-of-stake consensus mechanism and Trusted Execution Environments to achieve confidential computing. The privacy features on Oasis allow the network to support data tokenization and private DeFi, protecting sensitive user information and allowing for reputation-based under-collateralization. While Oasis is also more scalable than Ethereum, it has fewer validators, making it somewhat susceptible to centralization.
Panther protocol is a cross-chain, privacy solution. It provides transactional privacy to DeFi users using a combination of zero-knowledge proofs and game theory, thus, programmatically protecting their alpha. Panther also supports KYC and selective disclosures between trusted parties, enabling various services such as ID, authorization, and data verification services.
Ethereum competitors ain’t a threat… for now.
Ethereum's competitors have been around for a long while. While many can lay claim to fixing some of the lingering issues plaguing the Ethereum network, none has successfully wrested a significant portion of Ethereum's market share.
Ethereum has a loyal community, and the abundance of developer resources plus its popularity gives it a significant advantage compared to its competitors. However, some feel like the clock is ticking for Ethereum to solve its scalability issues before another blockchain eats a piece of its proverbial pie.
Solana, Near, and Polkadot are more scalable options, Secret Network and Oasis offer programmable privacy, Cosmos and Cardano support better interoperability, and MEV extraction is less of a worry on Solana and Osmosis. It’s certainly within the leading smart contract’s roadmap to fix some of these issues while on others (such as privacy), it’s practically a given that the network has forfeited them.
Over the next years, we should see how Ethereum performs as a Proof-of-Stake network with full sharding abilities. In the meantime, no one can discard the sudden emergence of a qualified player to (either temporarily or permanently) contend for the top spots in Layer-1 adoption.
Panther is a decentralized protocol that enables interoperable privacy in Decentralized Finance using zero-knowledge proofs.
Users can mint fully-collateralized, composable tokens called zAssets, which can be used to execute private, trusted DeFi transactions across multiple blockchains.
Panther helps investors protect their personal financial data and trading strategies, and provides financial institutions with a clear path to compliantly participate in DeFi.