Ready Layer One
Views expressed in the article below are the personal views of the author and should not form the basis for making investment decisions, nor be construed as a recommendation or advice to engage in investment transactions.
Rampant optimism has dominated recent weeks, as BTC briefly hit $50k. One can only wonder how the Fear-and-Greed Index hasn’t broken by now, as sentiment continues to swing in whiplashes parallel to BTC’s price action. While the current run has been a boon for altcoins across the board, one specific industry battle has been passionately reinvigorated — the fight to dethrone Ethereum as the dominant smart contract protocol.
Protocols, like onions and ogres, have layers. In the world of crypto, Layer 1 refers to an independent blockchain network, while Layer 2 concerns third-party networks, which integrate with an existing Layer 1 to increase its performance. Take for example Bitcoin, an L1 blockchain. Fees on the network can be high and transaction throughput low. The addition of Lightning Network as supplementary L2 technology allows for transacting BTC faster and more cheaply, making it potentially suitable for use as legal tender, as is the case in El Salvador.
Example of an L2 protocol (Polygon) running on a base L1 network (Ethereum)
The explosion of DeFi and NFT’s on the Ethereum network has similarly laid bare the ETH network’s scalability issues. High traffic and congestion have at times rendered the network virtually unusable, with fees for simple transactions exceeding $100 and taking hours to finalise. While ETH 2.0 aims to address these shortcomings through incremental upgrades relying on Layer 2 solutions, the crypto landscape has changed drastically since the days of Ethereum’s monopoly on smart contracts.
New contenders
In recent years, a host of L1 projects have emerged offering high throughput with low fees to help overcome the issues faced by Ethereum’s architecture. The most prominent of these remains Cardano (ADA), even though smart contract functionality has yet to be launched on the network. After recently announcing the project will support smart contracts from 12 September onwards (caveat: the same was said in March), ADA holders enjoyed 100% gains in just three weeks as the token swelled to an $80bn market cap, making it the third-highest valued coin at present.
It’s been a long six years for ADA holders
The native token of the Solana ecosystem, SOL, also accrued mammoth gains this month, rising in excess of 130% since the beginning of August. The run, driven in part by NFT hype spilling over to the hyper fast, low fee network, saw SOL surpass BNB to enter the hallowed Top 10.
FTX.US
Interestingly, Polygon (MATIC), an L2 that’s made explosive moves in recent months, has seen comparatively muted gains through August, recovering 50% from its July lows but failing to breach new all-time highs. Instead, smaller L1’s have surged exponentially, as Avalanche (AVAX) rose almost 300% in August to land a position on the brink of the Top 20. Fantom (FTM), a thriving L1 ecosystem designed in part by prominent DeFi architect Andre Cronje, shook off its July lows with an almost 200% surge, as scalability becomes an increasingly immediate concern.
Forward focus
To borrow a popular metaphor, crypto in its current form can be likened to the Internet in the late ’90s. We’re witnessing the evolution of a bourgeoning space rife with opportunity, as we once again dive headfirst into the unknown, propelled by the power of human ingenuity.
Solving for scalability is, by and large, blockchain’s space race. As even more creative minds enter the fray, the velocity of innovation in the space can only increase. In a decade from now, will Ethereum still be king? Or will other projects currently vying for dominance wrestle away its legions of committed builders? Perhaps the real champion of the scaling race still lies dormant in the mind of a fifteen-year-old only just now dipping their toes into crypto.
That’s the beauty of being this early. We have the rare privilege of participating in an entirely new paradigm. One that continues to evolve and disrupt how we create, transact, and communicate in ways we can barely comprehend. The market may remain highly unpredictable, but the trajectory of blockchain development?
Up only.