Earlier this year, we explored the significant risks threatening Ethereum’s long-held (at least in the fast-moving cryptoasset markets) position as the dominant smart contract platform. In brief, as the original “world supercomputer” continues to work through the hangover of the late 2017 “ICO Mania” and upgrade its blockchain to scale with demand, competitors are nipping at its heels.
Ethereum’s numerous hurdles were underscored at the highly-anticipated Korea Blockchain Week in Seoul earlier this month. One of the conference’s most anticipated speakers, billionaire investor Mike Novogratz, was highly critical of altcoin “zombies,” many of which are built on Ethereum’s blockchain. Sparing no punches, Novogratz asserted that “There was a lot of junk that raised a lot of capital but did not have sustainability. They promised a lot of protocols and an ecosystem they are going to build, and then they would attract users to the ecosystem making it a speculative asset. In order to keep a speculative market alive, you need fuel in the form of news and updates from time to time. We must look at these tokens as venture bets.” As any investor will tell you, such venture bets have an extremely high probability of failing, which could serve as a continued headwind for Ethereum.
In his keynote speech, Ethereum co-founder Vitalik Buterin emphasized the need for grants for open-source projects and elaborated on the DAO, but critically, did not make any new announcements around the Ethereum blockchain itself. For many Ethereum fans, this was equivalent to Apple CEO Tim Cook failing to announce a new iPhone at the company’s highly-anticipated annual media event.
It appears that, at least for the moment, the transition to Ethereum 2.0 is taking up the entirety of developers’ bandwidth. In Vitalik’s own words, “Ethereum 1.0 is a couple of people’s scrappy attempt to build the world computer; Ethereum 2.0 will actually be the world computer.” While we agree that the updates to improve Ethereum’s capacity and security are essential, every day spent plugging holes in the blockchain’s current iteration gives competitors like Dfinity and Tezos an opportunity to gain ground on the smart contract leader.
As we hinted last month, one particularly interesting upstart in the space is the Substrate framework and the associated Polkadot protocol. Created by Dr. Gavin Wood, the co-founder of Ethereum, Substrate is a development stack for building distributed applications. In Wood’s own words, “Substrate takes all of our lessons learned in building Ethereum and Polkadot and distills that down into a stack of tooling that allows you to get all of those same rewards… for free.” Essentially, Substrate creates a framework for developing specialized blockchains that can be optimized for different needs, in contrast to ERC20 tokens, which must be built atop of the Ethereum network (with all its idiosyncrasies and foibles).
Meanwhile, Polkadot is a protocol for allowing different blockchains to interact by introducing parachains (analogous to “sharding” in Ethereum). Compared to current blockchain technologies, Polkadot offers three primary advantages:
- Interoperability – Polkadot will allow diverse blockchains to interact with one another.
- Pooled Security – Smaller, newer blockchains will be able to benefit from the aggregate security of the broader Polkadot ecosystem.
- Scalability – Projects built on Polkadot have the potential to scale more rapidly.
While it’s still early days, technology enthusiasts eagerly awaiting a decentralized “Web 3.0” future can already imagine developers easily creating bespoke blockchains for diverse use cases utilizing the Substrate framework and connecting them through Polkadot to make them interoperable, secure, and scalable.
Developed by one of the smartest, most experienced minds in the industry using the latest technological advances, with a strong vision for the future of the industry, we wouldn’t want to bet against Polkadot. The project is currently running on a testnet in anticipation of a mainnet launch around the turn of the year.
Of course, as anyone who has ever watched a VHS tape or driven a car with a combustion engine can attest, the best technology doesn’t always win out. Ethereum already has a tremendous head start in developer familiarity and public awareness (in addition to the ongoing efforts to “backfill” its technological capabilities to accommodate future demands), so it’s hard to imagine another token eclipsing ETH’s second-place market share in the immediate future. However, no industry is developing faster than blockchain technology, so readers should at least consider the potential for the current hierarchy to evolve.