Arjun Patil
Top 4 Layer 1 Protocols In 2023.
This report is a detailed deep dive into some of the best layer 1 protocol in terms of developer growth, number of validators, active smart contracts, Dapps, etc. This report presents the performance of Ethereum, Solana, Avalanche, and Near protocols.
After being at the top of the bell curve in 2021, the blockchain ecosystem is currently at the down slopping side of the curve. In addition, many chains face issues with million-dollar scams & hacks hampering the trust of retail investors. As a result, the TVL in chains is going daily, and the narrative of blockchain being a wrong decision is rising among the trend followers and naysayers.
However, many are still working on this technology by seeing the bear run as indeed what it is-a correction. Chains are utilizing this downtime to improve their functionality and be better in terms of the 3 most important pillars of blockchain.
1. Security
2. Decentralization
3. Scalability
What Is Blockchain Trilemma
However, it is tough for a blockchain to be good in all the pillars mentioned above. We all have heard about the term "Blockchain Trilema," coined by Vitalik Buterin. It essentially means that it is tough to have all the 3 pillars in perfect amount running a blockchain – at least according to Buterin.
The term states that if we were to work on a blockchain's decentralization and security aspects, we wouldn't be able to scale the blockchain solution and hence won't be ready for the masses.
Similarly, if we were to focus on scalability and security, the core pillar of blockchain, i.e, decentralization, goes out the window. So why bother with a blockchain solution?
Let me explain the trilemma in more detail.
Nodes are the systems that help run the blockchain network and greatly influence blockchain performance. Suppose we increase them, the security of the network increases since it will require getting control of more than 50% of the nodes of the network to compromise it. Along with that, decentralization increases since the information/data isn't controlled by a single monopolistic entity but by a vast network of computers.
However, the increase in nodes requires more processing power to keep all the nodes updated with the happenings of the network, which leads to less processing power for conducting the transaction, which leads to a reduction of the number of Transactions Per Second (TPS) of the chain.
If you decrease the nodes and have only a few handling transactions on the network, the network is at significant risk in terms of security. It's much easier to take control of 100 nodes when compared to 100000 nodes. Decentralization would be questioned due to fewer nodes, but the speed of transactions would be high.
Note: You can't just increase nodes to increase the processing power. If nodes are increased, the systems which are needed to be updated also increase. Also, the processing powers need to be high to offset the above-mentioned effect. If not, you are adding a hard disk to copy all the files by using the existing processor.
So as a solution to the trilemma mentioned above, developers are creating unique solutions at the architectural level. Some of these solutions are,
1. Adopting POS/DAG as the consensus mechanism
2. Adopting sharding
3. Relying on layer 2 chains to take the processing load off-chains
This article will focus on Layer 1 chains and the steps being undertaken by both the old and new chains to solve the problem of blockchain trilemma.
What is a layer 1 protocol in crypto
As the blockchain use case becomes more evident, the adoption rate is also forecasted to increase with implementation in the medical, school, professional, and finance sectors. However, as mentioned above, most existing blockchains are not scalable solutions.
Yes, layer 2s are being developed to solve the problem of scalability, but they are still not at par with the existing traditional alternative.
Source:
Ethereum: The best layer 1 protocol?
Ethereum has to be there comparing the existing layer 1 blockchain networks. This is because it was one of the first layers that brought the programmability feature across the chain allowing users to code smart contracts.
Ethereum was traditionally based on Proof of Work (PoW), resulting in enormous energy expenditure to run the system. As a better alternative and due to the flexible nature of the Ethereum main net, Ethereum was able to change the consensus mechanism from PoW to more efficient PoS this year.
This move has not only led to the system being more sustainable but also has opened the doors to improving the system's scalability with methods like sharding.
(A) Graphical representation of the impact of POS on Ethereums Carbon Emissions.
(B) Annual energy consumption in TWh/yr for different industries/products.
Developer Growth:
One of the significant aspects that should be considered for evaluating the chain's progress is understanding the developer's interest in the technology. The better the tech, the more the developers are willing to contribute time & money to build excellent products, and hence more will be the customer base to fund the cycle.
A recent report by Alchemy portrays Ethereum as a developer's choice of favorite blockchain. Ethereum hosting multiple Dapps, its programmability, Vitaliks vision, and the upcoming features of this chain have created a good curiosity within the community. Moreover, it is just next to the perfect blockchain in terms of the sentiments of the people.
One of the ways wecould track the developers interest in Ethereum is to understand the number of download/opens of the libraries aimed at helping the developers.When the libraries of Eth.js and web3.js were tracked, bullish sentiments could be concluded due to increase in number of downloads over the years with no signs of stopping.
With this, deploying smart contracts is a great way to analyze technology adoption. According to Ethscan, the chain witnessed a 14% increase in smart contract development and deployment, leading to ~ 600 smart contracts being developed on an average day, which is enormous.
(A) Smart contracts deployed on Ethereum in the year 2022
(B) Rise in the development of smart contracts.
Rising Dapps:
Geographic data: According to the Eth scan, there are 5479160 active nodes, of which 56.14% are from the USA. The next country ranking high on the charts is Germany (15.62%), and the trend of these 2 countries having the most nodes are common in all blockchains and not just Ethereum.
However, with that, I would also like to point out that the number of nodes in these top 2 countries has been dropping significantly. The country upping the nodes on the Ethereum blockchain is Russia, which is currently the 7th largest node provider for Eth.
Most of the countries hosting the nodes have areas of highly concentrated nodes (For example, Central America) which isn't recommended. The nodes should be distributed and diverse not to dedicate major resources in a single basket.
Area Wise Concentration of Nodes in USA.
Some wins and Ls of Ethereum:
Ethereum started the year with trial phases of shifting its consensus mechanism from PoW to much more efficient PoS and did execute it flawlessly, with no error on 14th November. Post-merge, the number of smart contracts has been increasing as now the system has a strong network and is now eco-friendly.
Post-merge, a great margin reduced the fees for adding the block on the blockchain. It fell from a high of ~13,500 ETH to ~2000 ETH; hence, the cost of adding security is reduced for the blockchain.
Soon the platform is planning to launch a sharding mechanism in its old turned-new Ethereum blockchain. Sharding will improve the transaction speed by orders of magnitude, which is an event we all web3 enthusiasts are waiting for.
Solana: The layer 1 protocol killer
Solana has always been referred to be a tough competitor to Ethereum. However, due to its validation involving Proof of History (PoH) and Proof of Stake (PoS), the transactions on the network are at a higher speed when compared to Ethereum. As of today, the Solana network can transact nearly 4000 TPS, which is way higher than what Ethereum is capable of, and with the upcoming upgrades, the number is speculated to grow even bigger.
Developers of Solana:
Solana has been quite lucky in terms of the developer following it has, even after the recent SBF/FTX scam. Based on a Twitter poll by analyticalali, 66% of developers are still willing to continue to develop on Solana, with very few leaving for Ethereum.
To track the number of developers, most networks use Github APIs to track the public libraries of resources the developers need to use. Based on Solana's ecosystem growth report, a total of 2053 developers are working on the network, including multichain projects, of which 1654 are solely working on Solana network projects.
However, the number of full-time developers (who have accessed the repository more than 5 times in a month ) is 120, whereas the number of 1-time developers stands at 1139, which is very low.
[Although it should be kept in mind that numerous private repositories aren't tracked, and hence the above-mentioned statistics are vague]
Geographical Data:
As of me writing this article, Solana has a total of 2306 validators across 138 unique data centers spread across 35 geographical locations.
[It's comparatively hard to be a validator on Solana. The requirements of the nodes are high, requiring a heavy, powerful, and thus system (>$10,000) and much money to stake in the network. This eventually leads to only big institutions or wealthy individuals being the validators. Decentralization is considerably affected by this.]
The decentralization problem also persists when most validators belong to a single data center. That's why the network has distributed the stake to be less than 33.33% to not give more power over the network to a single data center.
Solana Wins and Loses:
This year was full of a roller coaster for Solana, as at the beginning of the year, the network was plagued with hacks of wallets and platforms, and that, combined with the thrashing they received online, was brutal.
However, Solana has had 2 major events which have shaken the ecosystem.
1. The FTX scam:
2. SBFs FTX was one of the leading reasons Solana came into the picture. However, after the recent reveal of the scam, the network experienced a reduction in the value of the sol, and the TVL dropped.
3.. Hetzners Backing Out: One of the leading web-hosting companies didn't allow its servers to validate crypto. Therefore, the validators had to migrate to other potential web-hosting platforms to continue acting as validators
It's honestly surprising how loyal the community is toward the goal of Solana. Despite the biggest scam in web3, the FTX scam, which had direct repunctuations on the network, the network is still standing tall and high but with many bruises.
Due to the SBF X FTX fiasco, the Defi TVL has dropped to a record blog this year. Defi Markets were already going down south, and the FTX news was just the push the market needed to take out their funds.
Before Hetzner backed out, the web-hosting company was responsible for hosting nearly 40% of the network's overall nodes, which were concentrated in Germany. This means it always was in danger of an isolated attack, geo-political risks, regulation, or system compromise due to an act of god. Currently, nearly 42% of validators and 38% of stake are in the USA and Germany.
Solana Use Case:
Solana is often regarded as the Ethereum Killer since it is a flexible blockchain with enough programmability and also since it had adopted PoS way before Ethereum. It is currently experimenting with Firedancer, an independent C++based validator.
We don't have to go into the depths of that for this, but it can up the performance level to about 600,000 TPS, as tested in a live demo. Solana has also started experimenting with a local fee structure that allows users to pay fees directly to validators to express urgency in the transaction.
Avalanche: The Newcomer of Layer 1 protocols
Avalanche is an Ethereum Virtual Machine (EVM) compatible blockchain that works similarly to what a sharded Ethereum 2.0 chain will work like. Avalanche also has its virtual machine like the EVM, which allows projects to create smart contracts which are also Ethereum compatible. This is a big USP for Avalanche, especially considering it requires very low gas fees for transaction purposes.
To bring in scalability to a low fee and faster solution known as Avalanche, it has 2 chains working: P-chain and Exchange chain. P-Chain allows to the creation of a sub-blockchain for individual platforms/projects; thus, the load is distributed project-wise. (Similar to what sharding will do to Eth 2.0). The exchange chain allows the exchange of Avax tokens.
Developer Growth & User Growth of Avalanche
To bring in scalability to a low fee and faster solution known as Avalanche, it has 2 chains working: P-chain and Exchange chain. P-Chain allows to the creation of a sub-blockchain for individual platforms/projects; thus, the load is distributed project-wise. (Similar to what sharding will do to Eth 2.0). The exchange chain allows the exchange of Avax tokens.
As explained above, the programmability of the chain allows developers to be flexible, resulting in the release of 284 projects on the network. Moreover, Avalanche is eyeing the global finance sector, which is well within reach of them, especially when the Finality of a transaction is less than 2 seconds.
Finality is the time between the initiation of the transaction and its completion.
Also, since the network has been launched through EVM, it is compatible with solidity; hence, users don't have to worry about another programable language.
A wide range of repositories on their website allows developers to merge into this network easily. This and many reasons, as stated above, have been the reason for the increase in contract deployment from developers and the increase of users using these contracts.
Smart contracts deployed and its deployers.
Avalanche Ecosystem Developer Involvement.
Avalanche Use Cases:
As the Finality takes less than 2 seconds, which is many times faster than the already existing layer 1 solutions, many finance-based applications are being developed on the network. Some of the top DeFi solutions launched on the network are Curve Finance and Penguin Finance.
As seen above, TVL of avalanche chain rests at $33.3 Million, a significant drop from its 2022 start OF $14.49B. However, this has been the scenario for the chains and driven due to the bearish reasons of the market, like the hacks, corrections, scams, and compromise of major platforms.
Along with its use in the finance sector, other uses are
1. Creation of blockchain compatible with EVM
2. Building Dapps for both private and public blockchains
3. Developing smart assets
Near Protocol: The New Layer 1 Blockchain Making Trends
This open-source blockchain was recently created in 2020 and has managed to secure funding of $1 billion. It allows the creation of Dapps and has been widely successful after launching sweat coin.
However, the key aspect of this blockchain technology is that it follows sharding and hence has security, decentralization, and good transaction speeds. Near also acts as a storage layer for Dapps hosted on the network for some additional cost.
Developers of Near Protocol
Near protocol prioritizes being a developer-friendly blockchain and has supported languages like rust and assemble script. It also has Aurora as a layer 2 solution built upon the EVM. This also allows developers access to solidity script, which is a huge plus point for developers.
Along with the compatibility mentioned above, Near has also released a Javascript SDK that allows developers to build smart contracts on the blockchain with Java.
Daily Number of Active Contracts
Use cases of Near Protocol
Recently Near set an all-time high record of 3 million active accounts, which was majorly due to the launch of sweat coin from sweat economy. The project has been widely successful and has brought in many participants on the chain. The project incentives people to move around by rewarding them with sweat coins.
Near uses threshold proof of stake consensus mechanism to validate a transaction. It sets a minimum validator participation threshold where validators bid for participation. And since it also follows sharding, with a phase-wise update called Nightshading, it has reduced minimum hardware requirements for validators and improved decentralization.
The above are the top 4 interesting blockchain technologies I am stalking, and I expect them to do wonders in the future of web3. Many other interesting chains, like Fantom, Ripple, Cardano, etc., deserve a place in this report. However, I wanted to keep the report's scope to inform the audience of the interesting tech in web3 and the blockchain trilemma problem.
Drop a comment below if you want me to create a super report talking more in-depth of the blockchain mentioned above and even more.
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