Fintech

These are the blockchains that want to take down Ethereum

Solana, Avalanche and others boast faster, cheaper crypto transactions. Is a technical edge enough, though?

Symbols for different blockchains positioned on a chess board around the Ethereum logo.

Ethereum's problems have left an opening for a number of upstart blockchains that offer faster and cheaper transactions.

Image: Christopher T. Fong/Protocol

Ethereum has become the default blockchain for developers looking to build new crypto applications, from NFTs to decentralized finance products.

But that lock on developers' hearts and minds may be in doubt. Ethereum has been plagued by slow transaction speeds and high fees. Fees tend to rise particularly when congestion is high — a plague of popularity. The cost of an Ethereum transaction rose to close to $70 in May before dipping over the summer, then rising to almost $60 in September.

For developers, crypto isn't just a speculative asset class. It's a platform on which they can build software that extends the usefulness of crypto and sets the rules for transactions known as smart contracts. Blockchain evangelists see smart contracts as key to crypto moving beyond just a store of value or a token for trading. Blockchain software can in theory unlock some of the many long-promised uses of the technology: cheap and fast payments, decentralized finance applications, even consumer products like games.

Ethereum's problems have left an opening for a number of upstart blockchains that offer faster and cheaper transactions. They include Solana, Cardano, Celo, Avalanche, Flow and others. While it may be too early to say they are "Ethereum killers," they have shown signs of taking market share from Ethereum, especially for certain uses.

But Ethereum still has some key advantages, including the decentralization of the platform, a high number of developers and a large ecosystem of code and technology products that new developers can adopt. "That modular composability makes it much easier to innovate on top of what everyone has done beforehand," said Boris Wertz, founder at Version One Ventures.

Ethereum is expected to release Ethereum 2.0, a faster version, but it's not clear when. "Ethereum 2.0 is supposed to bring lower fees and higher throughput," said Michael Rosenblat, director of marketing at crypto wallet company BRD. "But the reality is the market is not willing to wait another year for [Ethereum] 2.0 to roll out."

One benefit of Ethereum is its scale and large base of users and developers. But that also means satisfying the needs of many specific use cases can be difficult.

Specialized finance applications, for example, face challenges on Ethereum because of the high fees, known as "gas."

"With gas fees you just can't do things like derivatives," said Kyle Samani, co-founder at Multicoin Capital, which invested early in Solana. "Ethereum has too much inertia to go away, But the question is where will the next developers choose to build? I'm biased but I think Solana will get the majority of developers."

A note on terminology: Blockchains are the distributed ledger on which cryptocurrency transactions are recorded. Some share a name with the digital token they trade, like the blockchain bitcoin uses, while others have separate names, like the Ethereum blockchain and its ether token. The market cap, or total issued value, of a token is often taken as a sign of its popularity, and can be a factor developers take into account when choosing a blockchain.

Here are some of the contenders to displace Ethereum:

Solana, which launched last April, promises faster and cheaper transactions. Its backers have said the blockchain can process 50,0000 transactions per second, compared to Ethereum's 15 to 30 per second, with costs of $0.00025 per transaction. Its token is now the sixth largest by market cap. The project was built to focus on optimizing hardware that crypto software runs on, not just the software, says founder Anatoly Yakovenko, CEO of Solana Labs, who previously worked at Qualcomm.

Yakovenko wants to make it possible for any internet application, not just finance applications, to be decentralized, which he says will make them cheaper to run than those built conventionally. "Decentralized systems allow for these markets to form in a peer-to-peer way," he said. "If you want to displace Google, Facebook, not just Nasdaq, you need to build these high-performance, fast marketplaces, because the cost of operating these needs to be cheaper than a single ad, which is like 0.2 cents."

Solana has generated strong developer interest, said Rosenblat, who has attended Solana meet-ups. "There's real traction and some developers are switching over to Solana or new engineers are entering that ecosystem now," he said. "Solana is a platform now to build applications on."

Because of its speed, Solana has become popular for some emerging mainstream finance companies. Firms such as Jump Trading, Virtu Financial, DRW Cumberland and Genesis Global Trading have signed on to use the Pyth network, a decentralized real-time financial data network built on Solana that provides stock, crypto and fiat currency prices.

Some new NFTs are launching on Solana instead of Ethereum. One Solana NFT project, Degenerate Apes, sold out in 8 minutes, reaching a trading volume of $5.9 million. "With NFT drops, it's proven to people: You can have 30,000 or 50,000 people hit the system in a short window of time, two to five seconds, and the system is stable," Samani said.

Avalanche is another competitor popular for decentralized finance applications. It launched last September and has said it can handle 4,500 transactions per second. It also has touted its compatibility with Ethereum-built software through an Ethereum Virtual Machine, which allows developers to port over smart contracts from the popular blockchain.

DeFi projects such as DeFi exchange SushiSwap, oracle Chainlink and DeFi protocols Aave and Curve have used Avalanche. Topps recently launched NFTs on Avalanche.

Avalanche recently announced a private token sale of $230 million led by Polychain and Three Arrows Capital.

Cardano was founded by Ethereum co-founder Charles Hoskinson after a dispute with Ethereum co-founder Vitalik Buterin. Cardano launched in 2017 and has grown quickly over the past year and its ada token is now the third largest by market cap. In September, Cardano launched DeFi services, seeking to jump on some of the momentum that other Ethereum competitors have generated.

Other protocols have focused on more specialized uses.

Celo has targeted mobile uses for blockchain, trying to make crypto more accessible to broader populations, particularly in emerging markets. The system essentially turns phone numbers into something like public crypto keys that can accept cryptocurrencies via a Celo wallet. It has received backing from the likes of Andreessen Horowitz and Deutsche Telekom.

Flow has become a popular tool for NFTs, particularly with large brands. Dapper Labs, the company behind Flow, built the blockchain from the ground up specifically for NFTs and has catered to large brands.

In addition to NBA-licensed NBA Top Shot built by Dapper Labs, the NFL is also launching NFTs built by Dapper Labs on Flow. Sports leagues UFC and LaLiga are also creating NFTs on the blockchain. Game developer Ubisoft and Dr. Seuss Enterprises also have products in the works on Flow.

Flow has also launched its own OpenSea-like NFT marketplace called BloctoBay.

Don't count Ethereum out. It still has the widest reach, biggest network and the security and decentralization that attract crypto enthusiasts. It also has momentum from its longstanding position, which results in things like a larger user base and a larger library of code for developers to work with.

The question Ethereum rivals need to ask is "what do they add on top of Ethereum," Wertz said, besides executing transactions more efficiently.

Ultimately, the rival blockchains may not "kill" Ethereum, but instead cause a splintering of uses across different blockchains.

That, in turn, has created an emerging opportunity: software and other tools that help developers and users bridge and manage multiple blockchains.

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