One Chain to Rule Them All?
A well-established school of thought is the latent anticipation for any singular blockchain to make a breakthrough and present all the functionality and properties anyone requires, and as a result, all other chains become redundant.
The Bitcoin blockchain found itself in the odd position of growing to be exceptionally expensive to operate due to so many people speculating on the value of the coin increasing. This was due to the coin itself being used for gas fees to provide functionality on the platform, in turn limiting the actual usefulness of the chain itself as it became too costly to run transactions on. Bitcoin as a result became more useful as a store of value than as a medium of exchange.
In the lead-up to 2017, there was no shortage of wishful thinking amid hopes that Ethereum would grow to be the single, dominant chain. This crypto dream was swiftly dashed when the network was tested by relatively low levels of traffic and especially when the popular game CryptoKitties clogged the chain — driving up gas fees to astronomical amounts.
A widespread reaction was imminent as a number of parties building blockchain-related technologies realized that scaling was fast becoming a core issue that needed to be resolved. Two primary solutions emerged: you can either create a new chain to run concurrent to the main chain, or use innovative architecture and scaling solutions to improve the performance of existing chains.
Many of the new chains entering the market started to position themselves as the ‘Ethereum killer’; they promised endless scaling and hyper-fast transactions without any compromises on security, all the while maintaining significant degrees of decentralization (in the process, solving the blockchain trilemma).
All too pleased to find and believe in what they saw as the holy grail, investors threw considerable amounts of funds at these new chains in a bid to back the next Bitcoin or Ethereum chain from the ground floor. Cardano raised $62M USD in 2016, Solana $22M USD in 2021 and Polkadot $188M USD by 2020 — none of which includes further funding raised by selling tokens on the open market once they were listed.
Scaling solutions looking to solve the problems of one particular chain have also gained considerable traction: for example, zero-knowledge roll-ups, a technology used by Starkware, raised in excess of $200M USD. Taking the majority of transactions off-chain is a smart and tidy method, specifically for Ethereum, and greatly increases the efficiency of the underlying chain by only relying on the consensus mechanism rather than computation.
But participants in the market now realize that whilst all this capital inflow and innovation is positive, different chains have different uses; in part dictated by the size of and who their community is, which is outside of the control of those who build the chain in the first place.
The limited utility of the Bitcoin blockchain is well documented. This is large because demand for the coin made the chain expensive to operate, in the same vein as Ethereum became prohibitively expensive even though they offered rich functionality via their smart contract framework.
Vis-a-vis, Elrond is focused on engaging with retail users via their simple-to-use wallet with fiat rails, Polkadot enables you to set up your own chain within their ecosystem that enables interoperability within it, and IOTA focuses on enabling the Internet of Things data feeds and operations.
In summary, it would be correct to conclude that different chains offer different functionalities; and even in the case of chains that offer similar functionality, the reality is that due to varying approaches — the properties are never exactly the same, and therefore one chain could be the right solution for one project to build on top of, but not another.
The ideal situation is to be able to use the functionality from multiple blockchains so that a project, retail user, developer and/or real-world business, do not need to commit to a particular chain but can build in a layer above multiple chains with the benefit of picking and choosing different functionalities from various blockchains. But more importantly, this effectively future-proofs their projects for whatever changes come their way. In the case of a catastrophic failure of one particular chain, they can simply move to another. This ability to move chains is particularly important in light of recent events, such as Terra Luna’s unforeseeable downfall.
In an apparent admission that maybe one blockchain isn’t going to be the Ethereum killer, borne out of the realization of the considerable scope for different types of functionality to be delivered across a multitude of chains, the mission to deliver interoperability between chains is a core focus that dominates the space today.
Can we put everything on the blockchain?
Blockchains for the most part are slow, cumbersome and subject to ever-changing network fees as the price of their native tokens fluctuates. But what they do exceptionally well is consensus, which is where either via a mathematical calculation in the case of proof of work or a vote in the case of proof of stake, deliver an absolute positive or negative result, based on a set of fixed parameters as determined by the protocol.
Blockchains do not necessarily lend themselves to storing large amounts of data within them or running high throughput calculations. And the ones that do promise this have other trade-offs such as less security, more centralization, more cost and/or less reliability.
Unfortunately, we still see promises being made that solutions can solve all the problems: and they continue to attract investment. When they inevitably fail to deliver, the industry receives blanket accusations of fostering rug pulls, sometimes valid and sometimes not.
When projects do get off the ground, the difference between theory and practice can bite. Well-known projects with highly capable teams are not immune to numerous serious outages which traditional mass customer bases would find unacceptable.
We saw the worst-case scenario occur for the Terra blockchain in its catastrophic failure when a run on its currency led to major liquidity issues. And that set off a contagion of failures throughout the entire industry, some of which may have not even surfaced yet.
So we must be careful when bold statements are made, with considerable amounts of capital being thrown around — much of it retail funds — and look carefully at the underlying protocols and how they support the ecosystem that’s being built on top of them. And in the worst-case scenario, mitigate those risks by being able to move seamlessly between chains.
Unfortunately, what we’ve witnessed recently is that no single chain or related protocol is too big to fail. This is the case for true blockchain interoperability, as the future won’t likely be dominated by a single blockchain. All blockchain technologies are unique in their approaches, with an ever-expanding set of parameters that translate to possibilities, as we continue to explore and test the limitations of this nascent industry. And just as with technical trading, the more times a barrier is tested, the likelier it becomes that there will be a breakthrough.
