Ethereum Will Be the Backbone of the New Internet
Loom Network is building our Layer 2 on top of Ethereum, instead of other blockchain platforms — and here’s why.
Each month, another company publishes a whitepaper, claiming to have solved the scalability problems faced by Ethereum.
These new blockchains claim to be better, faster, and smarter than Ethereum — they say they can handle thousands, even millions of transactions per second (TPS), have no transaction fees, and have near-instant confirmation times.
Yet at Loom Network, when we set out to build a platform for bringing large-scale decentralized mobile games and social networks to the mainstream, Ethereum was by far the most obvious choice to build on top of.
In this article, I’ll explain the reasons why we think Ethereum has already won the race to become the foundation of Web 3.0, and will become the fundamental base layer that all major DApp platforms will choose to build on top of in the future.
Let’s start with the most obvious.
1. Ethereum has an order of magnitude more developers building on it than any other platform — and this gap is widening by the day
Our Ethereum code school CryptoZombies.io has now had over 207,623+ users since we launched it last November — and this number has been growing consistently by over 30,000+ users per month, with no signs of slowing down.
Simply put, the number of developers building on top of Ethereum is not only growing — it’s accelerating.
That means if another blockchain platform wants to beat Ethereum in terms of developer adoption, it’s not enough for it to catch up to where Ethereum is now — it has to exceed Ethereum’s growth rate moving forward.
Why is developer adoption important?
At the end of the day, it doesn’t matter how many transactions per second your blockchain can handle if no one is actually using it.
And in order to have applications worth using, you need to attract enough developers to build them.
If you don’t have developers building applications on your blockchain, you’re effectively building a ghost town.
The blockchain platform that has the most developers building real-world applications on top of it will be the platform that gains the widest mainstream adoption. And not only does Ethereum have a massive head start in this area, but the gap is widening with each day that passes.
And why is Ethereum attracting the most developers?
2. Ethereum has better tools and infrastructure for DApp development than any other platform
These are tools (among many others) that different developer teams have tirelessly poured hundreds of thousands of hours into — and they’re free to use for any Ethereum developer who wants to build a DApp on Ethereum.
And this developer ecosystem is only growing as time goes on. Our team and at least a dozen others are in the process of building even more tools and infrastructure around Ethereum DApp development that will make Ethereum developers’ lives even easier in the future.
It’s Metcalfe’s law applied to developer infrastructure. The more developers building useful stuff, the easier (and more enjoyable) it becomes for new developers to build, and the effect compounds on itself.
If you’re a developer and you wanted to build a blockchain platform that replaces Ethereum, you would need to build equivalent versions of all of these tools on top of your own platform in order to compete with Ethereum’s ease-of-use for developers.
Or you could, you know… just build on top of Ethereum, and take advantage of all these things out of the box 🤔
But let’s go one level deeper.
Let’s talk about WHY developers would want to spend their time building these tools.
And here’s where we go really deep down the rabbit hole, and see where Ethereum really shines.
3. Ethereum does not sacrifice decentralization
When it comes to Blockchains, there’s a fundamental law called The Scalability Trilemma. It’s kind of like a law of physics that says a blockchain can only have 2 of these 3 properties: decentralization, scalability, and security.
What that means is, given the same level of security, if you want to increase a blockchain’s scalability, you must sacrifice its decentralization.
Why is this true?
Due to the nature of blockchains, every single validator needs to run every single computation that occurs on the network to ensure its accuracy.
So if you want the network to be sufficiently decentralized by having thousands of users running validators, the max number of transactions per second needs to be capped by what the average user’s PC and network speed can handle.
On the other hand, if you wanted to have the fastest, most scalable blockchain EVER, you should do the following:
- Require that all validators be supercomputers
- Have as few validators as possible on the network, to decrease the number of connections per node
- Put all the validators in the same geographical area (country, data center) to decrease latency between nodes
Can you see why that would be a really bad idea for a blockchain?
And yet every project I’ve seen that boasts a very high number of transactions per second is quietly making this decentralization tradeoff — most of them are just not transparent about it to their users / investors.
Why decentralization matters
In his article, Chris Dixon makes a simple argument: Developers are a lot more incentivized to build on a platform that they know is NOT going to change the rules on them later down the line, taking away their audience and profits.
If you build your application on Facebook or Apple’s App Store, you have to trust that these platforms aren’t going to ban you in the future, block certain users from using your app or seeing your updates, or start charging you higher fees to keep accessing the same audience.
Ethereum, on the other hand, is what we call permissionless.
Ethereum can be used by anyone for any purpose, without needing permission from anyone.
NO ONE can stop you from uploading a piece of code into the Ethereum blockchain, and NO ONE can stop your users from executing it.
Let that sink in for a minute, because it’s extremely powerful.
For the first time in history, we have a platform that that no one can shut down and no one can censor — not governments, not mega-corporations with tons of money, not the Rothschilds or Bogdanoffs or Reptilians or whatever conspiracy theory you subscribe to.
If you build a DApp on Ethereum, no one can stop your users from anonymously accessing it.
If you buy some tokens or digital items that are stored on the network, you are GUARANTEED they will stay there forever and no one will be able to take them away from you.
And it’s these permissionless and censorship-resistant properties of decentralized blockchains that have enabled us to have, for the first time in Internet history, true ownership of digital items.
More centralized platforms don’t have this guarantee
Pretty much every platform that’s been touted as the “Ethereum Killer” has simply decided to trade off decentralization in favor of higher scalability, and advertise it as if it’s a feature.
And this tradeoff is tempting to make, because it seems like it’s what the market wants.
Users who don’t know better complain about high fees and slow transaction times — so we can’t really blame developers for trying to give the market what it thinks it wants.
In Spencer Bogart’s Why Decentralization Matters, he says:
It’s not surprising that new users and developers have gravitated toward these newer networks: Improved throughput and functionality are things that users and developers can immediately appreciate, whereas the benefits of “decentralization” as a feature are seemingly amorphous.
In the short term, users may be tempted by the performance offered by more scalable blockchains, not realizing the importance of decentralization until a wake-up call brings everything crashing down.
The reality, however, is that without decentralization these crypto networks lose their most important qualities of being “permissionless” and “censorship-resistant” — that is, that anyone can use the network and anyone can build on top of them.
After all, the entire point of a decentralized blockchain is to provide a hard-promise — an immutable ledger with open, non-discriminatory participation. In a sense, we bear the inefficiency of decentralization because it is the only way to enable a network with these qualities.
Other blockchains that achieve 1,000 TPS or higher do so by having a small, fixed number of nodes that validate all the transactions — 21 in the case of EOS, 101 in the case of Lisk.
But a network run by 21 nodes requires that you trust these 21 publicly-identifiable nodes to not make changes to the protocol, or restrict certain people from using it for certain purposes in the future.
It’s a lot harder for a malicious entity to influence thousands of anonymous Ethereum nodes to censor certain transactions than it would be for them to gain influence over 15 out of 21 publicly-known block producers. Or for these 15 block producers to form a cartel and change the rules in ways that profit them, like what happens on centralized platforms. Or for a government or corporation to put pressure on these entities to censor certain transactions or users.
As Spencer puts it:
These semi-decentralized platforms are subject to the same social and economic pressures that motivate centralized platforms to censor certain users and activities, and therefore will trend toward the same outcome they’re supposed to correct.
If developers can’t trust 100% that the base layer will always remain permissionless and censorship-resistant, then there’s very little incentive for them to start building on the platform vs. simply using a traditional web server.
By sacrificing base-layer decentralization in the nearsighted goal of attracting users by increasing throughput, these platforms have ironically undermined the entire motivation for using a blockchain in the first place.
And on top of that, increasing throughput on Layer 1 isn’t even a scalable approach.
It will get you some initial gains, but it’s fundamentally bottlenecked by the nature of blockchains and not the way to achieve true scalability.
Which brings me to my next point…
4. It will be impossible to run all the world’s decentralized applications on a single blockchain: Scaling has to occur on Layer 2
It would be absurd to try to run the Internet’s 100 most popular games and social apps all on one giant supercomputer.
Likewise, it’s absurd to assume all the world’s decentralized applications in the foreseeable future will run on one blockchain.
Let’s look at some quick numbers.
Facebook experiences 30,000+ Likes / Comments per second, the Nasdaq sees 20,000+ trades per second, and MMO games like PlayerUnknown’s Battlegrounds handle over 1M concurrent users updating game state.
It would only take a few dozen apps and games of this size before you’re exceeding one million TPS in aggregate.
And then what do you do when the number of users doubles?
Clearly trying to run every single DApp on the same chain is not a practical approach.
It doesn’t matter if a blockchain can do a thousand transactions per second or a million transactions per second — no single blockchain will be fast enough to handle all the world’s decentralized applications on the same chain.
Scaling has to occur on Layer 2
The solution is obvious — these applications will need to be split up across multiple blockchains.
We realized this early on at Loom, when we presented the idea of application-specific sidechains. We foresaw that eventually some decentralized applications would grow popular enough to reach even 1/10th of Facebook’s scale, and the only possible way to run them would be on their own dedicated chains.
Of course, if you put these DApps that require thousands of transactions per second on their own standalone blockchains, they would be vulnerable to the same issues we discussed above in “Why Decentralization Matters.”
But if you put them on a sidechain to a blockchain that is sufficiently decentralized (like Ethereum) — you get the best of both worlds.
Sidechains provide higher scalability without sacrificing security
A sidechain can use a different consensus algorithm (like DPoS) optimized for DApps that require very high TPS or low-latency, while storing any tokens or data requiring a high level of security on the main chain.
This way, even though the sidechain is less decentralized than the main chain, the amount of trust required by users is minimized, since they have the option to move anything of real value to the main chain for safe keeping. (Even more so if you secure the Layer 2 assets with Plasma Cash).
By putting your DApp on a sidechain to a decentralized mainnet, you get all the benefits of higher scalability offered by a faster blockchain, while maintaining the same trust and security guarantees provided by the decentralized base layer.
Spencer, in his article, arrives at the same conclusion we came to:
The path forward: Highly decentralized base layer with increased centralization (and efficiency) on higher layers
And in fact, this seems to be the same model envisioned by Vitalik Buterin himself:
You could run StarCraft on the blockchain. Those kinds of things are possible. High level of security and scalability allows all these various other things to be built on top. Ethereum is a secure base layer that doesn’t have too many features.
Ethereum provides a secure base layer for Layer 2 solutions to build on top of
Now we understand that:
- Scaling needs to happen on Layer 2
- The most important property of a Layer 1 is decentralization
So the real question is, if not Ethereum, what base layer would you build your Layer 2 on top of?
We’ve already seen that very few chains do decentralization as well as Ethereum does.
According to a recent ConsenSys report, there are “just under 17,000 nodes running the Ethereum blockchain across six continents, making it the most decentralized blockchain platform in existence.”
And any additional features another blockchain might offer, such as higher throughput, gas-less transactions, low-latency transactions, etc., can simply be implemented as Layer 2 services on Ethereum.
In fact, those features are exactly what we’re building at Loom Network with ZombieChain — a Layer 2, gas-free, low-latency DPoS sidechain to Ethereum.
And that’s just one of many Layer 2 scaling solutions under development.
It’s hard to fathom why a developer would want to replace Ethereum instead of simply building on top of it 🤔
Ignoring the obvious motivation that doing so allows them raise hundreds of millions of dollars in an ICO… 😉
It’s kind of like reinventing the wheel.
Sure, you might be able to build a slightly better base layer that still provides sufficient decentralization AND throws in some additional features.
But then you’d somehow need to convince all the developers to jump ship to use an untested platform — and in the meantime, Ethereum developers could take whatever good ideas you had, and implement them on a Layer 2 chain on top of Ethereum.
It’s also extremely risky.
If a Layer 2 platform gets hacked or exploited, users’ loss is minimized because the majority of tokens and data of value is still safely stored on the Layer 1 (Ethereum).
But if you build a new Layer 1 blockchain that stores tokens that users pay real money for, the odds that your code will be exploit-free out the gate are slim — and in the case of an exploit, your users potentially have billions of dollars at stake.
In programming circles, there’s a rule that states “Don’t roll your own crypto.”
I’m going to go ahead and predict that after we see the first major blockchain exploit in which millions or billions of dollars in token value evaporate into thin air, we’ll start to hear a similar refrain among blockchain engineers:
Don’t roll your own Layer 1.
Which brings me to my final point…
5. New platforms are unproven, while Ethereum‘s security has already stood the test of time
At the time of this writing, there’s $61 billion in circulating ETH.
That’s a LOT of financial incentive for someone to try to hack / exploit the network.
And yet to this day, almost 3 years after Ethereum’s mainnet launch, no one has managed to find an exploit in the platform’s security.
Note: Exploits have been found in individual smart contracts that developers have deployed to Ethereum, but I’m talking about the core platform itself.
The more time that passes without an exploit being found (despite a lot of people trying), the higher the likelihood that the platform is secure and won’t ever be exploited in the future.
This is similar to what Nassim Taleb called The Lindy Effect:
The Lindy effect is a concept that the future life expectancy of some non-perishable things like a technology or an idea is proportional to their current age, so that every additional period of survival implies a longer remaining life expectancy.
Basically, when a new blockchain platform springs up, developers will be reluctant to use it because it hasn’t stood the test of time.
What if it’s exploitable? What if it’s not truly decentralized? Why should I invest all my time building my DApp on top of it when I’m not sure if it’ll be around two years from now?
The longer the chain survives without suffering a major exploit, the more trustworthy and legitimate it becomes in developers’ eyes.
Yet again, Ethereum has a massive head start here.
For a new blockchain platform that launches today, it will take a few years before it has survived long enough for developers to view it as trustworthy.
But in that same time, Ethereum will continue to race ahead in terms of developer adoption and supporting infrastructure. (Not to mention real, live DApps and end-users).
Because Ethereum has such a long head start on all other smart contract platforms, it will always appear to be a better option from a security standpoint compared to a younger blockchain.
Especially when, as we mentioned before, any new feature a new smart contract platform adds that might tempt developers away can simply be built on Layer 2 — and still keep the security promises of Ethereum.
Conclusion: Ethereum isn’t perfect — but at this point, it’s hard to imagine it being displaced as the de facto Layer 1 for decentralized applications
I predict we’ve already reached the tipping point where we’ll see the same thing happen with Ethereum for Web 3.0.
For all its flaws and short-comings, it also has some of the smartest minds in the industry working on solving them — and building tools and infrastructure to make them less of a hindrance.
And thus we come full circle to my developers argument. (Go ahead, you can watch that Steve Ballmer clip again. I won’t tell anyone. 😉)
It’s possible that, in the future, another project will spring up that offers some significant advantages over Ethereum, and manage to get all the Ethereum developers to jump ship…
But I wouldn’t bet my ERC20s on it.
Loom Network is a platform for building highly scalable DPoS sidechains to Ethereum, with a focus on large-scale games and social apps.
Want more info? Start here.
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