They Have Not Yet Begun to Fight: The Platform Wars
Lesson 2: Or How to Make Sense of the Vying Blockchains
Perhaps in a few years no one will remember the Platform Wars. Out of a handful only one or two will ascend to a dominant position. It’s the way of capitalist markets — efficient or not — where only a few brands of mainstream technology can be profitable.
- Apple — Android (do you remember Blackberry?)
- VHS (do you remember Betamax?)
- Apple — PC (do you remember Commodore 64 or Acorn Computers?)
Technology wars are hell, and not always the best technologies survive — with the classic example of this being VHS, which gained control over the market because (allegedly) pornographic videos were more available on VHS.
What’s All the Brouhaha about Anyway?
“The Platform Wars” has become a common trope with several iterations. Generally, the phrase is applied to any competition between projects or protocols to claim a role of dominance in the blockchain market. It can also refer to specific features of that competition–such as NFT market dominance; and it can involve (explicitly or implicitly) a specific vision about how Web3 or the Metaverse ought to be.
The most common usage of the phrase refers to the main blockchain protocols gaining control over the blockchain market by solving the blockchain trilemma of decentralization, scalability, and security.
Decentralization
The ethos of Web3 is all about decentralization, or using the public and immutable ledger system to promote transparency and to eliminate the need of a controlling authority via the usage of smart contracts and democratically governed organizations (or DAOs).
There’s one important feature to note about decentralized systems. While every computing system can suffer from defects, malfunction, or a hack (or what is called the Byzantine Generals Problem), decentralized systems face a unique sort of threat. This is namely the possibility that several nodes in the system might be corrupted or even maliciously inclined. When this happens, these are called “Byzantine failures”.
Coin Telegraph puts the issue well:
In every distributed computer system, Byzantine failures are virtually unavoidable.
Let’s imagine there’s a power outage and all of the nodes go offline simultaneously. Now, the question arises if the network is still operational and capable of sustaining reliable communication? Or does the system as a whole stop working or become open to attacks all of a sudden?
In a reasonably secure network, anything as minor as a few offline nodes has no discernible effect on the network. Byzantine fault tolerance is the ability to defend against these conditions. Networks that can endure more Byzantine failures are said to have a higher tolerance, implying that they are more secure than those that can’t.
In a certain sense, it’s computing attrition that works; or the sheer number of operationable nodes keeping things functional.
Scalability
However, decentralization comes at a cost — namely, scalability. Centralized platforms tend to be more efficient with regard to TPS since they involve less users and resources to meet consensus criteria. In other words, given its more plural and democratic structure, decentralized systems take more time to come to consensus.
In addition to TPS, you might also come across “transaction throughput”. Although it is used interchangeably with “TPS”, throughput can also refer to an increase in the amount of information processed per block. In that case, the network “speeds up” because each block just has more volume on it, not because more blocks are being processed.
This conception of throughput is related to the BTC hard fork that led to Bitcoin Cash (BCH). The miners there opposed using state channels (or what are smart-contracts that “enforce predefined rules for off-chain transactions”) to process transactions off chain. Instead, they wanted to increase the amount of information held per BTC block. That way all transactions would remain on-chain and they would be paid for each block.
The problem with that proposal is that in order for BTC to scale as needed, it would need to have massive blocks — too large for any but a few specialized firms to host the computational power needed. BTC would thus become centralized and lose the security features it promises.
Security
As you might have guessed, centralization comes with its own cost — namely, security. Centralized systems suffer the risk of single-point of failure which entails a single network communication pathway or channel which can be easily compromised or hacked. In contrast, in decentralized systems the communication pathways are several since the devices (or nodes) communicate with each other (P2P).
That still does not guarantee network saftey. Earlier we talked about network malfunction and malicious activity in relation to Byzantine failure. To thresh the latter out more: for any malicious attack to work on a decentralized system, there must a majority control of the nodes. This is referred to as a “51% attack” or a “Sybil attack”.
When a verifier for a blockchain controls more than 51% of the protocol’s verification agents (e.g., miners or node validators), it can vote to rewrite the blockchain’s past transactions in its favor. This has the drawback of potentially destroying the blockchain.
The process is more complicated in execution. Some blockchains have smaller, subset chains called “shards.” The required percentage to vote at that time is proportionally smaller. If there are ten shards, then only 5.1% might be needed–theoretically. And even if the percentage is achieved, the right block data needs to be produced, which is not a simple task on its own.
Blockchain designers want to prevent that kind of override. They disincentivize that in two ways.
- First, it is extremely costly to get 51% of the vote. For Bitcoin, you’d have to spend tens of billions of dollars to do it.
- Second, as soon as you did, people would lose faith in the blockchain and all the money you spent in acquiring those votes would evaporate.
That makes it irrational, from a financial perspective, to override a blockchain. But what if you were just malicious?
Well, blockchains have decentralized autonomous organizations that facilitate updates for the code running the blockchain. Should something like this happen, and there have been other sorts of errors, they have historically voted to invalidate the attack and reset the blockchain to a point in time prior to the attack.
The result is what Elyse Purcell has called a “garden of the gods’’ scenario. This is a concept in game theory which works like this. Just as the gods of Olympus, living in their gardens, look on our human actions and can render them futile, so too the parties in a DAO can make the blatantly malicious actions of such actors futile. Agents of a sybil attack will have lost all their money without even achieving their aim.
In sum, centralized systems benefit from scalability. Decentralized ones benefit from security.
Finally, Which Platforms?
So resolving the trilemma is effectively where a decentralized blockchain can also provide security. The first to do so is feasibly the winner of the Platform Wars.
Which platforms are legitimate contenders for the title (as of Sept 12, 2022)?
- Ethereum
- Solana
- Avalanche
- Algorand
- Polkadot
- NEAR
- Cardano
Note: Bitcoin is not a proper Layer 1 protocol providing utility for other projects; and Ripple (XRP) is really a private, centralized blockchain.
How To Apply This
If you’re a HODLer of cryptocurrencies, you’ll want to keep an eye on how your platforms are doing. You may like some because they have a great team or have made huge technological advances. But you have to remember that the best don’t always survive. Ethereum already has a huge share of the NFT and App market. That makes it the “Goliath” of the lot; and despite myth and lore, Goliaths tend to win when it comes to the marketplace.
But you never what will happen, or what may provide that unique advantage for one of the smaller platforms to win out. And hey, it might just be that in all its careful and steady plodding, the tortoise (i.e. Cardano) wins the race.
And thus the bard sang:
As things go with the fogs and the fig leaves of war,
One never knows what the Goddess Fortuna might have in store!
This article is a part of the Crypto Industry Essentials educational program presented by The Art of the Bubble.
Though this article is credited to me, it contains some written material by Sebastian Purcell, PhD from his The Art of the Bubble education series on cryptocurrencies.
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