Ethereum vs The Competitors

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Ethereum is the first public blockchain database that allows users to build a wide range of Decentralized Applications (Dapps) through the implementation of smart contracts technology. Such a public blockchain network aims to eliminate the need of middlemen, time-consuming procedures and excessive running costs.

The degree to which Ethereum establishes the objectives of its creation are still under dispute from the crypto community. Therefore, several alternative blockchain networks are emerging to create more efficient and scalable blockchain ecosystems than Ethereum.

This blog post examines the main fundamental differences of Ethereum vs some of its prominent competitors: Cardano, Algorand, Polkadot and Chainlink.

Ethereum

Participants of the Ethereum ecosystem keep a copy of the state of the Ethereum Virtual Machine (EVM). Those who aim to produce the next block, broadcast a request to the EVM, which other participants can validate and execute. Upon successful execution, a state change in the EVM occurs.

Developers aim to create dapps by writing code, called smart contracts, and deploying it to the Ethereum blockchain. Smart contracts rely their execution on whether and when specific parameters occur.

Ethereum is on the process to shift its concensus mechanism from Proof-of-Work (PoW) to Proof-of-Stake (PoS). A network participant needs to lock 32 ETH in a contract, in order to be able to participate in the PoS migration. This migration aims to tackle current issues with the Ethereum network including:

  1. Energy Usage – Limited energy is required to mine blocks compared to PoW.
  2. Scaling – Solutions like shard chains are feasible for implementation within a PoS ecosystem. Shard chains allow the creation of multiple blocks at the same time, therefore larger transaction output.
  3. Degree of Decentralization – Due to lower barriers of entry deriving from less energy and hardware requirements, more nodes are expected to participate in a PoS process. Staking via staking pools is also a more affordable solution for potential network participants.

Since current issues of the Ethereum network also include high gas fees, alternative blockchain ecosystems are emerging and attempt to provide legitimate competition in the race for efficiency.

Cardano

Cardano enables similar features like Ethereum such as smart contract execution and dapps, however via a different approach in architecture design. This network focuses on a research-driven design, thereby applying an academic peer-reviewed approach of blockchain technology.

ADA is the native cryptocurrency, which fuels the creation of dapps in the Cardano network. Ownership of ADA tokens determine slot leader opportunities, fee distribution and voting power on policy decisions. There are three main pillars under which the Cardano network relies.

  1. The Cardano Foundation – Supervises the development of Cardano blockchain and acts as the legal custodians of the brand.
  2. IOHK – The designer of Cardano’s PoS algorithm named Ouroboros.
  3. Emurgo – Work towards the adoption of Cardano by collaborating with external organizations.

To compare the fundamentals of Cardano with similar blockchain networks, we have to take a look at its PoS mechanism, Ouroboros.

Ouroboros functions by dividing time into “Epochs” – specific time frames and “Slots” – 20-second increments within Epochs.

A slot leader is selected in a random order for each slot and is given the responsibility of selecting the next blocks of the network. Only nodes which have staken ADA to participate in the process, can be selected. Other types of nodes are only reponsible for creating transactions and communicating with the public internet. When an epoch ends, the previous slot leaders elect the leaders of the following epoch via a random “coin tossing” mechanism.

Cardano is currently more scalable than Ethereum. It can handle more than 250 transactions per second which could possibly incease to 1 million transactions per second via a layer 2 solution called Hydra. For more comprehensive comparison, we shall also await to witness the Ethereum 2.0 update which plans to increase the current level of approximately 30 transactions per second to 100,000 transactions per second.

Algorand

Algorand adopts a Pure PoS protocol aiming to become the optimal chain for use cases around financial products. Using smart contracts, Algorand achieves highly efficient layer 1 and interoperability solutions with a high degree of speed (approximately 5 seconds for an atomic transfer), scalability and decentralization.

Several features of other cryptourrencies combine to construct the network structure. Algorand transaction fees are significantly lower than Ethereum. One key low barrier to adoption is that participants only require to own 1 ALGO to be eligible for staking. On the other hand, 32 ETH needs to be locked to participate on Ethereum 2.0.

The staking amount is proportional to each participant’s probablility to discover a new block. There is a random and secret selection of participants to propose new blocks.

The benefits of Pure PoS are the following:

  1. Two blocks can never be propagated to the same chain as only one block can enhance the required voting weight from the committee votes. Therefore, there cannot be any forks to the network.
  2. All Algorand transactions are final and secure with a single block confirmation.
  3. Participants do not need to lock a part of their funds in order to participate in the staking process. Stakers can spend their staking amount at any time.

There are two types of Algorand nodes working simultaneously to achieve a high degree of decentralization and transaction throughput. Relay Nodes enabling communication and Participation Nodes which propose and vote for new blocks.

Polkadot

Polkadot aims to achieve scalability and speed with the adoption of interoperable parachains that connect to a relay chain. Parachains are identical to Ethereum’s shards.

Relay chain is Polkadot’s core technology, which connects parachains with the wider ecosystem. Polkadot parachains support the use of smart contracts, while the relay chain does not.

Each parachain is a form of a separate blockchain running according to its own algorithm and token. There is a limit of 100 parachains on Polkadot, with the aim to create competition among trustworthy projects wishing to connect their chains into the ecosystem. Such projects compete on winning a parachain position by bidding on a parachain slot auction.

Slot winning projects use DOT tokens to pay for their slot lease. If projects fail to win a slot, they can participate by paying a lower fee amount to connect as a parathread. Parathreads involve a block by block participation by projects claiming a share of parachain slots. Dapps can participate with parathreads and are still able to enjoy the scalability and security of the Polkadot network.

The security of Polkadot network is shared, because validation depends from the relay chain. This feature means that attacks to parachains are nearly impossible. As the number of parachains and validators grow, more DOT users are staking, which means better degree of security for the wider network. Participants can also use DOT tokens for governance voting.

Since Polkadot is not fully live yet, the exact network fee level is still questionable.

Chainlink

Chainlink is built on top of Ethereum, aiming to become the mainstream decentralized oracle network. It is actively integrating with other blockchain networks, since it is an attractive solution which attempts to bring real-world data on the blockchain. This feature enriches the variety of potential business use cases that can be based on the Chainlink network.

Ethereum developer teams observe Chainlink more as an integration opportunity rather than a competitor. Real-world data can be integrated with Ethereum’s smart contracts enabling use cases in various sectors such as insurance, trading, prediction markets and more.

LINK is the native cryptocurrency used to pay for network services including node operations and staking. Chainlink oracles solve the problems of a single centralized oracle, that is fundamentally a central point of failure and vulnerable to malfunction and compromisation.

Chainlink Oracle Process

  1. A blockchain running on smart contracts produces a “Requesting Contract” when a smart contract requires specific off-chain data to function.
  2. Chainlink receives this request as an “event” and creates a “Service Level Agreement” (SLA) contract to gather the necessary data.
  3. The SLA generates 3 sub-contracts: The “Reputation Contract”, the “Order-Matching Contract” and the “Aggregating Contract”. The “Reputation Contract” checks the track record of an oracle to assess its performance and validity and discards unreliable oracles. The “Order-Matching Contract” transfers the initial request from Step 1 to Chainlink nodes, receives their bids and selects the nodes that will implement the request. The “Aggregating Contract” receives all data from the oracles and validates the accuracy of the result.
  4. Chainlink nodes translate the initial request from a programming language to a non-programming language that a real-world source can understand. This helps an external API to gather the necessary data.
  5. Chainlink nodes translate the data back to a programming language and send it to the “Aggregating Contract”.

The “Aggregating Contract” can perform validation processes from many sources and produce an average result. It can also discard data from unreliable sources (for example, where 10 data sources agree and 1 data source provides a different outcome).

Nodes with higher staking are more likely to be chosen for executing their requests. Therefore, Chainlink adopts a significant incentive mechanism. Chainlink 2.0 is looking to improve scalability and privacy.

Conclusion

It is still quite early to determine which of the alternative projects to Ethereum can survive as a competing network or even running parallel as an optimal solution for specific use cases. Ideally, interoperability between blockchains will innovate the concepts of smart contracts and dapps. Currently, each project is identifying specific parameters requiring improvement and their communities are actively working to provide the most scalable, fast and efficient networks.

Let’s hope this “silent” competition will benefit all of us – the end users!

More blockchain educational material coming soon on The Crypto App blog.

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