October 05, 2022
Bitcoin and Ethereum are two cryptos that nearly every investor has heard of by now. The two most valuable crypto assets appreciated significant gains over the last year. However, their gains have lagged in recent months, as new digital assets have vouched for investor attention (and their money).
It’s unlikely that the market will be falling out of love with the crypto royals. After all, an entire industry was started on their backs. However, there are ample reasons to get acquainted with what’s happening in the ranks below the two largest cryptos. Let’s take a look:
Why are investors looking beyond the crypto royalty?
In the beginning, there was Bitcoin (BTC). The world’s first crypto, a peer-to-peer payment network, went live in 2009. Bitcoin’s blockchain technology laid the foundation for the entire crypto ecosystem. Copycat cryptos such as Litecoin and Dogecoin made improvements upon Bitcoin’s core technology, but it would be six years before blockchain would be used for more than just payments.
In 2015, blockchain got a huge upgrade with the launch of Ethereum (ETH). Ethereum, now the world’s second most valuable crypto, made smart contracts a reality— opening up the floodgates for decentralized applications (dapps), a decentralized internet, decentralized finance (DeFi), and NFTs, among other things.
However, blockchain today looks much different than it did in 2009, 2015, or even at the end of the last bull run in 2018. This has many crypto investors wondering: if Bitcoin was v1, and Ethereum v2, then what is v3?
As it turns out, the world’s leading cryptos have their problems. Since the launch of Ethereum, a number of new blockchains and solutions have emerged. It just so happens that they’ve never been more competitive.
Why? Well, because Bitcoin is just for payments, and Ethereum is congested because of its enormous popularity. Payment networks such as VISA and Mastercard are capable of processing millions of transactions per second (TPS). Ethereum can only process 14 transactions per second, something it has been trying to resolve for the last few years.
That’s why investors are looking beyond the usual suspects. Let’s take a look:
Layer-2 blockchains (Polygon, Arbitrum One)
We’d be remiss if we didn’t start by talking about layer-2 chains. Unlike other blockchains we are going to talk about, they largely accommodate existing blockchains such as Bitcoin and Ethereum. Layer-2 blockchains are like “v2.5 blockchains.” They’re not revolutionary, but they are absolutely innovative.
Imagine Ethereum as a two-lane highway. During periods of high usage, it can get congested. That makes transactions on Ethereum’s “mainnet” relatively expensive and time-consuming. In effect, a layer-2 blockchain adds additional “special lanes” to that highway. They’re special because they exist on another blockchain entirely, which helps alleviate stress on the main blockchain (layer-1).
Polygon (MATIC) and Arbitrum One are two examples of layer-2 blockchains. As indicated, neither are necessarily competitors to Ethereum. Instead, the chains provide additional bandwidth to accommodate Ethereum. They are both compatible with the Ethereum Virtual Machine (EVM).
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Some blockchain users and academics say that layer-2 chains are a band-aid solution to a more systemic problem with blockchain scaling. Nonetheless, layer-2 blockchains are worth mentioning because they:
- Show the lengths developers have gone to in order to make blockchain tech more usable.
- They have become popular among investors because of the value they add.
However, many investors are looking to other layer-1 blockchains besides Ethereum. This is where the talk about “v3 blockchains” tees off. Let’s talk about some of the leading players:
Solana: A crypto for DeFi, NFTs, Web3
Solana (SOL) has appreciated one of the biggest breakouts in crypto since its launch in April 2020. And, during a time of weakness for large-cap coins, Solana broke into the top-10 cryptos with ease. Like many v3 blockchains, Solana’s value has only recently begun to be realized.
Solana’s pitch is simple: they wanted to build “the fastest blockchain in the world” for DeFi, NFTs, Web3, and more. So far, they’ve managed to do that. Solana is capable of handling over 50,000 transactions per second, with the potential to expand TPS to over 700,000. Solana uses a novel algorithm called proof of history, which creates “historical records that prove an event occurs during a specific moment in time.” Proof of history does not exist–at least in this form–as the backbone of any other blockchain.
As of September 2021, the average cost per transaction is $0.00025, which is observably less than any other competing blockchain. That’s a real testament to its rapid increase in usability and its success in building for scale.
Among all the v3 blockchains right now, Solana might stand out as the one with the strongest ecosystem. That’s to say: institutional support for Solana and its projects are worth underlining. Solana has received investments from tier-1 VCs such as Andreessen Horowitz, and many top-notch crypto VCs such as Alameda Research, Polychain, and Multicoin Capital.
As of September 13, 2021, Solana is trading at $156.94. That makes its market cap equal to about $46 billion (#6, ex-stablecoins).
Cardano: The Proof-of-Stake Crypto
Cardano (ADA), the brainchild of former Ethereum co-founder Charles Hoskinson, is sitting just behind Ethereum. The crypto has a cult following, which has allowed it to quickly become the third largest crypto by market capitalization.
Cardano has been on the market for more than two years as of 2021. However, it’s just now gaining the functionality required to compete with other “v3 blockchains” such as Ethereum, Solana, and the like. On September 12, 2021, Cardano rolled out smart contract functionality. Before that, Cardano was essentially a semi-functional payment method (a la Bitcoin).
Cardano’s blockchain has been developed with scalability in mind. What that means is that Cardano has been built to accommodate hundreds of thousands of transactions per second. Compared to Ethereum’s 14 TPS, Cardano looks like it could scale up a much beefier operation. However, as of September 2021, it doesn’t process nearly that many transactions.
Cardano uses proof of stake to power its blockchain, which is faster and more efficient than Bitcoin and Ethereum’s proof of work consensus mechanism. Proof-of-stake uses far less energy than its high-maintenance cousin, allowing transactions to be confirmed more efficiently.
As of September 13, 2021, Cardano is trading at $2.41. That makes its market cap equal to about $77 billion.
Terra: The stablecoin influencer crypto
Terra (LUNA) is a dark horse in the “v3 blockchain” race. That’s because Terra’s blockchain is positioning itself like a “blockchain bank.” Terra offers several stablecoins–digital assets pegged to a dollar, euro, or other alike units–and financial applications.
The blockchain has found success overseas in South Korea (the blockchain’s creators, Terraform Labs, are based there), Thailand, and China. That’s because Terra has been able to tap into payments tech through apps like Chai, and offer blockchain-based stock trading using synthetic tokens on Mirror.
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It’s worth underscoring that synthetics of stocks are not legal in the same ways in the US, but that’s one of the reasons why Terra has found success: the problems it is solving are intentionally for an international audience.
Terra also offers many of its assets–stablecoins, synthetics, and all–on other blockchains such as Ethereum, Solana, and the like. These interchain assets are a value-add in the grand scheme of things.
The Terra blockchain also supports smart contract functionality, based off of Cosmo’s CosmWasm technology. Cosmos is an honorable mention in the section below because of its notable contributions to blockchain tech.
As of September 13, 2021, Terra is trading at $35.72, or the equivalent of $35.6 billion in market cap.
Honorable Mentions: Polkadot, Binance Coin, Avalanche & more
There are a number of other layer-1 “v3 blockchains” that are worth a Google search. Among them are Polkadot, Binance Smart Chain, Avalanche, Algorand, Tezos, Stellar, and Cosmos. We’re going to touch on the top three (by market cap):
Polkadot (DOT), the 7th largest blockchain network ex-stablecoins, was developed in part by Parity Technologies. Parity was one of the early tech pioneers on Ethereum, and now they’ve launched their own blockchain in collaboration with the Web3 Foundation. Polkadot has been pitched as a proof of stake “web 3.0 blockchain.” It’s worth $34.07 as of Sept. 2021, or the equivalent of $33.7 billion in market cap.
Binance Coin (BNB), the 4th largest coin ex-stablecoins, is the base coin of the Binance cryptocurrency exchange, Binance Chain, and Binance Smart Chain (BSC). BSC is a pseudo-decentralized network (almost all nodes are operated by Binance, so it’s not really decentralized). For that reason, BSC isn’t conventionally considered to have the potential or scale required to dethrone Ethereum. Still, its lower-than-average fees have turned it into a hotspot for decentralized finance activity. It’s worth $397.89 as of September 2021, or the equivalent of $66.7 billion in market cap.
Avalanche (AVAX), the 15th largest coin ex-stablecoins, is one of the latest crypto ecosystems to emerge. Avalanche launched in September 2020 with the promise of becoming a “next-gen blockchain for DeFi.” It only recently started to realize some of that vision. It’s worth $53.77 as of September 2021, or the equivalent of $11.7 billion in market cap.