The Race to Win L1: Ethereum, Cardano, BSC, and Solana

The race to win L1_ Ethereum, Cardano, BSC, Solana

Layer 1 blockchain solutions have a race developing between a few different blockchain projects. These projects are Ethereum, Cardano, Binance Smart Chain (BSC), and Solana. 

Of course, Ethereum still reigns supreme over all the competition, but the above projects have emerged as viable competition to varying degrees. This article will cover the different blockchain projects making a push to become the de facto layer 1 solution for blockchain smart contracts. 

A Successful Layer 1 Solution Will…

There are three things that a successful layer 1 solution must do to become successful. The race for success is basically a race for the first project to meet these three criteria:

  • Scaling (transaction fees and speed)
  • Security 
  • Decentralization

Those three criteria make up something called the blockchain trilemma. A successful blockchain project should meet all three criteria. However, blockchain projects are forced to pick two criteria and sacrifice one. 

Anyway, the following section will cover how exactly all the popular projects are coming along in relation to the blockchain trilemma. We will also offer insight into how likely each project is to win the layer 1 race. 

A Breakdown of Layer 1 Solutions in Relation to the Blockchain Trilemma 

Ethereum (ETH)

Scaling: Terrible. ~30 transactions per second and expensive gas fees.

Security: Excellent. 

Decentralization: Excellent. Ethereum is very decentralized

Consensus Model: Proof of Work (PoW) with Proof of Stake (PoS) being released in Q4 2021 or Q1 2022.

Total Value Locked in dApps: ~$81 billion 

Market Cap: $365 billion

Ethereum is currently the de facto layer 1 solution for blockchain smart contracts. The competition is really not even close. 

We use total value locked in dApps as one metric because that measures the total amount of value in the DeFi ecosystem. That does not include value locked in NFTs, which act as a multiplier, or total market cap. It also does not include the multi-billion dollar market cap of non-crypto secured ERC-20 stablecoin like Tether or USDC.

With that in mind, the total market cap of Ether – the native token of Ethereum – is ~$365 billion along with a total value locked of ~$81 billion. That makes it the second most valuable cryptocurrency by market cap. 

Will Ethereum Win The Layer 1 Race?

Ethereum is certainly the favorite to win the layer 1 race. It leads the competition by a very long way. 

In fact, most of the competitors, more aptly the investors in competing cryptocurrencies, will tout their cryptocurrency as an “Ethereum killer.”

The term “Ethereum killer” really tells you all you need to know about the level of dominance Ethereum has in this space. 

The caveat being that Ethereum does have one problem. The gas fees on it are really high. 

We are talking in the $50 to $100+ range for some gas fees. This can get even higher on poorly designed smart contracts. 

Fortunately, this will end when Ethereum 2.0 is released during Q4 2021 or Q1 2022. Ethereum should have gas fees closer to $0.01 like Binance Smart Chain. Low gas fees like that will be the final nail in the coffin for Ethereum competitors. 

At least that is how the theory goes. Of course, theories don’t often work out as anticipated. Ethereum, however, is still the favorite to win the layer 1 race. The gap between it and the competition is simply far too large. 

Binance Smart Chain (BSC)

Scaling: Alright. 55-60 transactions per second. Gas fees are extremely low (<$0.01).

Security: It’s secure although it’s not decentralized.

Decentralization: Terrible. All 21 nodes are controlled by Binance directly or Binance related entities.

Consensus Model: Proof of Staked Authority (PoSA). Validators that have the most BNB currently staked are selected every 24 hours in an election. 

Total Value Locked:  ~$40 billion

Market Cap: ~$81 billion

The only real competitor to Ethereum in the layer 1 race is Binance Smart Chain. BSC was launched September 1, 2020 and was wildly successful almost from the start. 

This was mostly because BSC had such low transaction/gas fees that many DeFi users with less capital flocked to the platform. They did not care one bit that BSC has almost no decentralization. 

It’s essentially Binance’s blockchain.

The success of BSC shows that end users really do not care about decentralization. At least that enough end users do not care about decentralization for it to be something that blockchains have to worry about. 

Decentralization is mostly something academics concern themselves with. The average end user does not realize the value in decentralization when they have to pay a $150 gas fee one way to use DeFi. 

Will BSC Win The Layer 1 Race?

Probably not, but you should not rule BSC out. It certainly does a good job attracting users that don’t care about decentralization and (generally) have a low amount of total money. It also does a good job attracting gamblers willing to risk money on flawed coins like Safemoon. 

However, it is apparent a lot of money not concerned with decentralization exists in cryptocurrency. 

Our prediction is that BSC will continue in popularity until Ethereum releases Ethereum 2.0. The entire DeFi ecosystem will likely slowly consolidate under Ethereum over the next few years. 

Cardano (ADA)

Scaling: Good. 257 transactions per second. Transaction fees around $0.25.

Security: Better security.

Decentralization: Excellent. Delegated proof of stake is fine with the strategy Cardano uses. 

Consensus Model: Delegated Proof of Stake (DPoS)

Total Value Locked in dApps: N/A because of no dApps.

Cardano has been one of the most talked about competitors to Ethereum for years. It apparently has faster transactions per second, lower transaction fees, and better decentralization. 

However, Cardano has a major problem. 

All this talk is mostly in theory because the project does not have a public mainnet at the moment. That means the high transactions per second and low transaction fees only work because not many people actually use the blockchain. 

Furthermore, the blockchain does not have smart contract functionality at the moment. The mainnet will be released in September 2021, which is reassuring. 

Will Cardano Win The Layer 1 Race?

Cardano does solve the trilemma in theory. The problem is that the project has not many users and is not under any load. 

It really is not worth discussing whether Cardano can win the layer 1 race until Cardano actually becomes a layer 1. Assuming Cardano does not implode upon launch of its smart contract mainnet, then Cardano still has to attract users away from Ethereum. 

This seems rather difficult seeing as how Ethereum will roll out its own scaling solution a few months after Cardano finally releases smart contract functionality. 

To summarize, Cardano has no smart contract functionality at the moment, so it is not worth theorizing whether or not it can beat Ethereum. And it will still have a major uphill battle against Ethereum once it does get smart contract functionality. 

This does not even include the fact that Cardano is viewed as sort of a joke in the cryptocurrency community missing deadlines for years. 

Solana (SOL)

Scaling: 50,000 transactions per second (theoretical, ~1500 in practice) and transaction fees of $0.00002. Transaction fees will increase as the blockchain grows in popularity.  

Security: Excellent. 

Decentralization: Proof of history has some decentralization issues as the hardware required is limited. 

Consensus Model: Proof of history (PoH) + Proof of Stake (PoS)

Total Value Locked in dApps: $2.4 billion

Market Cap: $21 billion

Solana has received a lot of interest from institutional investors because it offers high transactions per second at a low cost. 

It also offers a hybrid of proof of history combined with  proof of stake (PoS) and a clear way for an institution with enough money to control the blockchain. Admitelly, controlling the blockchain is a goal that no institution will openly admit, but it is one that many institutions have a vested interest in doing. 

Anyway, Solana does have some dApp functionality combined with an excellent scaling solution. It does not have as much of a focus on decentralization as Ethereum or Bitcoin, which is concerning. Though Solana supporters will claim that the blockchain is decentralized enough (it’s not). 

Will Solana Win The Layer 1 Race?

Probably not. It does have a better chance than Cardano of winning the layer 1 race due to the institutional support that Solana has received. The problem still remains that it does not have that many dApps on it compared to Ethereum or BSC. 

Decentralization is also a concern. Though BSC has proven that decentralization is simply not something that most people care about. 

Our prediction is that Solana faces a brand problem more than anything. It is simply an unknown solution that does not offer anything different than BSC. Unlike BSC, however, Solana does not have a large crypto exchange to push its blockchain onto users. 

We do admit that proof of history is an interesting concept, though. And it may become incorporated into other projects in the future due to how well it scales. 

Final Thoughts

That pretty much covers it for how a layer 1 solution can win the race and the status of some of the projects competing to beat out at Ethereum as the layer 1 home of DeFi. 

To summarize, BSC is the closest competitor to Ethereum. BSC is still a very far way off and does not offer much in the form of decentralization. It is essentially a centralized blockchain that offers DeFi. Cardano still has not delivered anything after four years and suffers a huge branding problem. Solana has delivered something, but suffers a recognizability problem that will hurt it when it comes to long term adoption. 

We will put it this way. Ethereum will likely win the layer 1 race over the next 5-10 years. DeFi will slowly consolidate under Ethereum once Ethereum 2.0 is released

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