State of major blockchains / cryptocurrencies in Q2 2022

Cryptocurrencies have lots of issues, all of them, there are just different issues and different strategies how to deal with issues.

This post is mostly for beginners as I see people so blinded by money that they do not see how complex and far from ideal ALL protocols are. ALL, no exceptions.

Let’s begin.

Bitcoin

ca. 7 TPS, UTxO, ca 390 GB, PoW

Good:

• chain growth quite small due to low TPS so at least many full chain validator nodes present
• Lightning as L2 albeit there are centralisation concerns and trust assumptions

Bad / Risks:

• limited L2 research beyond lightning
• PoW energy usage grows a lot, still relatively low interest to use green energy albeit in theory protocol incentivizes to use free / green energy
• No strategy to keep hash rate high with halvings (the only strategy is when either BTC keeps going up a lot or that miners will be subsiding protocol in the longer term, effectively mining at loss)
• governance: centralised (federated), no plans to change that; how do we replace development team of Bitcoin if we wanted to?
• governance: only miners vote based on proposals from federated development team
• very low MAV / Nakamoto Coefficient, ca. 3 or 4
• no pre-mine albeit Satoshi holds a lot of coins
• very hard to evolve, which is both a feature and a bug
• no planned work addressing quantum threat

Ethereum
ca. 13 TPS, chain size: 690 GB, PoW

Good:

• nice L2 ZkRollup / Optimistic research and implementation being released soon (e.g. StarkNet)
• L2 validiums / volitions
• active developer community focused on solving problems
• solidity /account style blockchain are rather simple to reason about so relatively easy to find programmers
• very vibrant ecosystem with many projects building on it
• very high TVL (can be considered anti-feature)

Bad / Risks:

• still PoW and “The Merge” keeps getting post-poned
• state channels very ineffective due to account model
• L1 and L2 are not isomorphic means you have to write compilers and dApps cannot use the same code
• “ETH PoS" far from egalitarian, min 32 ETH to stake in non custodial way
• difficulty bomb being pushed into the future
• no strategy how to integrate PoW miners back to PoS (community splitting)
• code is law is broken with ETH fork after DAO hack
• governance: core code owned by Ethereum Foundation with no plans to change that; how do we as community vote out core developers?
• governance: no way to control parameters in decentralised way, no plans to change this
• As monetary policy keeps changing it is hard to trust what will happen next in this project
• Solidity programming language far from ideal due to imperative nature and global state leading to exponential complexity explosion
• MEV — Miner Extractable Value
• Flash loan hacks due to extreme composability
• regular smart contract hacks due to global state explosion despite auditing
• charging users / actors (e.g. zipped transactions on L2 chains) for failed transactions
• ETH PoS staking with lock-ups
• global state in EVM limits makes L2 technology significantly more expensive to develop
• low MAV / Nakamoto Coefficient of ca 3 — 4
• no discussions of quantum threat
• relatively hard to evolve due to legacy / outdated second gen hard fork tech
• ERC-20 tokens need smart contracts to run which leads to unnecessary computations

Cardano

ca 7 TPS, chain size: 59 GB, PoS

Good:

• liquid staking by design
• native assets (fungible / non fungible) are just data holders, no need to use smart contracts
• eUTxO is isomorphic (L1 <> L2)
• governance: plans to fully decentralise as part of Voltaire era
• active development
• good decentralisation, MAV / Nakamoto Coefficient: ca. 20
• over 900 projects building on it — still far cry from Ethereum but excellent progress
• early days — low TVL on DeFi
• Plutus Core being lambda calculus
• local state means DeFi hacks are less likely and ZkRollup / Validium solutions are easier to develop
• user does not pay for transactions if they fail
• PoS (Ouroboros)
• eUTxO innovation means maximum parallelisation
• long term funding via on chain treasury of ca. 1 bln usd in value
• decentralisation also in organisations that support Cardano (pre-mined), Cardano Foundation / Emurgo / IOG — 3 orgs got coins
• Issuing fungible and non fungible tokens / multi-sig all doable without smart contracts
• formally verifiable ledger rules
• hard fork combinator makes updating of blockchain much easier than in case of Ethereum / Bitcoin
• no need to write extra compiler for L2 solutions due to isomorphic properties, external ledger rules make it much easier
• eUTxO model is a super set, it is possible to have AVOUM (account view on eUTxO)
• deterministic execution
• eUTxO being a strong model to build upon, quite novel in a sense that borrows from Bitcoin and adds smart contracts on top
• strong emphasis on peer review and academic method — ultimately leads to better quality
• ecosystem focused on building

Bad / Risks:

• Project Catalyst still in infancy and DCF (Decentralised Fund) not active thus more professional projects like ZkRollups, alternative compilers for Plutus struggle to get funded
• Plutus developers are harder to find due to the fact that there are fewer functional than imperative programmers
• L2s still in early days (Hydra: state channels, Orbis: ZkRollups / Validiums, HyperCycle: sidechain, Milkomeda: sidechain, Mamba: sidechain); out of these only Milkomeda is actually in production
• highly parallelizable eUTxO leads to complexity for wallet developers to best present this to the user / optimise in the background; higher development cost
• Input Endorsers (Ouroboros Laios) raise concerns that block size growth will lead to significant state explosion (SPOs will need large disk arrays), this ultimately can lead to high centralisation of block storage (limited inclusive accountability)
• no plans yet for reducing L1 blockchain storage bloat, e.g. storage rent / concept of specialised archivers to prune older transactions
• eUTxO design patterns under heavy exploration
• eUTxO very natural for Order Book DEXes
• AMM DEXes requires two transactions; it is necessary to have L2 batchers / scoopers or as in Cardax, actual users can be ‘scoopers’, which ultimately leads to more decentralisation but still 2 transactions are necessary
• until Vasil hard fork comes Cardano blockchain optimised for data unavailability
• level of funding and numbers of developers building still not comparable to Ethereum but ramping up
• allegedly slower development than competitors but here often only execution is meant without emphasis on quality / deep research for a protocol for generations to come
• community somehow thinks that Cardano can have cheap L1 in the long term, this is not possible or Cardano becomes a niche that few use, transaction cost on L1 will need to increase but it could increase equally for all of us
• lack of tiered pricing and fee markets *MAY* prevent certain use cases, e.g. publishing data on chain via oracles and dApps expecting this data in timely manner
• community far from impressed from Emurgo (one of funding entity), could have done much much more over the years

Summary

It should be clear by now that there is a lot to do in cryptocurrencies and that all protocols are far from ideal. On a positive note L2 ZkRollup research has been made huge leap forwards in the last 5 years. Long term it is hard to imagine that we could ever scale to billions on L1, people will need to stay on L2 networks or even L3 networks and L1s / L0s will be settlement layers. There is also undeniably interesting field of study and exploration called modular blockchains.

While majority if cryptocurrencies try to solve a so called The Blockchain Trilemma focusing mainly making sure there is scalability with sufficient security what many cryptocurrency enthusiasts forget is that there is actually The Blockchain Quadrilemma, also governance on top. Governance is an elephant in the room but ultimately only including governance we can think of a decentralised system. Only a system that completely does not evolve does not need governance and what does not evolve dies…