L1s’ success is doubtful given Ethereum’s dominance and the underdeveloped cryptocurrency industry. Chainalsys said, “New layer 1 blockchains are growing the DeFi ecosystem, but no ETH killers yet.” Chainalysis economist Ethan McMahon told Cointelegraph the business shared this data to better understand the L1 ecosystem.
Ethereum made decentralized finance (DeFi) viable in 2020, but since then, layer-1 blockchains (L1s) have been constructed to overcome network difficulties. L1s like Algorand, BNB Chain, Avalanche, and others strive to solve Ethereum’s proof-of-work (PoW) consensus technique and high gas pricing.
“Not all bitcoin services are offered on Ethereum, despite appearances. Ethereum’s competitors provide better goods and services.
McMahon said Chainalysis analyzed various blockchains to determine their pros and cons. Due to high gas costs on Ethereum, several developers have created DApps on Algorand. The BNB Chain, or Binance Smart Chain, may host new currencies and DApps without Ethereum’s high gas costs. It’s interesting how much gas Ethereum users spend. According to McMahon, purchases under $1,000 have high gas fees.
According to Chainalysis’s overall findings, none of the L1-blockchains tested have resolved all Ethereum network concerns. This raises the question of L1s’ longevity. The current crypto cold may make investing in these ecosystems difficult. The incorporation of Ethereum 2.0, initially scheduled for this year but maybe delayed until 2023, may improve the Ethereum ecosystem and encourage alternative L1 use.
Adoption-boosting L1 innovations
Chainalysis suggests examining present changes in ecosystems to forecast L1 growth. Algorand is among the top 10 L1 blockchains by market capitalization, according to the report.
“Algorand’s transaction volume grew by 65% in Q3 2021, whereas Bitcoin and Ethereum’s declined by 37% and 45%. This might be a manifestation of Algorand’s increasing excitement, a blockchain that began in April 2019 and peaked in September 2021.
10% of Algorand’s transaction volume comes from small-scale investors, compared to 5% for Bitcoin (BTC) and 8% for Ether (ETH). The report claims this shows Algorand has facilitated many small transactions.
Algorand uses a Pure proof-of-stake (PPoS) consensus technique, allowing the network to expressly manage scalable issues, according to Staci Warden, CEO of the Algorand Foundation, which drives Algorand’s monetary supply economics, governance, and ecosystem. According to the speaker, Algorand’s ability to deliver financial inclusion to the two billion individuals without access to modern financial institutions is its most crucial characteristic.
Algorand’s PPoS consensus mechanism’s reduced staking requirements make this viable, according to Warden. According to Chainalysis, just 1 Algorand (ALGO) token is needed to stake. Warden stated Algorand is significantly involved in decentralized finance (DeFi), noting that the network can resolve 1,200 transactions per second and gas costs.001 ALGO.
According to Warden, scaling networks requires certain requirements. Chainalysis estimates Ethereum can handle 15 transactions per second. Eth2 aims to grow this to 150,000 after improvements.
Algorand’s new functionality will allow the network to settle transactions in 2.5 seconds, down from 4.5 seconds. Algorand plans to provide “state proofs” that will allow token transfers across chains when multichain networks become important.
Algorand can handle fast transactions and has a minimal carbon impact for cents per transaction, according to Warden. State proofs and other breakthroughs won’t be public right now, but FIFA has announced it would adopt Algorand for its digital asset strategy. FIFA is building an Algorand wallet and an NFT marketplace for secondary ticket sales, according to Warden.
Chainalysis praises BNB Chain for handling new currencies and DApps without high gas prices. BNB Chain has the most L2 projects, according to DappRadar. Gwendolyn Regina, investment director of BNB Chain, said the network will help developers build DApps that scale for bitcoin adoption. Her words:
“BNB Smart Chain will concentrate on decentralized storage this year and have 30 times Ethereum’s processing power. Real-world applications will increasingly integrate blockchain technology.
Regina said BNB Chain’s 2022 strategy emphasizes decentralization, developer assistance, multichain interoperability, and sustainability. Regina stated the BEP-131 proposal, which would supply candidate validators to BNB Smart Chain, recently showed BNB Chain community ambitions for enhanced decentralization.
The idea would promote decentralization by raising the number of BNB Smart Chain Mainnet validators from 21 to 41, according to the author. Solend’s impromptu governance idea for one of the whale wallets at risk of liquidation sparked controversy about whether DeFi is decentralized, even though this may contribute to more decentralization.
Binance and its community recently open-sourced BNB Beacon Chain, a blockchain that powers a decentralized digital asset exchange. Regina says developers may access BNB Beacon Chain. She said the BNB Beacon Chain has several benefits, including a decentralized exchange with a fast order book for fast transactions. “Blockchain interoperability will open doors by employing native secure cross-chain capability,” she stated.
Chainalysis mentioned Algorand, BNB Chain, and Avalanche. Avalanche is adaptable, scalable, and interoperable, according to the report. John Wu, the inventor of the Avalanche blockchain, told Cointelegraph that the network aims to improve Web3 ecosystems. said
“Avalanche’s finalization time is 500 ms to 2 s. This immortalizes every cross-chain and subnet transaction. Financial organizations making DeFi products and Web3 gaming companies making AAA shooters and RPGs need near-instant finality. Achievment is needed. Their apps need it.
As more institutions join DeFi, finality becomes increasingly important, says Wu. In contrast to Eth2’s 15-minute finality time, Avalanche’s may take much longer. Ethereum processes 15-30 transactions per second with a one-minute finality.
Wu said the Avalanche community would grow despite market problems. Wu said subnets, a set of validators that agree on the state of several blockchains, will provide DeFi additional potential. He mentioned a subnet’s ability to integrate Know Your Customer (KYC) rules and minimize bottlenecking caused by third-party applications. First Subnet for institutional DeFi is under development, he stated.
Despite the development of L1 blockchains, Chainalysis predicts Ethereum will remain the “dominant player” due to market conditions and network upgrades. As an example of decentralization’s power, Raul Jordan, one of the Eth2 merge engineers, told Cointelegraph that anybody may soon run an ETH node.
Alex Tapscott, author and co-founder of Toronto’s Blockchain Research Institute, doubts L1s’ durability for two reasons:
“First, crypto-native app interest drops in bear markets. Why use a newer or less stable network if Ethereum gas costs decline naturally? Second, Ethereum’s performance will be improved by proof-of-stake, so it might sustain growth even if demand increases.
Tapscott feels L1s’ dwindling interest is transient. “Long-term, block space will be in great demand, and some users and developers may sacrifice security (Ethereum) for speed and simplicity. Despite their potential, many alternative L1s are still in early development and will increase in reliability, usability, and acceptance as they mature.
How can I get into crypto? 2022 overview
Tapscott says, “L1s were successful not because they attracted investor investment, but because they sparked user adoption and interest.” Historically, the bitcoin sector has learnt that projects may thrive in difficult markets. Regina said a bear market would be a great way to examine and support blockchain efforts that make a difference.
Bear markets may cause many business failures. According to Warden, “Crypto winter is a time when every component of the crypto ecosystem is questioned,” including L1s.
“Businesses or projects designed for long-term utility and real-world acceptability will accelerate and garner attention,” said Warden. “Programs that can grow and handle transactions will also accelerate.”