When you click on a DeFi project and it tells you it needs $200 of ethereum to pay for the transaction, the dream of fast cheap transactions from crypto are shown to be a lie, at least for now.
The first rumblings of the troubles ahead for Ethereum, at least for those below the echelons of genius level technocrats, was the disruption caused by CryptoKitties. When the CryptoKittes were born and bred Ethereum ground to a halt. A game with cute furries should not break a global payment infrastructure; certainly not one claiming to upend finance and defeat the gatekeeper bankers that make transaction so slow and expensive.
CryptoKitties are no longer an infrastructure-breaking problem but the cost of transacting on Ethereum lies in ruins because even a simple transfer that your bank would give you for free costs between $3 and $10 on a normal day. Try transacting crypto on a DeFi platform and you can be looking at $100, $200 and more to pay for the event. When NFTs are released costs can go even higher as buyers fight to hoover up the latest emotive animal meme.
Enter the competitor chains. Solana, Binance Chain, Polygon, Avalanche, etc., are part of a competitive cohort taking Ethereum to task for its cost and sluggishness and offering an alternative. I use Matic a lot and paying $0.01 rather than $100 a use is compelling. It is not alone in offering an alternative venue to escape crippling cost and the denizens of Ethereum will say that these chains represent a useful abstract of Ethereum, a “Level 1” junior structure for low value transactions running parallel with the mother blockchain of Ethereum. That’s a nice thought, but in functionality there is nothing these chains need from Ethereum except audience to circumvent, subsume or replace it. The only thing holding Ethereum in primacy is its brand, its value as a token and the promise of cheaper transactions in the future. These are formidable hurdles and the blockchain pretenders are finding it hard to overcome them. However, they won’t hold forever.
Ethereum is going from proof-of-work driven by miners, to proof-of-stake driven by validators. This promises a huge drop in fees. Promises. A previous change promised lower fees but instead fees went up not down. However, proof-of-stake should dramatically slash transaction costs.
On the face of it this should decapitate the pretender chains because they don’t have Ethereum’s colossal brand value and they don’t offer much in the way of novel benefits. It is quite logical to say, “there is no second place” in this space, and blockchains with specific functionalities should develop into natural monopolies.
As such, the “parachains” should be doomed. This would be bad news for token holders hodling billions in token in Ethereum competitors.
So what will happen?
Firstly the promise of software launch is never the same as its delivery. There is still potentially plenty of time before Ethereum V2 ships. This is just a jaundiced eye on how new software rolls. V2 is not meant to be far away. V2 could improve Ethereum worse, which would obviously boost the “Level 1” and/or Ethereum replacement chains.
These challenger chains can morph and provide a rolling environment of innovation, carving niches for them. They could all wither away and perish.
I believe however in “Moah’s Law,” the computing dark twin of Moore’s Law, which says resources go exponential. Moah’s Law states all resources will be consumed exponentially by enabling entropic uses. What is an entropic use? CryptoKitties and crypto-spam for a start. So with even the spam transactions removed, transaction cost and throughput will be consumed until the price excludes lower value traffic and that traffic will migrate to the pretender blockchains that offer an overflow.
So rather than V2 killing off Polygon, Solana, Avalanche and the like, it will expand the market where volumes and revenue grow hand in hand for any player that can keep up with the technical challenge of competing on the “bleeding edge” of technology.