Ryan Yi and Justin Mart from Coinbase Ventures analyzed the current landscape of DLT-powered smart contract platforms and emerging competitors “vying to challenge Ethereum’s dominance.”
Ethereum remains the world’s largest platform for building and deploying dApps or decentralized applications that are supported by smart contracts, a type of self-executing (code) agreement that removes the requirement for centralized intermediaries or third-parties to oversee transactions.
As explained by the Coinbase team, dApps have been built to offer financial services (for instance, DeFi), provide gaming platforms, social media networks, and many other use cases.
As noted in a blog by Coinbase:
“Over time, dApps can be collectively managed by a community; operate entirely according to their code rules; and provide a level of global inclusion, censorship resistance, and eventual efficiency not possible in traditional web apps. Because a Dapp provides transparency into user behavior and usage, it can also share its monetization with users of the product in an automated fashion, usually by issuing its own digital asset that is used in operating the underlying application itself. It’s no wonder that the ‘Utility Phase’ of the crypto-economy, where a thousand dApps can bloom, is such a tantalizing possibility.”
The report from Coinbase confirms that Ethereum (ETH) maintains a “firm” and “clear” first-mover advantage among the major smart contract platforms. Ethereum is, by far, the highest in terms of the network value at around $65 billion, and it also “dwarfs the competition” when it comes to developer activity/traction, distribution/integration, number of users, and network value / security, the report noted.
The report adds:
“Ethereum has a significant lead in the market, owing largely to their strong early traction among developers and Dapps. But we are now seeing new alternative platforms looking to gain market share.”
According to Coinbase’s research, each new platform may “try to compete” by offering a better developer experience, tooling, and programmability.
These so-called Ethereum competitors (such as Cardano, EOS and TRON) may also claim to offer better scaling and a more seamless UX. Additionally, they can provide an improved business development team and platform. Some even try to offer better infrastructure and several other benefits, the report noted.
The Coinbase team pointed out that some of these initiatives have secured significant capital from their digital token sales and are able to pay for ongoing growth and development.
According to Coinbase’s researchers:
“The success case for the (Ethereum) competition will depend largely on two fronts. How well Ethereum is satisfying current developer needs, and how difficult it would be for developers to switch to a new environment. But to be clear, if Ethereum can sufficiently scale throughput and continue to improve developer experience, it will be challenging for any other competitive platform to emerge at a scale that would threaten Ethereum.”
Some of the benefits of using Ethereum are that it has “proven to be comparatively secure so far, possesses a robust developer tooling and ecosystem, and brings the largest user base,” the report confirmed. It added that Ethereum apps need not be concerned about “bootstrapping” their own network from the “bottom-up,” and can depend on the “network effects” of Ethereum. It’s because of these reasons that developing software on Ethereum “helps remove some of the risk variables for the developer,” the report noted.
But Ethereum also has maor drawbacks such as its inability to scale to process a large number of transactions (as is required by enterprise-grade apps). As noted by researchers at Coinbase, these scaling issues also increase “the cost of interacting with other applications on the network, creating a ‘traffic jam’ on the network for all the other applications on Ethereum.”
Another problem with Ethereum is “control and flexibility,” the report explained. For instance, when Ethereum underwent a recent software update, certain portions of the contract code of an Ethereum-enabled app, the Aragon Project, “became obsolete,” the report revealed.
The Coinbase team concluded:
“Eventually, we foresee that technologies will allow applications to interact with each other, regardless of the underlying chain. So it may ultimately be a decision whether it makes sense to (1) build one’s own chain, get traction, and then interoperate with other applications — or (2) the alternative being to build and interact with other applications within the same environment to achieve that traction.”