Ethereum Alternatives like Avalanche, Solana, BSC Offer Performance Benefits, but Sacrifice Certain Degree of Decentralization: Report

Amber Group, a firm that helps clients buy and sell cryptocurrency products, earn yield, manage risk, and access liquidity, notes that one of the most “pressing” challenges that the Ethereum (ETH) network faces is scalability.

In an extensive report, Amber Group explained that this issue was “first evident during the viral CryptoKitties in 2017 — the sensation led to a six-fold increase in total network requests, resulting in transactions taking hours to confirm.”

Recently, the Cambrian explosion of apps deployed on Ethereum, including decentralized finance (DeFi) protocols and NFT projects, has “reintroduced the urgency of finding a scaling solution,” the team at Amber Group wrote in a blog post.

They pointed out that Ethereum’s network only accommodates around 15 transactions per second (TPS), “a far cry from the average 1,700 TPS that Visa processes or the average 6,000 tweets per second on Twitter.” If Ethereum aims to be the dominant decentralized computing platform for the world, it “needs to find a way to handle more activity in its ecosystem,” the Amber Group team noted.

They added that alternative layer one protocols, like Solana, Avalanche, and Binance Smart Chain, have gained users and developers “seeking lower transaction fees, faster finality time, and/or higher transaction throughput.”

However, to accommodate those feats, alternative layer ones “sacrifice a degree of decentralization (see: the blockchain trilemma).” Furthermore, if their growth trajectory persists, these blockchains will “eventually reach their throughput limits as well,” Amber Group explained. For example, the Avalanche network recently “implemented an upgrade (Apricot 5) to lower fees once its network started seeing higher transaction activity — a short-term fix to what will be a long-term problem.”

As noted by Amber Group:

“A wide range of scaling solutions have been explored and launched, including state channels, plasmas, and rollups. …But rollups are viewed as the ultimate scaling solution because they enable fast and cheap transactions without sacrificing any of the security and decentralization properties of the underlying layer one blockchain.”

Transactions on rollups are “more affordable” for two reasons:

  • only a fraction of each transaction needs to be stored on the layer one blockchain, and
  • none of the computation for a transaction needs to be performed on layer one. More broadly, rollups play a central role in shifting from “monolithic” to “modular” blockchain architectures.

According to Amber Group’s detailed report, the momentum for ZK rollups is “strong.” Fiat on-ramps directly to rollups have “already launched, wallet support continues to grow, and several Web3 primitives are gradually porting their code to zkEVMs.”

Users may get started on experiencing ZK scaling technologies right now, by:

  • Using dYdX, Deversifi, ImmutableX, and/or Sorare which “all use StarkEx, or deploying contracts and transactions to StarkNet”
  • Creating a Loopring L2 wallet and “providing liquidity to one of Loopring’s AMM pools (APRs can go as high as 150%+ in certain pools)”
  • Sending private transactions “at ultra-low fees through zk.mone”
  • Depositing funds into zkSync 1.0 and trade on ZigZag Exchange, which will also “soon be live on StarkNet (hint: zkSync has not been subtle about token generation and would likely do an airdrop given the team’s community-first culture)”

To view the complete report, check here.

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