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Will we see a multi-chain world?



It is undeniable that the two most profitable public blockchain networks are Ethereum and Bitcoin, and frankly, they are not even close to each other. Ethereum is the second most valuable blockchain in the world, and a leading public chain in the field of programmable and Dapps (decentralized applications). It has proven product-market fit for innovative applications such as DeFi (Decentralized Finance) and NFT (Non-Fungible Tokens). Now, most new use cases in the cryptocurrency space first appear on Ethereum, and some activity is then selectively propagated from Ethereum to other chains. Bitcoin is the most valuable blockchain in the world. As the world's first blockchain network, it has existed for the longest time and demonstrated its product-market fit as "digital gold". Both of these two blockchain networks provide value to their users, so much so that users are willing to pay substantial fees to use them. The data in the following table is based on the data provided by on April 4, 2021. The table summarizes the transaction fees and 7-day average transaction fees of each blockchain network on the day: Data source: From the above table, we can See several interesting points: users are willing to pay huge fees to use Ethereum (more than 5 times the transaction fee of the Bitcoin network, more than 1000 times the transaction fee of the Binance Chain network); most other public chain networks only generate Very little transaction fee. You might ask: "Well, aren't fees a bad thing? Shouldn't everyone be able to use these blockchains for free or cheap?" But in fact, block space (that is, transaction data is packaged and submitted into Blockchain venues) are limited on any blockchain network. No blockchain can scale infinitely or provide free transactions without incurring decentralization and greatly reducing security. Federal Reserve Chairman Powell: History warns us against easing policy "prematurely": Golden Finance reported that Fed Chairman Powell said at the Jackson Hole conference that the scale of interest rate hikes in September depends on "overall" data, and the lower inflation data in July is worthwhile Welcome, but not enough to convince the central bank that inflation is falling, possibly calling for restrictive policy for a while. Restoring price stability will take time and will require "vigorous" use of the central bank's tools. The economy continues to show strong fundamental momentum, and history warns against easing policy "prematurely". To some extent, a slower pace of rate hikes will be appropriate as the policy stance tightens further. Reducing inflation may require a sustained period of below-trend economic growth. The central bank is "purposefully" adjusting policy to a level sufficient to limit inflation and bring inflation back to 2%, with the priority being to bring inflation down to the 2% target. [2022/8/26 12:51:02] Transaction fees are necessary because they provide a reasonable measure of public blockchain usage. Without transaction fees, these blockchain networks that provide economic value (like Ethereum and Bitcoin) would be overwhelmed and overwhelmed by transactions. In fact, we can use the transaction fees generated by public chain networks as an indicator to evaluate the minimum economic value created by these blockchain networks for users. If users cannot generate at least this much value from network transactions, then they will not pay for transactions. In essence, this does not mean that other blockchains do not provide value to their users, but it does mean that other blockchains may have a large amount of underutilized capacity relative to Ethereum and Bitcoin. But if Ethereum and Bitcoin fees are so high, why aren't other blockchains absorbing more users/transaction activity? To assess this, we have to consider the value propositions offered by other blockchains and how they compare to Ethereum and Bitcoin. The value proposition of public chains I will define "value proposition" (value proposition) as the unique value created by a blockchain network for users, which cannot be found in other blockchain networks. Both Ethereum and Bitcoin have relatively clear value propositions. BlackRock: Bitcoin is the object of most interest to our clients in the field of encryption: Golden Finance reported that asset management BlackRock said that Bitcoin is the object of greatest interest to our clients in the field of encryption. Jinse Finance previously reported that BlackRock has launched a private trust to provide spot bitcoin exposure to U.S. institutional clients. The trust will be offered to institutional clients in the U.S. and will be BlackRock's first product with direct exposure to the price of bitcoin. [2022/8/12 12:21:39] The value proposition of Ethereum and ETH is: Use ETH and other Ethereum-based assets for maximum censorship-resistant transactions; use ETH and other Ethereum-based assets for clear , smart contract-based interactions; in this powerful, composable ecosystem, billions of dollars worth of assets are traded every day; use ETH as a "programmable store of value" asset in applications such as DeFi ; use ETH as the "unit of account" for NFTs and other digital products or services; use ETH as a "medium of exchange" (in the form of Gas) for Ethereum block space and other digital products in the Ethereum economy and service payments; the value proposition of Bitcoin and BTC is: use BTC for maximum anti-censorship transactions; use BTC as a "value store" macroeconomic asset; use BTC as a "exchange medium" for Bitcoin Coin block space payment. The economic value offered by Ethereum and Bitcoin is enormous. So, what value can other blockchain networks—especially such as Binance Chain, Polkadot, Cardano, etc.—provide? Frankly, the value propositions of these blockchains are confusing and do not effectively differentiate them from Ethereum, nor are they effectively different from each other. Philippine National Stock Exchange: Cryptocurrency is 'an asset class we can no longer ignore': Cryptocurrency is 'an asset class we can no longer ignore,' says Philippine National Stock Exchange PSE. The stock exchange further stated that cryptocurrency trading "should be conducted at the PSE" given its infrastructure and investor protection measures. (bitcoinnews) [2021/7/4 0:26:38] 1) Many blockchain networks claim "increased transaction throughput" as a major selling point, but most of these blockchains Significant compromises have been made in terms of decentralization and security to achieve increased transaction throughput. Developers are well aware of these tradeoffs, so many of the most talented app developers focus primarily on Ethereum. Furthermore, if all other blockchain networks claim to provide the same level of additional throughput improvement, then this value is effectively commoditized, i.e. no longer unique to one chain. This makes it unlikely that any single blockchain will attract significant economic activity to form an economic network effect and composable ecosystem. 2) Other blockchain networks claim that they will act as a central hub (hub) to create a powerful ecosystem composed of sub-chains and Apps (remarks, such as the Hub-Zone model adopted by Cosmos, Polkadot's Relay Chain/Parachain mode, see "Five Differences Between Cosmos and Polkadot" for details). Personally, I've always thought it naive for a blockchain to simply claim to be a "central chain" or an "internet of many blockchains (i.e. child chains)". This is because, while "central chains" depend on bringing together organic economic activity, they cannot claim to be central chains in advance; they must naturally accumulate usage and value over time. Attempts to design this value in advance are unlikely to be successful. Twitter CEO: We all speak the same language, that is Bitcoin: Twitter CEO Jack Dorsey tweeted: We all speak the same language, that is Bitcoin. [2021/6/11 23:30:08] Ironically, we are actually seeing Ethereum becoming a natural "central chain", with almost all other blockchains keen to build their own bridges to Ethereum realizes cross-chain. 3) There are also blockchain networks that say their on-chain governance is better than Ethereum's consensus-driven (off-chain governance) development model. The problem is, the market has yet to show that their governance is desirable in public blockchain networks. Many criticisms of these on-chain governance models point to the inherent nature of future oligarchic governance behavior or censorship. Time will tell, but this value proposition may not be sufficiently differentiated from centralized or government-run systems. But for other blockchains, the two best potential value propositions I can identify are probably: 1) a community emerging around other chains, and 2) developing some niche-specific use cases (and eventual acceptance as an Ethereum side chain). In terms of the communities in which they emerge, I do think that some like-minded individuals will come together to develop and execute on a common vision. They may want to develop a chain in their own way, according to their own rules, incorporating their own philosophies and beliefs into it. I think we're likely to see this kind of segmentation of the market with some economic activity leading to the rise of other blockchains; either for a period of time or indefinitely. Their entire economic ecosystem may be built in their network, which is only loosely connected to the Ethereum network. It is also possible that some chains will be optimized for selected niche market use cases, essentially becoming a "self-proclaimed" blockchain, but actually becoming an Ethereum sidechain. For example, we may see this today on the Flow blockchain: Flow is trying to build a blockchain focused on NFTs, although Flow through some strategic partnerships and high transaction centralization), but aside from a few carefully curated NFTs or native financial applications, Flow has struggled elsewhere, without a dynamic economy. This may change over time, or they may become more focused on being a bridge sidechain for Ethereum. Maker Foundation CEO: Our job is to support any decision the community makes: Maker Foundation CEO Rune Christensen responds in an interview to why the Maker Foundation does not directly compensate users who suffered unfair liquidation on "Black Thursday" . RuneChristensen explained: "The most important thing about DeFi is that it is permissionless, open and decentralized, and there is no need to ask anyone's permission to use DeFi. This also means that when something unexpected...the It is not correct to let the foundation decide. I think that if the Maker foundation guarantees the financial system, it defeats the whole purpose of 'DeFi'. The foundation does participate in the protocol development, but the foundation is not in Operating the system... If the foundation got involved and decided to take some arbitrary action, it would be a huge mistake, and that is not what the foundation should do at all. The Maker Foundation was very clear from the beginning, Our job in this situation is to support any decision made by the community." [2020/4/7] My view on the multi-chain world For other chains, the biggest challenge currently facing is Ethereum's Layer2 technology (L2 ). This article does not discuss L2 technologies in depth, but various L2 technologies are currently being developed to scale Ethereum, the most promising of which are Optimistic Rollups and ZK-Rollups. If successful, they could expand Ethereum by several orders of magnitude, while these L2 networks rely on Ethereum (ie Layer 1) for security. These Rollups chains can also interact natively with Ethereum-based assets and inherit trust-minimized operations directly from Ethereum (L1). Some of these rollup solutions are already in operation, but there are barriers to adoption (such as broad EVM compatibility, communication between different rollup chains, etc.). In the coming months, many hurdles are expected to be overcome. So to me: Ethereum L1's clear long-term value proposition is to drive a decentralized economy that requires maximum censorship resistance, composability within the Ethereum L1 ecosystem, and native access to ETH and other native assets activities; the value proposition of Ethereum L2 is to use Ethereum native assets to achieve higher throughput activities, have similar trust assumptions as Ethereum L1 (no trust required), but initially reduce composability; centralized sidechains The value proposition is that it is managed by financial entities and other institutions that run their own "internal" versions of Apps that are compatible with the EVM, but retain full or joint control over the sidechain ecosystem. In this world, economic settlement and security become the main value proposition of Ethereum L1, and L2 and centralized side chains serve as the computing layer to use these assets. L2s can interact with those L1-based assets without additional trust assumptions; while sidechains may require a lot of additional trust assumptions (for some situations/use cases, this is acceptable). In my opinion, the real question is, can other L1 chains provide a real value proposition that people are willing to pay for? My current answer is that I'm not sure yet, but my answer tends to be negative. As far as the current state of other blockchains is concerned, many chains sit in an uneasy middle ground between “decentralized Ethereum” and “centralized sidechains.” Over time, as these blockchains can demonstrate that they operate fairly, censorship-resistant, and develop viable economic activity, they may become more attractive. But so far, based on actual network transaction fees and usage, the market believes that these blockchains do not have a unique value proposition. For example, it is obvious that after Ethereum, the most used chain is Binance Chain (Note: The author here should be referring to Binance Smart Chain BSC), which is actually a centralized EVM side effectively controlled by a single institution. chain, rather than some other competing, more decentralized L1 networks.


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