Will Layer-1 Public Blockchains Rise or Fall in the Next Bull Market?

Abstract

1. The increasing popularity of smart contract applications on public blockchains has caused the infamous congestion problems on Ethereum and a general scalability debate in recent years. In the wake of this challenge, the concept of Layer-1 public chains emerged and with it an increasing number of alternatives to the Ethereum ecosystem. Imagining a case of a flippening, the chain that surpasses Ethereum may not be a fork of it as they face many of the same technical limitations. Rather, we could see a disruptive and technically differentiated easy-to-use Layer-1 that can help increase the progress of Web 3.0 towards higher maturity and a more convenient user experience and mass adoption.

   
   

2. The development of alternative Layer-1s could be a successful way forward for the blockchain industry and Web 3.0 to shape the next generation of the Internet. From the perspective of meeting the application scale needs of Web 3.0, the continuous iteration of Layer-1 blockchains is of great significance to the world of Web 3.0, as it requires many dimensions of user experience improvements.

   
   

3. The gradual completion of the Ethereum merger and sharding process may soon become a challenge for high-performance Ethereum forks. Therefore, alternative consensus mechanisms such as DAG, DiemBFT v4, and other alternative technology Layer-1s, as well as public chains with modular and innovative frameworks, may stand out in the next wave in the market. The public blockchain will also continue to gradually differentiate into other different development paths like general purpose, privacy, and specialized application blockchains(like Metaverse, gaming, etc.).

   
   

4. Layer-1s that have healthy technological foundations and continually attract native projects will have a good chance of surviving across the bulls and bears phases of the market. Projects are developing new innovative blockchains that carry a lot of yet unseen promise and vitality. These projects seek a balance between the complex scalability of modular systems and the simplicity of the user experience the blockchain provides.

   
   

5. The public blockchain solutions that are oriented towards vertical structures, have distinctive features, meet specific needs, and have lower migration costs may become the choice of the next wave of crypto industry innovation power. These technological choices of features will also have a high probability of becoming fundamental for the next generation of public blockchains that live across the turns of the market in the same ways as the general-purpose chains such as Ethereum and BSC.

Introduction

Recently, Blockchain startup Aptos received a $150 million investment from FTX at a valuation of $2.75 billion, with the new financing totaling $ 350 million. These numbers are a particularly dazzling achievement in the current bear market. Of course, it is undoubtedly partly because Aptos has built a feasible solution by acquiring user information on Meta (formerly Facebook). Not least, they also got a large number of top scientists to design its tech stack thoroughly, and have simply been valued by the capital market. The relatively new public chain Solana, which emerged in the last bull market, currently has a bear market FDV of less than 20 billion US dollars, and Near Protocols FDV is currently only 4.1 billion US dollars as comparisons.

The formation of a stable ecosystem that can enable more application value and hence drive more value at the Layer-1 protocol level in the long run. Value accrual at the protocol level depends on many factors but it’s very important with time and user participation, a strong technical development team, a large community, and technical community support to jointly promote application development and implementation. A great metaphor for building a public blockchain is building a railway. The initial investment is large and the project costs are highly concentrated to the construction phase. However, the long-term fees collected from the platform usage will bring continuous value streams which could become very lucrative as digital infrastructures are also generally highly scalable from an operational standpoint. Also, the more prosperous and popular the ecosystem and infrastructure, the stronger the innovation force, and the more marginal income it will bring. This partly explains the rationale behind the high valuation of the infrastructure public chain as the core value carrier of Web 3.0. The same value accrual patterns could be seen in Web 2.0 with the different social media platforms and other digital platforms even though the value mechanisms will not all be the same in a more democratizes and decentralized Web 3.0.

The Three Stages of Layer-1 Public Blockchains

Since its revolutionary inception, the blockchain space has gone through a fast process of evolution and further development. It’s common in the industry to refer to the perceived time of the quick-moving events as “crypto years” as them being shorter than what one could expect from a year in other industries. With the high development rate, we have seen a lot of great innovations. Maybe even more importantly, we see a lot of new generation projects and efforts working on their new solutions to provide Layer-1 blockchains to serve the needs of Web 3.0. Throughout the short but profound history of public blockchains, we can follow an evolutionary path that can be divided roughly into the following three stages.

The first stage was from 2008 to 2013. After Satoshi Nakamoto published the Bitcoin white paper and as the first invention of its kind, Bitcoin naturally became popular. Many “altcoins“ that tried to improve Bitcoin appeared, resulting in the first batch of public chains while the industry was still clearly led by Bitcoin.

The second stage was from 2014 to 2017. In the development of blockchains, a new big milestone appeared which was the addition of Turing completeness. The concept enabled the creation of smart contracts on the blockchain for the first time, and it now had the programmability to carry applications. At the same time, with the introduction of applications such as CryptoKitties, people first began to actually experience applications enabled by blockchain technology. Ethereum quickly and effectively gained ecosystem barriers and competitive advantage with its first-mover advantage. Public Layer-1 blockchains created during this period generally focused on smart contract functionality and among them were Ethereum, NEO, QTUM, EOS, etc.

The third stage is from 2018 to the present. Various alternative consensus mechanisms and the iterations of transaction verification layer technologies have created a number of high-performance and low-cost Layer-1 public blockchains including BSC, Solana, Avalanche, etc.

In the next stage of public blockchain development, there may be two trends as a result of ETH2.0 merging and sharding expansion. After the first type of sharding is completed and live, users who were forced to find alternatives due to high Ethereum gas fees on L1 and corresponding EVM compatible L2 may return to the Ethereum ecosystem. Forks of Ethereum could therefore find it challenging to retain user numbers and transaction volumes. The second trend is that blockchains that are not Ethereum forks, with unique technologies, and with innovative frameworks could be able to stand out and be competitive in different market niches instead of having lower fees as the only competitive advantage. Also, the development of blockchains will also continue to gradually differentiate further into alternative paths like permissioned systems, privacy-focused, and specific application blockchains (like Metaverse, gaming, etc.).

The characteristic public blockchain is a concept separated from the standard generalized public blockchain that is generally Ethereum based. It subdivides the characteristics of the blockchain at the level of technical characteristics, Product-Market fit, and value narrative. This could be a good concept and mental lens when evaluating the direction of a specific blockchain's development. Examples could be that they feature technical characteristics like innovative frameworks (such as modularity) and unique technologies. Layer-1 chains representative of this type of characteristic includes Aptos, Sui, IOTA2.0+Assembly, ZK-Snark lightweight chain MINA, EMIT-Core, etc. When it comes to providing unique niche utility, the representative public chains include Flow, ImmutableX, Metabit, and MINA. Featuring a different value narrative are chains like ReFi green public chain Celo.

With pioneering technologies, the market for privacy-focus and specific niche utility is still an unknown wide ocean to be discovered.

Characteristic Public Blockchains

To keep a reasonable scope this article's analysis will mainly cover five projects that conform to the concept of characteristic public chains in terms of an innovative framework (such as modularization) and core technologies.

1. Aptos — born with a golden key, a high-performance chain using Move language

Aptos is an L1 high-performance public blockchain project initiated by former team members of the Meta stablecoin project Diem (formerly Libra). The Aptos team believes that the user experience needs to be significantly improved in terms of security and scalability to reach mass adoption. Aptos has maybe the biggest first-mover advantage among the new generation of public blockchains, and the public mainnet look to be released in the third quarter of this year.

1.1 Aptos Core Technology Features

Consensus Mechanism

Similar to Solana Aptos adopts an optimized BFT (Asynchronous Byzantine) as its consensus mechanism. Unlike Solana, Aptos has added an innovative reputation system, which is especially suitable for a decentralized environment and capable of checking the data on the chain. When the validator is unresponsive, the leader can be automatically changed without manual intervention. In addition, the block submission time is also significantly shortened, with an average submission completion time of less than 1 second. Meanwhile, this asynchronous mechanism also strengthens network security capabilities against extreme network conditions, network partitions, or DoS attacks on validators, as it does not impose any synchronization assumptions on the network.

Memory Smart Contract Parallel Execution Engine

Aptos Labs has designed a new technology method Block-STM that supports flexible transaction programming in the synchronization process. STM stands for Software Transactional Memory. In the experimental environment, 32 cores can process transactions of over 10,000 accounts at the same time. In this case, the performance is 20 times higher than sequential execution under low contention load, and 9 times higher under high contention load and the expected theoretical TPS reaches over 160,000.

Move Programming Language

The Aptos development team created the Move programming language to improve blockchain security. Not only is Move designed to write smart contracts, but it can also be used by users to manage their accounts, change node settings, adjust commission and add new features.

Here we would like to summarize the technological innovation of Aptos in one sentence. Its system currently optimizes transactions in parallel through consensus (AptosBFT), execution(Block-STM), and environment(Move) to increase speed and reduce costs.

1.2 The Current Ecosystem of Aptos

The Aptos team has been working on the organic development of five main sectors including stablecoins, DEXs, wallets, lending markets, and oracles. Notable ones are Thata Labs’stablecoin project, the first Dex Pontem Network, encrypted wallet Martian, liquidity staking protocol Zaptos, domain name service provider ANS, encrypted wallet Fewcha Wallet, NFT project Aptos Toad Overload, NFT market Topaz, and synthetic asset Clone, block browser Aptosscan, etc. The project of the ecosystem seems to be relatively organic. Additionally, many Solana projects have entered the Aptos ecosystem as Aptos has had a strong siphon effect on those projects.

2. Sui — A high-performance public chain appearing at the same time as Aptos sharing main features

Sui is a high-performance L1 public chain launched by Mysten Labs (the team comes from the Meta stablecoin Diem and Novi wallet project). Like Aptos, Sui attempts to solve the blockchain trilemma, but it focuses on scaling composable and dynamic NFTs for a wide range of Metaverse applications including gaming, social, and commerce. Sui also achieved good financing results in the bear market (valuation of $2 billion), and released a token economics model before Aptos.

2.1 Similarities and Differences between Sui and Aptos Core Technologies

In terms of language environment, Sui also uses Move as its native programming language. Although Sui’s memory data and code model are slightly different from Aptos, Sui’s Move language clearly indicates the time memory data and code are owned/shared or mutable/immutable, a feature that Aptos does not enjoy. In terms of consensus mechanism, similar to Aptos, Sui’s consensus protocol is also a derivative of HotStuff. The consensus mechanisms of both Sui and Aptos minimize the communication required between validators to process transactions to achieve lower latency. AptosBFT is partially asynchronous. Sui’s consensus implementation is designed to separate the protocol’s memory pool from the consensus layer, whereas most PoS L1s have a single consensus protocol.

In terms of SDK innovation, while Aptos also has an SDK for improving Developer and user experience, Sui’s SDK has made interesting attempts to connect other ecosystems and non-crypto use cases. For example, by opening game APIs, game developers will be able to interact with Sui’s ecosystem (users, other dApps, assets) and Move language seamlessly. Aptos allows dApp developers to lead the community by facilitating the portability of digital assets from other ecosystems to Sui as well as develop “Handshake” oriented front-end tools as channels for users to distribute, claim/redeem Sui digital assets (e.g. payment, merchant coupons) to crypto and non-crypto users.

2.2 The Current Ecosystem of Sui

At present, Sui has issued incentivized testnet registration, and released the Chrome extension self-hosted wallet “Sui Wallet”. The organic progress of Sui seems to be relatively slow. Besides the wallet, there are browsers, games, and social metaverse projects currently under construction. It can be seen that Sui’s organic positioning is also more inclined to the expansion of a wide range of metaverse applications including games, social networking, and commerce.

3. IOTA2.0+Assembly — satisfying modularization + high-performance public chain using DAG technology

As the settlement layer of Assembly, IOTA took the lead in adopting DAG technology, called Tangle. Strictly speaking, Tangle is not blockchain technology but is contained within the broader DLT definition. Still, IOTAs' contribution can be regarded as a unique pioneering technology. Assembly cooperates with IOTA 2.0 to provide high-concurrency TPS for the web 3.0 world that needs large-scale user experience improvement and can expand the deployed contract chain. Developers can use the flexibility to customize the incentives and fees of each chain, share security, and other helpful functionality.

3.1 Introduction of Assembly’s Core Technology Features

In terms of composability, Assembly can be regarded as layer 1.5, which is a smart contract framework layer, and each smart contract chain built on Assembly is the real Layer 2. Based on the DAG structure of IOTA2.0’s L1 high-concurrency TPS, the combination of IOTA2.0+Assembly appear to split other public chain L1+L2 structures into “2.5 layers”, as the modularization becomes more explicit. Because of the separate Assembly smart contract framework layer, various possibilities can be combined, such as coupling arrangements with different data availability layers, execution layers, or settlement layers.

In terms of cost, the technical characteristics of Assembly determine that the network cost of building applications or interactive use based on Assembly will be the lowest in the entire public blockchain market, and the cost will also remain at a stable level.

In terms of security, Assembly uses a process similar to the ETH2.0 fraud-proof Rollup. Each validator pledges assets as a security guarantee and any third party can provide fraud-proof when the validator updates the status of the wrong chain by monitoring the activity of the chain and getting awarded. This ensures that as long as there is only one honest validator in the validator committee, the state of the chain can be protected from malicious transitions.

3.2 The Organic Construction of IOTA2.0 and Assembly

There are currently 213 projects in development on IOTA 2.0, which can then be migrated seamlessly once the Assembly mainnet is launched. Some projects carry the focus of Industry 4.0 to create synergy with off-chain processes. Among the popular projects are IOTAlias, IOTA charging stations, etc.

Based on the DAG consensus framework, the unique Tangle system and modular structure of IOTA 2.0+Assembly is one of the few public chains with its distinctive technical solution in the market. Still, its organic development speed is relatively slow.

4. Mina — a lightweight public blockchain with characteristic ZK-Snark technology

The core concept of Mina is “simple blockchain”, and all transactions processed in the entire Mina network are limited to a block size of 22 KB. The latest block will contain the latest state of the entire blockchain. Users only need a ZK-SNARK proof to fully verify the current state of the blockchain within a few milliseconds.

Unlike other Layer-1 blockchains that grow in data size with each block added, Mina is able to maintain a fixed size of the entire chain by using a series of self-referential cryptographic proofs. It is helpful to visualize Mina’s recursive cryptography process as taking a picture of the blockchain. Whenever a new block is added, another “photo” of the new block is taken together with the existing blockchain, limiting the size of the blockchain to one photo while preserving all information.

Mina’s adoption of ZK-SNARKs makes it a compelling public blockchain solution with unique differences and advantages over the more conventional chains. The wave of zero-knowledge has also ushered in a new development trend, tending to the Snark algorithm of modular combination, and the replacement of new encryption modules may bring interesting results.

4.1 Introduction of Mina’s Core Technology Features

Solving the State Bloat Problem

Ethereum plans to address the state size problem in a later set of upgrades called “The Purge” Mina meanwhile, has focused on the issue with the ever-increasing size of data and growth of transactions, accounts, tokens, contracts, and other on-chain information since the project’s inception.

Support Privacy

Zero-Knowledge proofs have inherent privacy by not revealing any unnecessary information. The ZK-proof of the Mina blockchain only proves that the state is valid and does not reveal the interacting accounts, for example. Even consensus nodes of Mina keep only the last 290 blocks of history.

Decentralization Improvements

Running a non-consensus node requires quite a little disk space and computing power. While other blockchains suffer from state bloat and may require powerful industrial-grade hardware to run full nodes, Mina’s non-consensus nodes will run on smartphones or browsers. Each user can run their node, significantly improving decentralization. The vision of Blockchain is to achieve self-validation, and Mina is the only blockchain that can achieve it.

4.2 The Status Quo, Organic Layout, and Prospect of Mina

Mina Protocol is currently used as a payment chain and will complete the first anniversary of its mainnet launch on March 23rd,2022. Smart contracts called ZKApps are on the product roadmap for the second quarter of 2022. It raised $92 million in March from large crypto investors including Three Arrows Capital and FTX Ventures to execute its vision of building a private and secure layer for web 3. The Mina ecosystem has raised a cumulative $140 million.

Mina currently uses the Pickles inductive proof system to complete the KYC operation of certain applications without revealing the user’s identity information, and prove that a user’s credit score reaches or exceeds a certain threshold without revealing the user credit score. To realize application scenarios such as deposit-free leasing and mortgage-free loans. Since the ecology has not yet developed, ZKApps have left enough imagination room for Mina’s future organic layout.

Mina utilizes the potential of the zero-knowledge proof space without affecting decentralization and has become a leading characteristic public chain that combines the current hottest ZK technology with L1 technology.

5. EMIT-Core — a modular high-performance cross-chain public blockchain

As a sub-project of the EMIT project, the core logic of EMIT-Core is to minimize the coupling between accounts through the Block-Lattice ledger structure and the Random-Check consensus algorithm during the operation of the blockchain system. This is mainly to improve the overall efficiency of the blockchain system in the aspects of responsiveness and throughput. It has great advantages in the elastic expansion of physical bottlenecks such as computing, storage, and bandwidth. Since the system itself does not run complex calculations, transaction fees are very low or even zero. Meanwhile, it makes the development of high-performance complex decentralized applications (open extension of EMIT-Core functions) very simple.

5.1 Introduction of the Core Technology of EMIT-Core

Block-Lattice Sharded Ledger

Unlike Near Protocols’s grouped sharding, the Block-Lattice ledger is the vertically most limited sharding method as each account is a shard. In order to achieve high throughput and low latency, the ledger decouples transactions and splits them into two parts: origination and reception, which are created by different accounts. Since the creation of blocks in different accounts does not affect each other, after introducing the settlement state of the block, this model can obtain huge elasticity of storage and throughput. This approach also generalizes cross-chain behavior. Different from Nano’s account model, EMIT-Core adopts a Random-Check algorithm to confirm blocks and supports diversified assets.

New Decentralized Application Scheme

EMIT-Core deems that a decentralized application consists of a set of P2P network nodes, which as a whole can agree on the input and output sequences without having to care about each other’s internal state. In extreme cases, the application can only have output sequences. This more flexible approach allows the logic applied to EMIT-Core to be very complex. Through the advantages of EMIT-Core’s high throughput and low-latency system framework, decentralized applications can really challenge centralized applications when it comes to the user experience.

Random-Check Algorithm

Random-Check means that the requester confirming the check randomly selects some nodes in the global node, and obtains the account information on these nodes. If the status of these accounts is consistent, then this status can be considered correct. Security can be improved by increasing the number of checks, or the number of nodes checked per check. This algorithm guarantees the high TPS of EMIT-Core.

5.2 The Organic Development of EMIT-Core

The vision of the EMIT project itself is to “integrate the assets of the crypto world and create an economically complete decentralized world”. In the EMIT project, bridges have been built to connect Ethereum, Binance Smart Chain, Tron, Super ZERO, and other decentralized networks. There is also an EMIT-Epoch sub-project that is constantly absorbing and expanding the entire ecosystem. These are built on the basis of EMIT-Core technology. So far, EMIT has its cross-chain wallet and ecological applications such as Cross, Chaos, Altar, TeamMining, StarGrid, RelicsMarket, Accounts, Assets, Bangs, etc.

Value Assumptions and Potential Risks

Even when Aptos was valued at US$ 2.75 billion in the bear market, optimists still believe that there will be several times or even dozens of times of growth space for Aptos in the next bull market, which also brings us more room for imagination. In addition to the horizontal comparison between Aptos and public chain leaders Ethereum, Near, Solana as well as other high-performance public chains, how far is the infrastructure that attracts as high attention and usage as the platforms of trillion-dollar valued Alphabet of Web 2.0? Of course, doubters also believe that the public blockchain market is too congested and the high-performance narrative has not brought real changes to the industry regardless of the promise. Perhaps only the combination of a real killer application with a layer-1 that can satisfactorily run the application can induce Web 3.0 to start capturing its expected value.

Conclusion

Compared with the public blockchains whose valuations are still high even in the bear market, characteristic public chains that are under development and with relatively reasonable valuations should maybe not be ignored. Whether it is a blockchain under development or technology that does not yet exist, it may not be a direct fork that surpasses Ethereum, but a more disruptive public chain that can help Web 3.0 grow and mature. At present, the development in public blockchain we observe tends to be modular, loosely coupled, and parallel to vertical application fields. The general-purpose L1 market such as Ethereum is gradually becoming a red sea. Even if the ETH 2.0 merger and sharding expansion is completed, it does not mean that ETH 2.0 will be able to fully handle the potential increased number of users and high demands of Web 3.0. For example, if an application has 10,000 users before the expansion, and the influx of 10 million users in the later period increases the TPS requirement of the public chain by 1,000 times. The high-performance demands of these 1,000 times additional users can obviously not be met. Even if it is crowded, there are still opportunities in the public blockchain space. The market needs a modular, general-purpose public chain that grafts and superimposes the best resources in the Web 3.0 world to serve a wide range of users, and it also requires professionals in vertical application scenarios to provide the most suitable soil for the specific use cases of niche utility.

The development of more characteristic public blockchains may give birth to some new applications and business models that we cannot currently imagine. As for what kind of new applications and new models to unlock, we can at least expect the next-generation Internet to bring us several times a better experience than Web 2.0 under the blessing of the new generation of characteristic blockchain technology.

References

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