One of the recurring challenges of building in the blockchain space is figuring out which blockchain is worth your time and effort. Bitcoin is the “grandfather” but doesn’t support complex smart contracts and programmable ecosystems. For most developers, that means looking elsewhere, and there is a lot from which to choose.
There are many outstanding blockchains out there and, trust me on this, I’ve heard the pitch from just about all of them over the years. It’s easy to discard the pitches from private blockchains because I can’t get over the impossible contradiction in the idea of having a centrally managed, decentralized ledger. That still leaves an astonishing array of choices.
Paul Brody is EY's global blockchain leader and a CoinDesk columnist.
For myself, and for EY, the question then becomes which of the many public, smart contract programmable blockchains out there offer us the best return on our investment of time and energy. We’ve long made our choice around Ethereum, and it’s worth taking a moment to talk about why we made that choice and why we have been so disciplined about it even as many outstanding new blockchains have emerged.
First and foremost is the question of market size. Ethereum has long been the most dominant blockchain out there for business applications, with more than 60% of the decentralized finance (DeFi) market and 95% of all non-fungible tokens (NFT) and more developers than any other ecosystem. It is likely that being the best in the largest ecosystem is worth more than being second or third place across many different ecosystems. While you can imagine scenarios in which this isn’t true, the lesson from many different digital ecosystems suggests that we live in a winner-take-all environment.
There is a lot of academic research to back up this idea, starting as far back as the 1970s but the practical experience is also compelling. Very simply, the more you do something the better you get at it. The better you are at something the more likely you are to win in a competitive battle. In technology, there are especially large payoffs because implementing strategy is not a simple matter. Given what a large percentage of IT implementations go wrong, the risk associated with lower skill levels is very high.
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There are two scenarios in which focusing on Ethereum ceases to be a good choice. The first is the multichain future in which market share becomes fragmented across many chains, and so being #1 on Ethereum is no longer such a compelling choice. The second is the possibility in which Ethereum is replaced as the market leader by a new and better chain. Both of these scenarios are, I think, unlikely.
A multichain future is the easiest one to dismiss. Thanks to Metcalf’s law, technology ecosystems love standards. We don’t live in a multinetwork world, we live on Transmission Control Protocol/Internet Protocol (TCP/IP). From email to web pages to auction sites to social networks, the digital economy is a winner-take-all (or nearly all) business. Blockchains in particular are candidates for this because the whole point is interoperability. It’s easiest to plug my stablecoin into a deposit contract or finance my inventory or sell my NFTs if all the parties are on the same chain. It’s also by far the lowest-risk approach.
History is littered with networks, products and services that tried to enable interoperability and achieved the technical goal without changing the market share model. We’re seeing a similar pattern in the world of blockchain. Bridges and Ethereum Virtual Machine (EVM) compatibility make it possible to port both assets and applications out of the Ethereum ecosystem, but that doesn’t necessarily mean that users will follow. Well-funded attackers can buy projects and press releases, but that doesn’t necessarily result in sustainable volume. In enterprise sales, we often see challenger layer 1 blockchains come in an offer to cover the full cost of development if our client deploys on their solution first, but a fully paid deployment cost is not helpful if you launch on a chain with no clients.
Another argument for a multichain future is that different applications need different types of solutions and optimizations. This is, in many ways, a powerful and rational sounding argument. It also doesn’t work very well. I can say the same for network technology or operating systems.
The internet is a wonderful example. We spend our days streaming live video and audio to each other over a network that still doesn’t have any mechanism for managing quality of service. There were absolutely better choices available, such as Asynchronous Transfer Mode (ATM), a network technology that offered the benefits of internet packet data with excellent tools for prioritizing and managing traffic.
ATM did not die for lack of support from the legacy Regional Bell Operating Companies that, in the early 1990s, controlled nearly all internet traffic. The definition of “good idea” to incumbents often looks like “solution that preserves our market dominance.” Enthusiasm for private blockchains by big banks feels very reminiscent of the technology standards battles from the early days of the internet. Spoiler alert: It doesn’t end well for the incumbents. (There is a truly epic account of the whole battle from Wired magazine you can read here.)
My expectation is that the future of blockchain will look a lot like other operating systems and platform ecosystems. There will be one dominant ecosystem and, most likely, one secondary one, not a fragmented market of many different chains.
So, the preference for common technology over the value of optimized individual networks suggests that we’re not headed for a multichain future, but why do I think Ethereum will endure? The answer is that the older technology incumbents become, the harder they are to dislodge. We’ve had one leading PC operating system since the 1980s and one dominant mobile operating system since 2012. There are also secondary players in those markets, and even those have been the same for a long time as well.
Every day that Ethereum remains the market leader it becomes more likely to stay that way for a very long time. If the blockchain market ends up looking anything like the PC or mobile operating system market, it seems like there is about a decade-long window for successful platform innovation during which time the role of market share leader can move around quite significantly. It’s entirely plausible that today I could be writing this on some successor of the Commodore 64. My first computer was a Commodore Amiga, an amazing piece of technology that ran circles around the Mac at the time. But being better just wasn’t enough. (This market share chart from Asymco.com illustrates the explosion of innovation and then the triumph of a market leader.)
If the best technology doesn’t seem to win, what separates long-term winners out in these standards battles? I hypothesize that there are two answers. First, developer ecosystem maturity and, second, management team. On the developer side, Ethereum has a dominant share and one that continues to grow. On the management team side, the Ethereum Foundation has long demonstrated the maturity of the ecosystem and its ability to herd all of us cats. The Merge, executed slowly but flawlessly, made this strength visible to the world.
What does this mean for Ethereum’s well-funded would-be assassins such as Solana, Terra, Avalanche and others? I think it means they are zombies, technically still alive but running on borrowed time. How much time? It could be quite a few years. Competitors to the PC kept on going for more than a decade after Windows became the dominant platform. It won’t surprise me if some Ethereum killers are still trucking along with ever-diminished market share and crowds of online influencers shilling them in 2030.