The Blockchain Wars

This post is part of my periodic Dispatches from Crypto series.

In the early 1990s, a dial up Internet startup screen was a list:

Rather than a single Internet (the Web on TCP/IP and HTTP), a host of protocols flourished. Gopher with its Veronica search engine was a competitor to the Web. Usenet was the go-to messaging group. Warez and files were traded on FTP. IRC was the default chat protocol. Email was exchanged through a custom command line app like ELM or Pine.

The Web ate most of them. It supplanted Gopher. Usenet browsing moved to web forums and social media. Email still used SMTP and POP3, but Hotmail and later Gmail moved it to the web. FTP links also persisted, but they were now accessed through the web.

Today, blockchains look a lot like the scattered internet protocols of the early Internet days. instead of the Internet Wars, we are living through the Blockchain Wars.

Our Multi-chain world

Since Bitcoin launched in 2009, an explosion of blockchains have come to market. Each provides a way to securely move tokens across the world.

At last count, there are hundreds of reputable blockchains (sorry Dentacoin), many written by exceptional teams and launched with millions or more in funding.

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Some use proof of work, others proof of stake, others proof of space. They all herald an internet of ownership, with faster, cheaper, safer, global, programmable value transfer for money (or CryptoKitties).

While the number of blockchains coming to market each year has gone down since the 2017 boom, new ones still continue to launch, especially as blockchains have transitioned to proof of stake:

Source: The year of Proof of Stake blockchain launches

Inevitably, many will fail. Ethereum Classic is the canary in the coal mine, with several double spend attacks. Even more than the early Internet protocols, so many blockchains are source forks with trivial parameter changes that the extinction rate for them will be even higher than pre-web protocols.

A few blockchain networks will eventually find a smart user acquisition strategy or game-changing technology (worldwide scalability) or a killer value proposition and start growing. These blockchains will then build unassailable network effects across three segments: developers, minter/stakers, and users. The moats of a few will just be too great for all to survive. Developers will slowly start building entire ecosystems on the stronger chains, relegating the rest to history.

To borrow from General MacArthur, protocols (almost) never die, they just fade away (Gopher was around for a decade; Usenet is still around). Similarly, many blockchains will persist as virtual ghost towns—or ghost chains. And unlike Internet protocols, when a blockchain loses scale its security suffers due to reduced mining power or staker. This leads to a vicious downward spiral.

To some, the solution is blockchain interoperability: instead of today’s world of hundreds of isolated blockchains, blockchains should talk to each other, allowing all to specialize while benefiting from the whole. For example, Cosmos is sometimes called the “blockchain to connect all blockchains.” I think blockchain interoperability—at least ones that attempt to integrate with most blockchains—is inherently misguided. Like with the web, winners will eat most of the losers—not connect with them.

In the moment, it can seem like the winners—today’s Ethereum and Bitcoin—have been crowned. But new blockchains will compete for the prize of the financial internet. After all, the world changes quickly, especially in the nascent years of any tech industry. Apple had won in 1980, until the IBM PC came and crowned winners of Microsoft and Intel. Nokia had won the mobile phone battles, until it hadn’t.

So does the slow extinction of many blockchains presage the death of tokens and the promise of crypto? Of course not. The winning blockchains will have a flowering of tokens moving across their basic architecture, the same way that TCP/IP and HTTP powers the web we know. Second layer solutions that use blockchains fornet settlement rather than recording every transaction may even make these blockchains integral and yet secondary.

The One Chain?

Source: Wikimedia

Despite only some blockchains achieving scale, I’m still optimistic about a multi-chain world. All the chains won’t survive, but the use cases for blockchains are so varied that a few of today’s giants will coexist, just like internet protocols co-exist.

The internet protocols that survive today were built around unique use cases: FTP exists for file transfer, UDP for lightweight voice/video communications, POP3/SMTP for emails. Similarly, the blockchain winners will be chosen for their ability to solve particular use cases.

The finality and block time and scalability for real-time payments are widely different than the needs of decentralized finance or non-fungible tokens. A payment during Christmas Eve at a physical merchant needs to finish in seconds with worldwide scalability to boot. By comparison, a decentralized finance (DeFi) ecosystem needs ease of programmability and countless primitives (token standards, stablecoins base protocols), rather than supersonic speed.

Today’s blockchains mirror these varied use cases. Bitcoin doesn’t need to make smart contract development trivial when acting as a secure store of value. Zcash provides a layer of privacy that few other stacks can manage. Filecoin aims for a single use case: file storage. Ethereum’s success in DeFi is predicated on an easy to write scripting language and an early lead in finance primitives.

Perhaps like HTTP and the World Wide Web, a single blockchain will still subsume most of the competitors. While blockchain developers proudly proclaim that their blockchain will be the “One Chain”, all we really know is that there is more dislocation ahead.

Just like the Internet, the blockchain will remake the way we transact and the way we live. Until then, there’s a war afoot to crown the blockchains that will be our future.

Thanks to Eli Haims and Josh Cincinnati for reading early drafts of this article.

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