Ethereum is having its day in the sun at the moment with ether (ETH) breaching fresh all time highs above $4k. But there are multiplying threats to its prominence as the second-largest cryptoasset on the market. 

For this article we’ll consider two rivals: Binance Smart Chain (BCS) and Polkadot (DOT). 

In truth, we are entering the smart contract blockchain wars of the 2020s. PR will be important. History, after all, is written by the winners. And CZ Zhao, the architect behind Binance’s vast and many-tentacled empire, has indicated through words and actions that he intends to take Ethereum down. While mild-mannered on Twitter and in public interviews, CZ appears to aspire to the ethos of one quote by legendary Wall Street fundamental investor Peter Lynch: “In business, competition is never as healthy as total domination.” 

Lynch, of course, is best known for running Fidelity’s actively-managed Magellan Fund. Under his stewardship its assets grew from $18 million to over $14 billion between 1977 and 1990, and beat the S&P 500 for 11 out of those 13 years with an average annual return of 29%.

You don’t achieve record-busting status without a steely-eyed determination and a healthy dose of the ruthless. 

And of the three chains it appears only Binance is aiming for total domination.  

Where we are now

The number of blockchain projects pitching themselves to investors as an ‘Ethereum-killer’ has grown sharply over the past few years.

That’s largely due to the strength of the incumbent blockchain and its near-total stranglehold on the market for decentralised financial applications. Ethereum is the foundation layer upon which practically all of the burgeoning DeFi and NFT markets have been built to date. 

With DeFi’s 60x growth rate in the last 12 months and continued appreciation above $55bn it would appear right now that there are many more years of success ahead, too. 

And inspired by the Coinbase NASDAQ listing, and that of cryptocurrency miners like Riot Blockchain and Argo Blockchain, we are starting to see NFT-specific companies making their way onto stock markets. Argo Blockchain’s own team is behind the £35m listing of NFT Investments, a record-breaking debut for London’s lowest-tier growth market Acquis.

Founding fathers

In Ethereum’s favour for its longevity is that it enjoys a huge first-mover advantage as the original way to deploy sophisticated smart contracts on a blockchain. First proposed in 2013 and with its mainnet going live in 2015, it boasts the widest adoption across all smart contract platforms. 

And while Bitcoin is the original cryptocurrency, it could be argued that Ethereum was blockchain technology’s true first mass-market application. It certainly attracted the best minds in computing and cryptography. Its original six-man founder team have spun out some of cryptocurrency’s most influential and highest-capitalised projects to date. 

This all-star roster included Consensys founder Joseph Lubin, Polkadot founder and Solidity programming language creator Dr Gavin Wood, Cardano founder Charles Hoskinson, Decentral CEO Anthony Di Iorio, and, of course, Ethereum’s current figurehead Vitalik Buterin. 

That strength we mentioned is derived from Ethereum’s functionality and utility. While other projects can boast theoretical speed increases, these mean nothing without the mass user base to turn theory into practice.  

And with every Neo, Cosmos or Tezos that comes along, promising better smart contract functionality, faster speeds or lower fees, Ethereum seems to beat back these pretenders and rise again undaunted. 

But there are obvious and long-standing problems with Ethereum. Severe congestion, high transaction fees, governance issues: we’ve been writing about all of these ever since Ethereum was born. They’re the reason ETH 2.0 is coming. But will it arrive fast enough for anyone to care?

Joining the Polkadots

We do need to talk about Polkadot. When the genesis block was launched on 26 May 2020, it did so to huge fanfare. Here was Dr Gavin Wood using everything he created and learned at Ethereum to do that, but better. A cross-chain smart contract deployment system making dapps blockchain-agnostic: dipping into the best elements of each piece of technology to move faster, process more and be better. Polkadot has amassed a $30bn market cap in less than a year and currently sits eighth among the best-capitalised blockchain projects. 

It scales — better and more cheaply than Ethereum, advocates say — by spreading transactions across multiple parallel blockchain shards known as parachains. Each . parachain has smart contract functionality, can mint their own tokens, and connects to the main Polkadot relay chain. Further down the tree are parathreads: pay as you go blockchains which don’t need constant connectivity with the relay chain. 

Slots are limited to 100 parachains, and projects will have to bid in an auction-style system to win the right to use Polkadot’s functionality. Estimates vary, but this deep-dive piece by Dealean Capital suggests a lead slot will cost between $1m and $1.3m a stonking amount to ask small dev teams to pay. 

And for every starry-eyed Medium post claiming Polkadot as the best thing since sliced bread, there should be a critic asking what it has actually achieved. These critics are few and far between. 

Just check out the language in Polkadot’s guide to obtaining a parachain slot: there are a lot of “could be’s” and “might be’s” here and there is a sense that everything is still unfinished. 

The interoperability comes from so-called ‘bridges’: a kind of API-type protocol which allows the Polkadot network to connect to other blockchains like Bitcoin, Ethereum or Tezos, for example. Here’s another set of vague maybes from the Polkadot wiki: “While bridge designs are now getting to a place where they are sufficiently planned out, there has not been too many that have been used heavily in production.”  

Forget the hype, all the chatter about a “third-generation” blockchain and enough technical jargon to drown a sea of lab rats. What are the main dApps on Polkadot right now? And how many people are actually using them?

A brief look at Polkascan.io, an on-chain explorer, shows us that the number of daily transactions using Polkadot is less than 20,000 per day at time of writing. Compare that to Etherscan.io, we see Ethereum’s daily transactions have been approximately flat at around 1 million per day. And Binance Smart Chain through BSCScan.com? They’ve grown to over 5 million per day. 

At that crossover point, on 10 February 2021, CZ tweeted: “Today is an important day. 

#BSC flipped Ethereum on daily transactions. This validates the logic that low fees attracts more users and projects.”

Note this: Binance Smart Chain is even newer than Polkadot: launched in September 2020.

Polkadot’s transaction rate barely even registers, and by all rights shouldn’t really be on the same chart as it isn’t in the same universe. 

Could it be (yet another) case of the hype leading the utility? Despite talk of 400 projects working on Polkadot and all the “very exciting” language we hear from PR puffery, Polkadot faces extremely tough competition with as-yet untested blockchain economics and mechanics. What Polkadot does not currently have is a widely utilised ecosystem of dApps to show off, yet.

Breaking chains with DeFi

Ethereum certainly has a case to answer on transaction fees. For comparison, the daily average fee on 18 April 2021 for Ethereum was 170.18 Gwei, compared to Binance Smart Chain’s 7.33. As Ethereum’s usage grows, its transaction fees clearly appear to be growing too. But Binance has somehow engineered a situation where its transaction fees fall under increasing use.

Ethereum devotees claim that the routine overloading of the network — which leads to such high fees — will be fixed by its multi-year move to Proof of Stake. But the best guess for the protocol switch is some time between 2022 and 2024, and timelines have been known to drift. 

The big question here is: what kind of market share can Binance Smart Chain grab in the next three years before Ethereum’s switch completes? It must be a source of some anxiety how fast Binance has moved already. Binance has already made it a show of strength that the Refinable NFT marketplace will be the first BSC-exclusive IDO on Polkastarter and the rise of BNB coin to the third-largest cryptoasset in the world could be seen as the canary in the coalmine for CZ’s desire for total domination. Burning $593m of BNB tokens won’t hurt. 

It’s in the highly-competitive DeFi space where we can see the war playing out now.

Binance Smart Chain shows the total value locked in its DeFi smart contracts at $34.7bn, 60% of Ethereum’s figure, with a growth of 152% in the 30 days between mid March and mid April 2021. 

Binance Smart Chain is not decentralised by its own admission. But there are signs that projects will just go where the users are and the fees are lowest. 

As Cointelegraph reported in February, two Ethereum-native DeFi services which account for more than $1bn in total value locked: Value DeFi and Harvest Finance, have now expanded to Binance’s chain. 

Unlike Coinbase, which is now a public company and so has to report its revenue, Binance does not. But one can imagine that running the world’s largest cryptoexchange by volume offers the kind of hefty capital firepower needed to tempt developers across to its network. 

To encourage more builders to create dApps on its platform, CZ announced the Binance Smart Chain BUIDL Reward Program, which offers up to $5m in BNB paid to developers in proportion to the gas used for their contracts. 

Is it cynical to suggest the blockchain wars of the 2020s will be a zero sum game? Some crypto enthusiasts might say so. But it is far more sensible to believe that as the sector economics grow into the 3, 4, 5 trillion dollar market cap, natural selection — aided by a desire for total domination — will pick the winning blockchain. Ask yourself: who has the lowest fees, the fastest-growing userbase and the capital backing to tread on everyone else?