Five Layer 1 Projects to watch in 2020
Among all Layer 1 blockchain projects, Ethereum is still king, regardless of its scalability limitations. In order to make their smart contract platform future-proof, Ethereum 2.0 will be rolled out in the upcoming year, but this project is already riddled with problems. Besides having to run a separate blockchain than “legacy” Ethereum, Ethereum 2.0 will not have the ability for atomic transactions and data retrieval will become more expensive.
Ethereum 2.0 is still a work in progress. While their beacon chain and Proof of Stake capabilities will go live once Phase 0 is rolled out, smart contract execution will not become available until Phase 2 and will take several more years until both Ethereum blockchains are fully merged again. In the meanwhile, other Layer 1 projects will either enter the market, or introduce new features, putting Ethereum 2.0 under heavy competition. Let us take a look at five of the most promising projects.
One of the most well-known Layer 1 projects still in development is Polkadot. Like Ethereum 2.0, Polkadot operates on a multi-blockchain architecture with sharded blockchains called Parachains, which are secured by a central relay chain. All of the parachains act as fully customizable smart contract platforms on their own.
This makes it possible to create specialized Parachains for a wide variety of use cases. For example, they can be permissionless blockchains, offering smart contract execution to third-party DApp developers, or permissioned blockchains, serving a selected few, or even only a single DApp. Parachains may also vary by their runtime environments, transaction fee policy, or PoS interest yield.
The number of parachains that Polkadot supports is limited and the rights to operate a parachain are allocated through recurring auctions. In order to secure a parachain lease, the winning bidder must lock up their bid in DOT tokens for the duration of the lease, which can last from 6 up to 24 months. This means that Parachain operators have an economic incentive to use their lease efficiently, either by deploying proprietary DApps, or by opening their Parachain to third-party DApps. Additionally, the Web3 Foundation, which is behind Polkadot’s development will provide a few Parachains to common good projects.
Polkadot already features a huge ecosystem with known players such as ChainLink, Aragon, Edgeware, the 0x decentralized exchange protocol, and many more. A few months ago, the Web3 foundation has announced the Polkadot Ecosystem Fund as a tool to boost adoption even more by investing in DApps in their early development.
While it does not seem likely that the mainnet will be ready for launch in the remainder of 2019, an experimental canary network called Kusama has been released in August, based on the Polkadot infrastructure.
In contrast to the other Layer 1 projects mentioned here, New Zealand based Centrality puts most of its focus on ecosystem building and synergies between its ecosystem members. As such, many projects within the ecosystem have either contributed to Centrality’s codebase, or have profited from reusing existing code.
Centrality has an extensive code library, which was built in close cooperation with DApps developing on their PoS blockchain. Additionally, they provide an SDK that allows developers to create a consistent user experience across the various DApps and APIs that let DApps communicate with one another. DApps are incentivized to share their user base, as any DApp that onboards a user who later uses another DApp receives a reward in the form of Centrality’s native CENNZ token. In order to make the transition between different DApps easy, Centrality uses a single sign-on solution for user identification.
Instead of inflating the circulating amount of CENNZ tokens, Centrality rewards stakers with CentraPay tokens, which are the primary payment currency on CENNZNet. This dual token approach is meant to keep transaction fees somewhat stable, while CENNZ holders can still profit from network effects and potentially rising token valuation.
Having been founded as a Venture Studio, Centrality has a financial stake in most of its ecosystem and many ecosystem members fulfill vital roles for Centrality’s ecosystem. As such, there Sylo to provide decentralized storage, CentraPay as a payment processor, SingleSource for identity management, and SingularX as a decentralized exchange. Additionally, Centrality is looking to onboard more startup DApps through an accelerator program located in Auckland.
While the mainnet is not live yet, CENNZ holders can already stake their token for Centrality’s reward program, which distributes a basic supply of CentraPay. At the current time, almost half of the circulating CENNZ tokens have already been locked up until the conclusion of the reward program in late January 2020. The mainnet will launch shortly thereafter.
After having successfully launched their PoS mainnet this year, Algorand has recently released their 2.0 protocol update, adding a rich set of Layer 1 features:
Atomic Multi-Party Transfers make it possible to bundle transactions together and execute them simultaneously, once certain conditions are met. Most other blockchains use smart contracts that act as escrow accounts to implement this functionality. Typically, these smart contracts have to be written by third-party developers, making them susceptible to bugs and exploits, as well as requiring high gas fees to execute. The most common use cases for Atomic Multi-Party Transfers are atomic swaps, crowdfunding, multilateral trades, and decentralized exchanges.
Algorand Standard Assets make it easy to create fungible or non-fungible tokens, which may optionally have several features from a framework called Role Based Asset Control (RBAC). With RBAC, token creators can reserve some governance power over the tokens. For example, the token creator may reserve the right to freeze accounts for investigative purposes. If a transfer has been found to be fraudulent, the token creator may reserve the right to force asset transfers, in order to rectify the fraud. It is also possible to freeze all accounts by default upon creation and unfreeze an account, when its holder has provided AML/KYC details. In this way, standardized tokens can be created for a wide range of regulatory and business requirements.
Besides atomic transfers and standardized tokens, Algorand implements common smart contract functionality in an assembly type programming language called Transaction Execution Authorization Language. Since all of these features are implemented on Layer 1, they can be executed with the same level of security and efficiency as regular single transactions, without requiring the development of additional smart contracts.
Algorand aims at being an enterprise-grade blockchain that both contributes to and profits from international research. As such, they have various connections to universities and have worked together with the National Institute of Standards and Technology, as well as the Internet Engineering Task Force. They have attracted high-level ecosystem members from outside the core blockchain community, such as Syncsort and OTOY and operate an ecosystem fund that is endowed with $200 Million.
Blockchain technology still struggles a lot with user experience. Arguably, the most user-friendly blockchain is one that is invisible to the user. One central principle of the NEAR Protocol is “Let your users forget they are using a blockchain”. For this purpose, DApp users may give DApps permission to authorize transactions on their behalf. These protocol-level permissions may be revoked at any time by the user. While granting such carte blanche powers to a DApp requires a lot of trust from the user’s side, they can free themselves from the burden of having to manually sign each transaction in this way. This can be an important feature for time-critical applications.
Another UX feature of NEAR is the ability for DApp operators to prepay transaction fees so that users can test out a DApp. This means that DApps can onboard users without requiring them to purchase tokens on an exchange or submitting credit card details beforehand. The standard access to NEAR wallets is by a custodial solution, where users simply sign into their account using email and password credentials. Once users are ready to enhance their security, they can move their private keys out of custody.
NEAR uses sharded Proof of Stake blockchains based on a framework called Nightshade, allowing for a high degree of scalability. While NEAR supports development in all languages that compile to WebAssembly, Typescript and Rust are recommended as programming languages. Additionally, NEAR enables code reuse by allowing developers to charge royalty fees when other projects use their smart contracts.
Currently, NEAR is taking applications for DApp developers to participate in a closed beta test for their mainnet, which will kick off in Q1 2020. While the NEAR Protocol is an ambitious project on the technological side, it still lacks an ecosystem. As such, NEAR is likely the weakest of the five projects listed in this article at the current time, as their protocol is not more innovative than other state of the art Layer 1 projects that currently are beginning to move into enterprise territory.
Right now, most of the ecosystem building focus is on experimental developers through developer meetups and hackathons. If they manage to attract some enterprise ecosystem members and maybe set up an ecosystem fund in cooperation with VC investors, NEAR could still become one of the top blockchain projects in 2020.
While Proof of Stake is the go-to consensus for most current Layer 1 blockchains, Solana takes a somewhat different approach. For some projects, scalability is more important than Layer 1 features. Solana’s Proof of History technology is a novel approach towards the scalability problem. Rather than building blocks on top of one another using block height as a consensus-based “clock” that maintains the correct order of transactions, Solana validators use a sequential hashing function to each maintain their own clock and timestamp blocks. This circumvents the necessity for validators to wait until blocks are propagated throughout the whole network.
While Solana already has a running test net with smart contract capabilities, an official launch date for the mainnet has not been set yet. An internal scalability test has determined that Solana is capable of processing up to 50,000 transactions per second, with an average block time of 400 ms without any sharding, making Solana a good choice for projects that need a large transaction volume with minimal latency.
So far, most of Solana’s efforts were put into product development. Similarly to NEAR, Solana does not have an active ecosystem. While Solana certainly does have an innovative approach, their high-scalability blockchain will need to attract some big players to be worth its salt. After all, 50,000 transactions per second are of no use when there is nobody who wants to transact. Again, this can be remedied by closing key partnerships and by setting up an ecosystem fund.
Besides Solana, which uses a proprietary consensus mechanism based on Practical Byzantine Fault Tolerance, all of these blockchain projects use Proof of Stake as a consensus algorithm. While allowing better scalability, PoS consensus is also more resilient against 51% attacks, providing the necessary security and scalability in order to take the development of blockchain technology to the next step on the way towards mainstream adoption.
In 2020, we will see a plethora of mainnet launches and protocol updates to existing networks. It remains to be seen whether these novel blockchains will gain significant traction, compared to Ethereum. There are however some interesting developments, particularly in the field of user experience that we should keep an eye on.
With rising competition for Layer 1 blockchains, ecosystem building becomes maybe the most important part of running a Layer 1 project. While Polkadot takes the cake here with its enormous ecosystem, Centrality and Algorand are close behind with strong high-value partnerships and VC funds for upcoming DApps. NEAR and Solana are only at the beginning of ecosystem building and the efforts they put into that will decide their fate in 2020.
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