Given Ethereum\u2019s dominance coupled with the current crypto bear market<\/a>, it remains questionable if L1s will flourish. This was recently highlighted<\/a> in a Chainalsys blog post entitled \u201cNew layer 1 blockchains are expanding the DeFi ecosystem, but no ETH killers yet.\u201d Ethan McMahon, an economist at Chainalysis, told Cointelegraph that Chainalysis published this report to raise awareness for the current L1 ecosystem:<\/p>\n While Ethereum allowed decentralized finance (DeFi) to flourish in 2020<\/a>, a number of layer-1 blockchains (L1s) have since been developed to address the challenges associated with the network. For instance, as Ethereum\u2019s proof-of-work (PoW)<\/a> consensus mechanism and high gas fees continue to impact transaction speed and scalability within its ecosystem, L1s like Algorand, BNB Chain, Avalanche and others aim to solve these problems.<\/p>\n \u201cChain comparison is important because it seems as if most crypto services are only offered on Ethereum, but this isn\u2019t true. There are a few different blockchains with competitive offerings that have advantages Ethereum doesn\u2019t provide.\u201d\u00a0<\/p><\/blockquote>\n In order to demonstrate this, McMahon explained that Chainalysis gathered data from different blockchains to determine the strengths and weaknesses of the networks. For example, the post points out that with gas fees running high on Ethereum, many developers have chosen to build decentralized applications (DApps) on Algorand. Binance Smart Chain, or BNB Chain<\/a>, is also recognized for its capability to support new tokens and DApps without the high gas fees of Ethereum. \u201cIt\u2019s interesting to see that people are paying exuberant gas fees on Ethereum\u2019s network. Our findings show that transactions less than $1,000 result in a significant amount of money spent on gas fees,\u201d McMahon said.\u00a0<\/p>\n Based on Chainalysis\u2019s overall findings, however, the post concludes that none of the L1-blockchains analyzed have been successful in solving all challenges associated with the Ethereum network. This also raises the question if L1s will survive long-term. For instance, the current crypto winter may slow down investments in these ecosystems. In addition, the merge of Ethereum 2.0<\/a> \u2014 which is set to take place this year but may be pushed to 2023<\/a> \u2014 could lead to improvements in the Ethereum ecosystem that may impact alternative L1 uses.\u00a0<\/p>\n In order to determine how L1s will advance, it\u2019s important to take a closer look at recent developments within the various ecosystems mentioned by Chainalysis. For example, the report categorizes Algorand as a top-10 L1 blockchain by market capitalization, stating:<\/p>\n \u201cDuring Q3 2021, Algorand saw its transaction volume grow 65%, while Bitcoin and Ethereum saw volumes drop 37% and 45% respectively. This may have reflected Algorand\u2019s growing hype \u2014 having launched in April 2019, Algorand was a relatively new blockchain, and reached an all-time price high in September 2021.\u201d<\/p>\n Findings also show that 10% of Algorand\u2019s transaction volume comes from retail investors, compared with 5% for Bitcoin (BTC<\/a>) and 8% for Ether (ETH<\/a>). Given this, the report notes that this could signify Algorand\u2019s success in enabling a high volume of smaller transactions. <\/p>\n Staci Warden, CEO of the Algorand Foundation \u2014 the organization behind Algorand\u2019s monetary supply economics, governance and ecosystem \u2014 told Cointelegraph that Algorand uses a Pure proof-of-stake (PPoS) consensus mechanism, allowing the network to specifically solve problems that require scale<\/a>. \u201cThe most fundamental difference between Algorand and other L1s is the network\u2019s ability to deliver financial inclusion to the two billion people in the world that don\u2019t have access to modern financial systems,\u201d she said.\u00a0<\/p>\n Warden elaborated that Algorand\u2019s PPoS consensus mechanism enables this due to its low staking requirements<\/a>. According to the Chainalysis post, only 1 Algorand (ALGO<\/a>) token is needed to stake on the network. Warden also pointed out that Algorand is very focused on decentralized finance (DeFi) development, noting that the network is capable of settling about 1,200 transactions per second, with gas fees equating to .001 ALGO. <\/p>\n Recent:\u00a0Integrating blockchain-based digital IDs into daily life<\/a><\/em><\/strong><\/p>\n \u201cThese requirements are necessary for networks to scale,\u201d said Warden. In comparison, the Chainalysis report mentions that Ethereum can only handle roughly 15 transactions per second. Yet, it\u2019s been noted that Eth2 aims to increase this considerably<\/a> to about 150,000 once upgrades are completed. <\/p>\n In order to stay competitive, Warden shared that Algorand is in the process of rolling out a new feature that would allow the network to settle transactions in 2.5 seconds, compared with the 4.5 seconds it currently takes. Moreover, as multichain networks become more important<\/a>, Algorand plans to deliver \u201cstate proofs\u201d that will allow users to move tokens from one chain to another. <\/p>\n \u201cAlgorand could end up being a router for all transactions across chains, since it can handle fast transactions, with little carbon footprint for sub-penny fees,\u201d explained Warden. While state proofs and other developments won\u2019t be rolled out immediately, it\u2019s notable that FIFA recently announced that it will use Algorand<\/a> to develop its digital asset strategy. \u201cFIFA is building their own wallet on Algorand and creating an NFT marketplace that can accomodate secondary ticket sales,\u201d added Warden. <\/p>\n BNB Chain is also mentioned in the Chainalysis report and is praised for its capability to support new tokens and DApps without high gas fees. In fact, DappRadar found<\/a> there to be more L2 projects built on BNB Chain than any other blockchain. Gwendolyn Regina, investment director of BNB Chain, told Cointelegraph that the goal behind the network is to help builders create DApps that scale for massive crypto adoption. She said:<\/p>\n \u201cThis year, BNB Smart Chain will have 30 times the computing power of Ethereum and will also work on decentralized storage solutions. As a result, blockchain technology will be increasingly integrated into real-world applications.\u201d\u00a0<\/p><\/blockquote>\n According to Regina, the key focus areas for BNB Chain\u2019s 2022 roadmap include decentralization, faster transaction speed, multichain integration and an increased focus on supporting developers and sustainability. Specifically speaking, Regina shared that the BNB Chain community recently released plans for further decentralization via the BEP-131 proposal, which will introduce candidate validators to BNB Smart Chain<\/a>.\u00a0<\/p>\n \u201cThis proposal would increase the number of BNB Smart Chain Mainnet validators from 21 to 41, providing more decentralization and incentives for validators to constantly innovate their hardware and infrastructure,\u201d she said. While this may create more decentralization, there has been criticism regarding whether or not DeFi is decentralized following Solend\u2019s spontaneous governance proposal<\/a> related to one of the whale wallets at risk of liquidation. <\/p>\n Decentralization aside, it\u2019s notable that BNB Beacon Chain \u2014 a blockchain developed by Binance and its community that implements a decentralized exchange for digital assets \u2014 recently became open-sourced. \u201cBNB Beacon Chain is now accessible for developers to build on,\u201d said Regina. She further explained that the benefits of the BNB Beacon Chain are broad, noting its high-speed order book based decentralized exchange to ensure quick transactions. \u201cHarnessing native secure cross-chain support will open doors for blockchain interoperability, meaning users can seamlessly navigate the chains they use,\u201d she remarked. <\/p>\n In addition to Algorand and BNB Chain, Avalanche was mentioned in Chainalysis\u2019s findings. According to the report, Avalanche specializes in customizability, scalability and interoperability. John Wu, president of Ava Labs \u2014 the lead developer of the Avalanche blockchain \u2014 told Cointelegraph that the network specifically aims to solve a number of problems within Web3 ecosystems. He said:<\/p>\n \u201cAvalanche has the fastest time to finality in the industry at about 500 milliseconds to 2 seconds. This means that all cross-chain and subnet transactions are immortalized in a blink. Financial institutions building DeFi products and Web3 gaming studios developing AAA shooters and RPGs need near-instant finality. It is a precondition to success. Without it, their apps cannot work.\u201d <\/p>\n To Wu\u2019s point, finality is extremely important as more institutions enter the DeFi sector. In fact, Avalanche\u2019s quick finality time could be much greater in comparison with Eth2 finality time, which some believe<\/a> may never reach under 15 minutes. Ethereum currently processes<\/a> 15\u201330 transactions per second with over one-minute finality.<\/p>\n Wu added that regardless of market conditions, the Avalanche community will continue to build. For example, Wu shared that subnets \u2014 a set of validators working together to achieve consensus<\/a> on the state of a set of blockchains \u2014 will open new doors for DeFi. For example, he mentioned that a subnet\u2019s ability to incorporate Know Your Customer (KYC) requirements and circumvent the bottlenecking that might occur on a chain shared with third-party applications appeals to institutions. \u201cThe first Subnet engineered specifically for institutional DeFi is in production right now,\u201d he said. <\/p>\n Although L1 blockchains are advancing, the Chainalysis report still notes the possibility of Ethereum becoming the \u201cdominant player\u201d due to market conditions and expected upgrades to the network. For instance, Raul Jordan, one of the core devs working on the Eth2 merge, told Cointelegraph that soon anyone in the world will be able to run an ETH node, which demonstrates the true power of decentralization.<\/p>\n It\u2019s critical that we give power to people all over the world, especially in developing countries, to run full nodes on consumer software. Full nodes preserve the security of the protocol by enforcing its rules #ethereum<\/a> https:\/\/t.co\/UVucpOQnzM<\/a><\/p>\n \u2014 rauljordan.eth (@rauljordaneth) April 21, 2022<\/a><\/p><\/blockquote>\n Alex Tapscott<\/a>, author and co-founder of the Toronto-based Blockchain Research Institute, further told Cointelegraph that there are two reasons to question the longevity of L1s:<\/p>\n \u201cFirst, bear markets generally see a drop in interest for crypto-native applications, so if gas fees drop on their own on Ethereum, why use a newer or less proven chain when you can use Ethereum? Second, the merge to proof-of-stake will improve Ethereum\u2019s performance, so even if demand returns, it may be able to handle new growth.\u201d<\/p><\/blockquote>\n However, Tapscott added that he believes any decreasing interest in L1s will be short-lived. \u201cLong term, there will be surging demand for block space, with some developers and users willing to trade off between security (Ethereum) for speed and convenience. Also, I think many alternative L1s for all their potential are still pretty early stage tech, and as they mature they will become more reliable, useful and broadly adopted.\u201d <\/p>\n![](\"https:\/\/s3.cointelegraph.com\/uploads\/2022-06\/d655b739-c07b-47ff-8eb9-39fcf5a4a445.png\")
L1 developments to drive adoption\u00a0<\/h2>\n
![](\"https:\/\/s3.cointelegraph.com\/uploads\/2022-06\/c7e09cda-278c-48bd-bf8f-3640a23f8cb9.png\")
Survival of the fittest?\u00a0<\/h2>\n
\n