{"id":208028,"date":"2021-12-15T05:00:13","date_gmt":"2021-12-15T05:00:13","guid":{"rendered":"https:\/\/cryptoslate.com\/?p=208028"},"modified":"2021-12-14T18:49:46","modified_gmt":"2021-12-14T18:49:46","slug":"5-things-to-take-into-consideration-when-evaluating-a-new-blockchain","status":"publish","type":"post","link":"https:\/\/cryptoslate.com\/5-things-to-take-into-consideration-when-evaluating-a-new-blockchain\/","title":{"rendered":"5 things to consider when evaluating a new blockchain"},"content":{"rendered":"

During the blockchain 1.0 period, blockchain applications started to develop rapidly through Bitcoin. While the stage of blockchain only supports the transfer between cryptocurrencies, such a single application scenario leads to less popularity. Therefore smart contracts came into being.<\/p>\n

The combination of smart contracts and blockchain expanded the application scenario of blockchain, entering the 2.0 stage with Etherum as an excellent representative. Most DeFi projects (with a small number compared to today) were basically developed only on Ethereum due to its user-friendly development experience and mature network environment. Hence, Ethereum has led this industry of blockchain.<\/p>\n

When comes to 2021, more strong competitors of Ethereum have shown up due to the following 3 reasons:<\/p>\n

    \n
  1. With the explosion of DeFi development since DeFi Summer in June 2020, more and more transaction activities happen on Ethereum.<\/li>\n
  2. The congestion problem of Ethereum is revealed and getting worse. The roaring increase of Ehereum\u2019s gas fees has driven every developer and investor to look for a replacement with higher efficiency and cheaper costs for users.<\/li>\n
  3. More functionalities Ethereum lacks need to be completed by its own update or another blockchain.<\/li>\n<\/ol>\n

    Current status of blockchains<\/h2>\n

    In 2021, the DeFi market continues to grow, also the booming of NFT and Gamefi has driven the explosion of the whole blockchain ecosystem. From the market share of blockchains TVL<\/a>,\u00a0 that of Ethereum has dropped by 9% from 73% to 64% within 6 months, indicating that other blockchains are rapidly developing and continuously taking up the market share of the Ethereum<\/p>\n

    \"Footprint
    Footprint Analytics: Market Share of Blockchains TVL by June 30, 2021<\/figcaption><\/figure>\n
    \"Footprint
    Footprint Analytics: Market Share of Blockchains TVL by November 23, 2021<\/figcaption><\/figure>\n

    How to evaluate a new blockchain<\/h2>\n

    Unlike on-chain projects, blockchain networks as the infrastructure focus more on the construction of its ecosystem. Once the ecosystem is formed, the Matthew effect will appear (the rich get richer) and eventually the head blockchain will take up more than 80% of the market share.<\/p>\n

    The price of ETH\u00a0 shows the prosperity of Ethereum, rising from $10 (December 2016) to a maximum of $4,000 (November 2021). When a new blockchain appears,\u00a0 how can we determine whether it has a strong potential to grow?<\/p>\n

    In this article, we mainly evaluate the value of blockchain from the following 5 aspects.<\/p>\n

    1. Performance<\/h2>\n

    Transaction processing efficiency is an important indicator to measure the performance of blockchain. TPS (transactions per second) refers to the number of transactions that a network can process per second. Higher the TPS, the higher the efficiency.<\/p>\n

    \"TPS
    TPS comparison among Top 5 Blockchains<\/figcaption><\/figure>\n

    Most of the new blockchains claim to have a high TPS. While an “impossible triangle” exists in the DeFi world, i.e. high performance, security and decentralization. For example, Solana mainly improves transmission rate ( the performance), but when it reaches a peak, the network becomes unstable.<\/p>\n

    In September, Solana experienced network downtime. A better solution still needs to be found.<\/p>\n

    2. Token price<\/h2>\n

    The token price<\/a> reflects how the blockchain is valued by users and also affects the cost of user transactions<\/p>\n

    \"Footprint
    Footprint Analytics: Token Price of Some New Chains<\/figcaption><\/figure>\n

    The price of SOL, the token of Solana, rose from $1.80 to a maximum of $259, a 143-fold increase; also the Avalanche token AVAX rose from $2 to $135, a 66-fold increase. Both cases show a high market expectation.<\/p>\n

    3. Blockchain ecosystem<\/h2>\n

    Developing a DeFi ecosystem is never easy. In order to evaluate the value of a blockchain, the completeness of its ecosystem is of high importance, both from number and sector.<\/p>\n

    Number of projects<\/h3>\n

    Although there are many projects deployed, the number of projects that are actually online is not that much. According to Footprint Analytics<\/a>, only 5 of the top 10 blockchains have more than 50 projects on-chain.<\/p>\n

    Blockchains with less than 10 projects need to be further examined.\u00a0 For example, Elrond, the recent popular blockchain with a surge in TVL this month, has only 1 DeFi project, the stability of which is uncertain.<\/p>\n

    \"Footprint
    Footprint Analytics – Total Number of DeFi Projects on top 10 blockchains<\/figcaption><\/figure>\n

    Project Sectors<\/h3>\n

    The diversity of a blockchain ecosystem is good for its balance and stability, with DEX playing a key role. Blockchains with limited project sectors on-chain lack sufficient infrastructure, leading to a fragile ecosystem.<\/p>\n

    \"Footprint
    Footprint Analytics – Number of DeFi Projects by Sectors\u00a0 on top 10 blockchain<\/figcaption><\/figure>\n

    The activity of DeFi projects, the level of developer activities, and the speed of project launch all imply whether the blockchain can attract developers to deploy projects on it.<\/p>\n

    4. Cross-chain tools<\/h2>\n

    Take a look at the current number of cross-chain bridges between Ethereum and the blockchains.<\/p>\n

    \"Number
    Number of cross chain between Ethereum and itself<\/figcaption><\/figure>\n

    Building an ecosystem of blockchain, cross-chain bridges are extremely important because it allows funds to flow across chains and users can easily transfer assets. This is good for increasing the number of on-chain transactions.<\/p>\n

    For blockchain projects that have no or few cross-chain bridges, we need to consider its way to interact with other main blockchains.<\/p>\n

    5. Long-term plan for ecosystem construction and incentives<\/h2>\n

    The main thing for blockchains is to build an ecosystem, which needs a friendly development environment, better performance and user experience.<\/p>\n

    Good compatibility provides a convenient way to deploy projects directly to other new blockchains. Also, a blockchain that supports emerging project types, such as NFT, GameFi are mostly welcomed. For example, NFT projects on Solana are quite active, and the transaction value has exceeded $700M so far.<\/p>\n

    This year, many blockchains have established their own development funds for future ecosystem development:<\/p>\n