Why are there so many different cryptocurrencies? The main reason is simple – competition. Each cryptocurrency that’s aiming to make it big is doing something new. Something different. Most likely, something better.
Bitcoin started everything, and it still holds the top spot for doing so. But developers realized that Bitcoin was lacking in some areas. In times of high network usage, fees could get high and transaction times would slow right down. Not to mention, Bitcoin was just focused on payments. Blockchain offers limitless possibilities, stretching far beyond just payments.
Ethereum led the charge of blockchain platforms. It was the first of its kind, allowing teams to easily deploy their cryptocurrency and create a useful blockchain product without having to build a blockchain from scratch. But just like Bitcoin, scalability issues crept in as the network got more traction. Numerous competitor platforms exist now, all offering different unique selling points.
However, despite all the alternatives to Bitcoin and Ethereum, the bulk of traffic and interest remains on these two networks. They were the first movers, they have the communities. People trust these networks and they know that they are truly decentralized.
So here’s the battle that’s raging now – competitors, network upgrades and layer 2 solutions. Which of these will be able to provide the best service, and therefore capture the majority of interest moving forward? In this article we’re going to compare some statistics and see which offerings are looking promising.
To start things off, here’s the current status of Bitcoin. Limited by blocksize, estimates calculate that Bitcoin is capable of anywhere between 3-7 transactions per second. To put that into context, Visa, the card issuer, does approximately 1,700 transactions per second on average each day. The average Bitcoin transaction cost varies a lot, but today you’re looking at around $3-4.
Ethereum, the second largest blockchain by market cap, beats out Bitcoin slightly in the transactions per second (TPS) department. Ethereum can process up to 15 TPS. But even that number is very low when looking at the alternatives. Sure, Ethereum 2.0 is supposed to be on the way with solutions that will tackle scalability, but is it too late?
On Ethereum, the average transaction currently costs around $2, but recently spiked up above $10.
Cardano, a decentralized public blockchain, unveiled a scalability solution earlier this year. Referred to as Hydra, each ‘Hydra head’ can process up to 1,000 TPS, and there are 1,000 stake pools working together, so by multiplying 1,000×1,000 the theoretical limit of Cardano is 1 million TPS – a long way above Ethereum and Bitcoin. Cardano transaction fees are less than 2 cents at the moment.
Tixl is a blockchain ecosystem that uses its own proprietary technology to offer users extremely fast transactions and minimum cost. Their network, known as the Autobahn Network, is a Layer 1 platform that increases the exchangeability of existing assets. The Autobahn network can be used by any DeFi app to help minimise transaction fees and allow high-speed transactions with full network interoperability and AML-compliant privacy. Tixl’s whitepaper says fees are zero to very small, and transactions will process between 0.5-10 seconds.
Layer 2 solutions
Layer 2 solutions are scalability focused solutions that complement existing networks instead of competing with them. If a layer 2 solution became widely adopted, it could allow Bitcoin and Ethereum to remain on top, while having suitable scalability.
The Lightning Network is a Bitcoin focused solution that uses micropayment channels to make Bitcoin transactions more effective. By using the Lightning Network, one is able to experience faster and cheaper transactions when compared to standard Bitcoin. This is achieved by moving transactions off-chain, while remaining decentralized. The network can support up to 1 million TPS and is currently being developed to support an array of other cryptocurrencies.
However, the drawback of the Lightning Network is that the transacting parties have to create a multi-signature wallet together. The transactions are essentially moving the funds between the two parties, and settlement only truly happens when the channel between the two is closed.
RSK is another Bitcoin-focused layer 2 solution that doesn’t just aim to increase scalability, but also introduces smart contracts to the Bitcoin network. RSK claims near-instant confirmations by using merge-mining. RSK has a two-way peg, which means users have to transfer Bitcoins onto the RSK blockchain and receive RBTC to use the network and reap the benefits. RSK can only achieve up to 11 transactions per second at present.
Digital assets can be sent to the Autobahn Network. Once there, they can be sent quickly with low transaction fees and even with full AML-compliant privacy. The two main distinctions between the Autobahn Network and other layer 2 solutions are the wide range of assets it will support and the ability to use AML-compliant privacy features if desired.
What’s the best layer scalability solution?
Truth be told, the answer to this is situational. It depends what you, as a user, want out of it. However, Tixl’s Autobahn network is one of the most adaptable layer 2 networks available, while also offering a competitive layer 1 service. It doesn’t just support one asset and it also has the added benefit of AML-compliant privacy features.
It’s a tough call to say whether layer 2 solutions will be more popular than simply using a more efficient competitor. However, the fact that Ethereum and Bitcoin have shown scalability issues and have barely lost users suggests that user loyalty is strong in this case.