BATTLE -BLOCKCHAINS- BANTER : MASTER ESSAY

Ethereum and its rivals : Battles of the blockchains. The race to dominate the DeFi ecosystem is on and The World Students Society, most lovingly and respectfully called, !WOW! is nowhere to be seen and heard. 

TO BELIEVERS, open, public blockchains provide a second chance at building a digital economy.

The fact that the applications built on top of such blockchain all work with each other, and that the information they store is visible to all, harks back to the idealism of the Internet's early architects, before most users embraced the walled gardens offered by the tech giants.

The idea that a new kind of ''decentralised'' digital economy might be possible has been bolstered over the past year as the numerous applications being built on top of various blockchains have boomed in size and functionality.

Perhaps the most significant part of that economy has been decentralised-finance [DeFi] applications, which enable users to trade assets, get loans and store deposits.

NOW an intensifying battle for market share is breaking out in this area. Crucially, Ethereum, the leading DeFi platform, seems to be losing its near-monopoly.

The struggle shows how DeFi is subject to the standards wars that have broken out in other emerging technologies - think of Betamax versus VHS video cassettes in the 1970s - and illustrates how DeFi technology is improving lightning-fast.

CURRENT BLOCKCHAIN TECHNOLOGY IS CLUNKY. BOTH Bitcoin and Ethereum use a mechanism called ''proof of work'', where computers race to solve mathematical problems to verify transactions, in return for a reward.

THIS slows the network down and limits capacity. Bitcoin can process only seven transactions per second; Ethereum can handle only 15. At busy times transactions are either very slow or very costly [ and sometimes both ].

When demand to complete transactions on Ethereum's network is high, the fees paid to the computers that verify them climb and settlement times grow. 

Your correspondent has paid as much $70 to convert $500 into ether and waited for several minutes for transfer from one crypto-wallet to another to take place.

Developers have long been trying to improve Ethereum's capacity. One prong of that is, in effect, rewriting it. Plans are afoot to shift Ethereum to a more easily scalable mechanism called ''proof of stake'' later this year.

Another idea is to split the blockchain up, through a process called ''sharding''. The shards will share the load, expanding capacity. Some developers are also working in ways to bundle transactions, reducing the number of them that must be directly verified.

The problem is that each advance comes with costs. DeFi's supporters tout the virtue of being able to conduct transactions securely and without centralised intermediaries. But gain in scales could come at a price, by making the platform less secure, or less decentralised.

Pooling transactions before they reach the blockchain tends to be done by centralised entities. And it might be easier for hackers to attack a single shard of a blockchain than the entire thing. As a result, Ethereum developers have been slow to make changes.

This sluggishness has made the network vulnerable in a different way - by encouraging rivals. In early 2021 nearly all of the assets locked in Defi applications were on Ethereum's network. 

But in a recent research note JPMorgan Chase, a bank, estimates that the share of Defi applications using Ethereum fell to 70% by the end of 2021.

A growing number of networks, such as Avalanche, Binance Smart Chain, Terra and Solana, now use proof of stake to run blockchains that do the same basic job as Ethereum, but much more quickly and cheaply.

Avalanche and Solana, for instance, both process thousands of transactions a second.

This Master Essay continues into the future. The World Students Society thanks author The Economist.