Long stuck in the shadow of Bitcoin (BTC), Ethereum (ETH) finally conquered the market in 2020 in the decentralized financial summer. Designed to recreate traditional financial systems with fewer middlemen, DeFi is now used in lending, borrowing, and token buying and selling. The majority of these decentralized applications (DApps) run on Ethereum, which saw an increase in activity on the network in 2020. This activity also moved up due to yield farming, also known as liquidity mining, which enables owners to earn rewards with their cryptocapital.
But with activity on Ethereum, the network’s transaction fees also increased. In May it was reported that Ethereum gas fees were skyrocketing. It’s intuitive that DeFi is only worth using if capital is handled that exceeds network fees. As a result, users quickly realized that the blockchain was almost unusable.
Related: Where does the future of DeFi belong: Ethereum or Bitcoin? Experts answer
Without a doubt, Ethereum remains the most active and populous blockchain, but other potential players are emerging and offering a viable alternative to Ethereum. For example, Layer 1 protocols like Binance Smart Chain (BSC) and Solana (SOL) attract billions in assets under management, while Layer 2 solutions like Polygon (MATIC) attract the attention of disgruntled Ethereum users due to their compatibility with Ethereum pull-based protocols. This is on top of low fees and fast transaction speeds. Although Ethereum’s gas fees have hit high levels over the past year and faster networks are growing, none of these chains has killed Ethereum yet.
Because of this, the narrative of “Ethereum vs. the rest” begins to change at the beginning of the second half of 2021 – developers are recognizing the value of a cross-chain future rather than having to opt for a blockchain. It is no longer about creating a chain with a competitive advantage, but rather making sure that all chains can work interchangeably to improve the industry.
Related: A multi-chain future will accelerate innovators and entrepreneurs
Advantages and disadvantages of a multichain future
Due to its popularity and long-standing presence in the market, Ethereum has the first mover advantage and will remain the most important blockchain within the DeFi ecosystem from the first quarter of 2021. But as other chains gain momentum, it is these alternatives to Ethereum that take advantage of faster transaction speeds and significantly lower fees.
Introducing other chains isn’t necessarily a bad thing for Ethereum fans either. Finally, a multichain ecosystem offers additional space for new protocols, each with a strong user base. Each new chain also creates a new community, vacancies for services, and an individual identity and culture.
Related: Too little too late? Ethereum is losing DeFi ground to competing blockchains
In addition, separate blockchains create innovation silos that pose challenges for progress and acceptance. The merger of the multichain future can be seen as a seamless connection between these specialized groups. This might be seen as a difficult goal to achieve in the traditional tech world, but cryptocurrency and blockchain are challenging these existing infrastructure monopolies, and this industry has the ability to pioneer an ecosystem that is more cohesive than competitive.
Related: Life Beyond Ethereum: What Layer-One Blockchains Bring to DeFi
More blockchains, more value
It is inevitable that projects will eventually connect multiple blockchains, making the transfer of information from one chain to another seamless. In fact, the cryptocurrency market and multichain adoption is less of a zero-sum game than is often quoted. And the more obvious the future of multichain becomes, the only thing that becomes clearer is that the added functionality, ease of use, and scalability that it brings is helping to onboard new users.
Related: The great tech exodus: The Ethereum blockchain is the new San Francisco
Rather than doubting the existence of a multichain future, it should be viewed positively. There are many different smart contract platforms in the crypto ecosystem, all of which impact the blockchain space in terms of accessibility, economy, and innovation. Blockchains may be separated now, but in the end it will all come together and create an interoperable and fast network of protocols that meets our daily needs. The nice thing about it is that we don’t have to worry about how we’re doing transactions or what we’re trading about as it doesn’t matter.
We are still a long way from achieving the ultimate goal of interoperability, but once mass adoption is achieved, the crypto industry will be unstoppable. And as the sector continues to grow, projects find that they will soon have to adapt to a multichain future or risk being left behind.
This article does not provide investment advice or recommendations. Every step of investing and trading involves risk, and readers should do their own research when making a decision.
The views, thoughts, and opinions expressed herein are solely those of the author and do not necessarily reflect the views and opinions of Cointelegraph.
Michael O’Rourke is Co-Founder and CEO of Pocket Network. Michael is a self-taught iOS and Solidity developer. He was also on the ground floor of the Bitcoin / crypto meeting and consulting firm Blockspaces in Tampa Bay with a focus on teaching solidity to developers. He graduated from the University of South Florida.