😬 Two New Networks — Issue No. 72
/📰News
In the coming weeks, two new blockchain networks will launch, and both are positioning themselves as practical alternatives that combine and improve upon the best parts of Bitcoin and Ethereum. Both of the new networks are secured by Proof-of-Work mining, both enable rich smart contract functionality, and both have raised 10's of millions of dollars via token sales.Is there something noteworthy here, or is this just a continuation of the same old ICO madness that peaked in 2017, yet won't seem to die completely? Let's explore the technology underpinning each of the networks, then turn to the question of their long term viability.
Kadena
The Kadena mainnet went live on November 4th, but is currently restricted to mining empty blocks. The full functionality of the network, including transacting and smart contracting, will be unlocked in a few weeks. Link.Kadena claims a number of technical improvements over existing public networks, but what really sets it apart is the use of parallelism to achieve greater throughput. Rather than a single chain of blocks, Kadena has ten "braided" chains that operate independently, yet can communicate with each other via Simple Payment Verification (SPV). In essence, each chain implements a light client of the others, enabling value to be moved across them trustlessly.
This screenshot, from the Kadena Block Explorer, gives a visual representation of these parallel chains. Link.
If this sounds like the sharding design planned for Ethereum 2.0 to you, that's because it is a very similar approach, but applied to a Proof-of-Work network. The team behind Kadena claims the number of chains can be increased to hundreds, or even thousands, enabling a total throughput of tens of thousands of transactions per second. Link.
Nervos
The Nervos mainnet is scheduled to go live on November 16th. Like Kadena, Nervos is secured with Proof-of-Work and enables rich smart contracting. Link.To maximize throughput, Nervos uses the number of orphaned blocks to adjust the mining difficulty. Lot's of orphaned blocks imply poor connectivity throughout the network, so difficultly increases to reduce the rate at which blocks are mined. On the other hand, if relatively few blocks are orphaned, difficulty can be decreased, allowing blocks to be mined faster, as it implies the network is well connected and can afford to increase its bandwidth utilization. Link.
Nervos also tries to tackle the problem of state growth that we've seen on Ethereum and other smart contracting platforms. To store a smart contract on the network, a user must bond some amount of the native Nervos token, the CKByte, which loses value slowly over time. As the state size gets bigger, the number of tokens that must be deposited also increases. The team hopes this will make the chain more sustainable by countering the "tragedy of the commons" problem that occurs when a network allows unbounded state growth. Link.
Finally, the Nervos chain features a number of technology choices which its creators claim will make it easier to build layer 2 solutions on top of the network. The team believes this will be the primary way that blockchain networks scale. Link.
💡Analysis
I'm going to be honest with you: when I first started hearing about the imminent launches of Nervos and Kadena, I felt a bit exasperated. Investors dumping tens of millions of dollars into pre-launch projects to "build a better Bitcoin" or another "Ethereum killer"— are we really still doing this? In 2019!One detail about both projects intrigued me enough to learn more: they're using Proof-of-Work. Most networks that have launched in the last couple of years use some flavor of Proof-of-Stake to achieve their supposedly superior properties. Both of these projects, however, proudly leverage Proof-of-Work, and proclaim that Nakamoto consensus is the only proven way to achieve decentralized cryptonetworks.
Longtime readers of this newsletter will know I agree with that assessment. While I hope Proof-of-Stake will end up working, I remain skeptical. I'll have to see networks like Ethereum 2.0 launch, and operate for some number of years, before I can feel confident in their ability to remain decentralized and censorship resistant.
The choice of Proof-of-Work by these two projects seems to be consistent with the spirit of their approaches. Both seem like practical efforts to produce sustainable cryptonetworks that make meaningful improvements upon the status quo. Both seem to avoid making deal-breaking sacrifices towards centralization. Both seem to make calculated choices coupled with promising advancements from research. I respect good engineering efforts, and from what I can tell, both these projects are such.
So, does this mean I think either has a good chance of being widely adopted? To put it bluntly, no. Barring an improvement that is orders of magnitude better, I think we're well past the point where good engineering alone can assure the success of a new blockchain.
As overused as terms like "network-effects" and "mindshare" are, they do matter, and in this regard, there is Bitcoin and Ethereum, and all the rest. There is a wide gap between the top two projects and the rest of the field, and that gap is only growing as time goes on. With each passing day, it's harder to imagine any network overtaking the two leaders, let alone a brand new one, no matter how sound their engineering is.
So, while I tip my hat to the teams behind Kadena and Nervos for building some seemingly interesting tech, it's hard for me to get too excited. Until proven otherwise, my assumption moving forward is that Bitcoin and Ethereum will remain dominant. If I'm wrong about that, it means we're even earlier in the adoption of crypto than many of us think.