#10: The Triangle of Trade-Offs 🔺
Newsletter Content:
📰 Main Topic: The Scalability Trilemma
📈 Quote + Weekly Price Recap: See Below
🚨 Top Stories: Launch of “Base” / Spotify Token-Gated Playlists / ANKR Partnerships / NBA Top Shot Trouble / Arbitrum in the Spotlight
📖 Thread / Read of the Week: Coinbase CEO’s “Base” Announcement
📊 Visual of the Week: Scalability Trilemma
🔭 This Week: Another Week in Crypto
During the last bull run, activity on the blockchain was booming and a lot of attention turned to the congestion of the Ethereum network, specifically the accompanying network gas fees.
Gas fees are what users pay to transact on blockchains when they send money, use a protocol or deploy a smart contract. The amount of the fee is dependent on two factors:
The amount of computing power the transaction will consume
How congested the network is with other transactions at the time
While Ethereum remains king when it comes to network security, amount of development activity and revenue generation, the monumental user fees have driven many people to explore other chains for their blockchain needs. (The main reason other blockchains like Solana (SOL) and Avalanche (AVAX) were top performers last cycle.
The Ethereum network can only handle 10 transactions / second at this time, compared to VISA who currently handles about 65,000 TPS. While years away from solving its scalability problems, Ethereum has an ambitious roadmap with these goals in sight.
How are other blockchains able to mitigate gas fees while ETH struggles?
Enter The Scalability Trilemma:
Named by Ethereum founder, Vitilik Buterin, the trilemma is the belief that decentralized platforms can only accomplish two out of the following three goals —security, scalability and decentralization.
Since Ethereum’s main focus is to be a secure and fully decentralized network for smart contracts and Dapps, it has been exploring other innovations to assist with scalability issues.
Solana and Binance Smart Chain are two chains that are able to process transactions a lot more efficiently than ETH, offering network users fees at a small fraction of the cost. The arguments against these competitors target the other sides of the triangle - security and decentralization.
Binance Smart Chain was created by Binance and is secured by only 21 validators, compared to 500,000 (and growing) on Ethereum.
More validators = More decentralized
Solana has a loyal community and meaningful applications built on it, but is notorious for outages and crashed servers (which is not possible with a truly decentralized and secure network like ETH).
The names mentioned above are referred to as Layer 1 Blockchains - meaning they are the base level blockchains which serve to record transactions on the ledger and ensure a secure network.
(Ethereum, Solana, Avalanche, Aptos, Cardano)
Example: A three line highway that becomes congested during rush hour.
Recently, Layer 2 blockchains have gained popularity, which are built on top of layer 1 blockchains and help scale transactions, without foregoing the security of posting transactions on the base layer. They act as a complement to layer 1s and are just one step towards solving the trilemma.
(Arbitrum, Optimism, Bitcoin Lightning Network, Base)
Example: Two lanes are added to the highway above and a more efficient public transit service is implemented.
Quote of the Week:
“The way to get started is to quit talking and begin doing.” - Walt Disney
Price Performance:
Top Stories:
Coinbase Launches “Base” to Help Developers Build Dapps On-Chain (Tech Crunch)
Coinbase’s new L2: Broken down below in “Thread / Read of the Week” 👇
Spotify Introduces Token-Gated Playlists (Blockzeit)
Slowly but surely, companies are starting to unveil subtle ways to integrate NFTs to enhance the consumer experience. Spotify has now joined the party, allowing individuals with certain wallets and credentials to unlock exclusive playlists.
Spotify being the most used streaming platform and integrating NFTs is a huge step forward for mass adoption. If noteworthy artists start releasing token-gated exclusive content, their fans will be able to see what they’re missing out on since they’re using Spotify already. The key to mass adoption is meeting the user where they are, and fitting within their already existing journey.
Something to look at is further integration of NFTs within the consumer process… Spotify and Shopify integrated with each other back in 2022 and both have made advancements within their existing platforms to allow users to connect their wallets for exclusive experiences. Over time, I would expect Spotify to start offering purchase flows through the platform that leverage the NFT and Shopify integrations.
NBA Top Shot Moment NFTs Are Securities, Federal Judge Rules (The Block)
A ruling by a court labeled NBA TopShot Moments as securities. It’s important to note that this ruling determined that NFTs should be treated on a case by case basis, and this ruling isn’t a blanket ruling for all NFTs.
The most interesting thing about this ruling was the following:
“Although the literal word ‘profit’ is not included in any of the tweets, the ‘rocket ship’ emoji, ‘stock chart’ emoji, and ‘money bags’ emoji objectively mean one thing: a financial return on investment,”
Dapper Labs has used marketing that has alluded to their assets, TopShot Moments, going up in value by using emojis that are most similar to going up or earning money.
The court is basically saying: “Look, you never said in words that consumers will make money if they buy your product, but you used symbolism to do so”.
Ankr and Microsoft Partner To Offer Enterprise Node Services (ANKR Blog)
A very interesting partnership has emerged between Ankr and Microsoft. Ankr is basically providing developers that use Microsoft Azure (cloud-computing) with a trustworthy blockchain infrastructure service. At a high level, this is going to allow more developers to integrate Web3 solutions within their existing projects and workflows.
Very similar to Spotify creating a place for its users to use NFTs within their existing journeys, Microsoft Azure developers will now be able to use blockchain infrastructure within their existing workflow.
Just after the Microsoft news, Ankr announced they will be joining forces with Tencent Cloud, a company that allows companies to more quickly onboard and leverage cloud infrastructure within their business.
Having these three massive companies combine their services to provide more end-to-end solutions for developers is a necessary step in order for blockchain technology to be implemented on a digital infrastructure scale and not just labeled an investment opportunity.
Arbitrum Processes More Daily Transactions Than Ethereum for the First Time
A huge milestone for ETH scaling solutions and blockchain in general.
Thread / Read(s) of the Week:
Visual of the Week:
This Week:
Monday (2/27): Pending Home Sales Data
Tuesday (2/28): Consumer Confidence Data
Thursday (3/2): Unemployment Claims
This week corporate earnings from Q4 wrap up.