What Gets Lost In The Crypto-Clone Wars (And How Tezos Could Be Set To Benefit)
Ethereum Killer. We are told they do not exist. We are told that Ethereum has slain all. Where did this phrase originate from? I think Dfinity started this trend of defining itself in relation to Ethereum. It declared it would be a sister-network to Ethereum in marketing materials. “I come in peace. And not only that but I contain no toxic masculinity for I am woman.”
Polkadot started out saying similar things too. Then the Great Pivot happened and these networks declared that they would be the next evolution of blockchains blah blah blah. Then someone coined the term Ethereum Killers.
I think we need a new term: Ethereum extenders. Because that is what they are doing. They all use the EVM and solidity. They copy paste Ethereum dapps. They inherit all the strengths and all the weaknesses of Ethereum. They are Ethereum. They are derivatives of Ethereum. (Spoiler alert: These chains exist primarily to overcome Ethereum’s gas costs. What happens to all these EVMs when layer 2 matures or Eth 2 is launched?)
Just like we have Bitcoin and Bitcoin Cash, Bitcoin Gold, and Bitcoin Satoshi’s vision (not to mention all the other clones without Bitcoin in the name). We also have Ethereum, Ethereum 2 (Polkadot), Ethereum 3 (Binance), Ethereum 4 (Avax), Ethereum 5 (Tron), Ethereum 6 (Near), Ethereum 7 (Solana)…and on and on.
And so people say there are too many smart contract chains. Well chances are you are just talking about one smart contract system: Ethereum. And then you are thinking about a bunch of Ethereum extenders. These extenders usually sacrifice decentralization to increase throughput, so the things that run on Ethereum can run more smoothly.
So where does that leave us? Well, for one thing I fail to see how any of these Ethereum extenders will capture a long term monetary premium for their base currencies. Money is a meme. Bitcoin is pure meme: digital gold. Ethereum is a combination of function and meme: smart contract platform and meme of smart contract money.
But these Ethereum extenders — what is their meme? Anyone can copy them and create another extender. And everything they run is a copy paste version of stuff running on Ethereum. It is almost like we have a mania on our hands as VCs and retail bid them into the billions.
What has gotten lost in the mix of these clone wars it that there is some honest to goodness building going on in the cryptospace — innovation is not dead.
However, the extenders would like you to think that innovation is dead. In fact, they pray for it. AVAX for example having hitched its star to the EVM, as have all the other extenders, declares:
Well if that was not the case that would not be good for AVAX would it? So is there a tiny itty bitty chance that you might just might be talking your book? That you might be getting on Twitter and doing the old coin pump-a-roo?
Emin has fired shots at Tezos with this statement (Tezos provided funding for AVAX and Emin was an advisor to Tezos). Maybe there was love lost at some point I don’t know.
But this is definitely a shot fired at Tezos because Tezos is the only smart contract chain (other than Cardano which is a mere hope and dream at this point) that does not run the EVM. (Maybe Algorand falls in that boat. If someone can educate me on their chain I would appreciate it; maybe there is some actual innovation happening there too, or maybe they are also running the EMV — but I think they might be innovating…)
Well what do we know about the EVM? We know that the EVM bytecode is almost impossible for a human to analyze and that it does not work easily with formal verification methods. I would think that this state of affairs does not lend itself well to institutional grade smart contracts. For fun retail stuff the EVM works great. But once it starts getting into big big money that opaqueness of the EVM becomes a problem. And this has been known for quite a while. But the industry took off so fast on the EVM that here we are — but that does not mean that a better solution cannot be found.
Tezos has proposed an alternative. Michelson. It is human-readable. It can be easily understood and much more easily formally verified. Therefore, it is appropriate for institutional level smart contracts. Michelson is immediately turned into Micheline, which is also human-readable:
Tezos has been continually slogging away on the layer 1 base layer stuff. It has been trying to create a magnificent and novel base-layer smart contract system through constant iteration. These iterations happen at a predictable and rapid cadence due to one of its orignal innovations — its governance system (which if you have been brainwashed into thinking is not an innovation compared to brinkmanship that occurs with Bitcoin and Ethereum governance you only have to watch this short Nic Carter clip to see why that is not so):
So yes due to its governance system Tezos has been iterating like a mofo:
Florence comes next where gas costs will be decreased by 35% . From Nomadic Labs latest blog “These optimizations taken together reduced the real computational cost on the Michelson execution cycle, and correspondingly allowed us to reduce by around 35% its gas cost in the Florence gas model.” In Delphi Tezos had already slashed gas costs by 75%. That is iteration in action.
Peanut Gallery: So what does it mean that we have Ethereum and a bunch of Ethereum extenders on one side, and then we have Tezos on the other side?
Answer: Well, that does make Tezos an underdog no doubt about it. In the hopes that it can best (not extend but best) Ethereum, Tezos is doing everything from the ground up. It is building from scratch in the attempt to optimize all. It is trying to create a new system, separate and distinct from Ethereum.
Peanut Gallery: Well, what has is accomplished so far?
Answer: Lots but I think we are just finally starting to see the first glimpses of what happens when you build a new system from the ground up as opposed to copying the dominant system. If you copy the dominant system you will be able to get stuff up very fast as it is dominant for a reason. Binance for example used the centralization of their exchange to their so-far advantage to run a one-node EVM and copy pasted the dominant smart contract system, Ethereum. The other Ethereum extenders did similarly. But you also obviously inherit all the weaknesses of that system and you have no chance to innovate because you are merely copying their system.
So in an attempt to be top dog, Tezos has built everything from the ground up — the virtual machine, the smart contract languages, the tools, the memory system, the POS system, the governance system, you name it. And in so doing, at some point creativity and differences will emerge when compared to the dominant system. (The differences are there obviously in spades at the lower level but are more difficult for ordinary folks to see). It is in dapps and things used on the chain that the differences will be seen by the naked eye. As I noted in:
So to quote myself (and Oyster who helped edit):
“In Tezos two POS defi building blocks have now formed a permissionless synergy: Kolibri (a makerdao-like platform) and Quipuswap (a Uniswap-like platform). This synergy is a first in the world of POS defi. And it is with this synergy that POS defi has become especially apparent as the POS defi money legos interconnect and compound the case that TEZ is money.
You can deposit your TEZ in Kolibri and get baking rewards plus take a leveraged TEZ position, and you could now take that leveraged TEZ and add it to Quipuswap and earn trading fees plus baking rewards.
You could do the same on Makerdao and Uniswap but in both places you would be missing out on baking rewards.
If we compare the same Defi legos on Tezos and Ethereum:
Tezos POS Defi = money borrowed from Kolibri + baking rewards on collateral + LP fees on Quipu + Baking rewards on Quipu all done with almost no transaction and smart contract fees. ETH POW Defi = money borrowed from Makerdao + 0 POW rewards + LP fees on Uniswap + 0 POW rewards all done with big transaction and smart contract fees.
POS defi is POW defi on steriods.”
Peanut Gallery: Well then what is the point of being an Ethereum Extender?
Answer: It is a relatively risk-less way for the founders of these extenders to bank billions while Ethereum transitions from Ethereum 1 to Layer 2 to Ethereum 2.
Peanut Gallery: What will happen to these extenders when that transition is complete?
Answer: They will very likely disappear.
Peanut Gallery: So why doesn’t Tezos just take the easy route to riches and become an Ethereum Extender.
Answer: Tezos is swinging for the fences. While it is true that it is in the underdog position currently (fully diluted market cap of 4 billion versus a fully diluted market cap of 240 billion) it is in no way trying to play second fiddle to Ethereum as are the extenders. Tezos, make no bones about it, is trying to best Ethereum. Or to bring back that much maligned term: Tezos, dare I say it, is trying to kill Ethereum. When Ethereum has fully transitioned to Ethereum 2, Tezos will still be around, now something like Tezos 2. (And in all probability Tezos will not require extenders as it adds capacity as it is needed. Tezos can already handle 100+ tx/second — almost 10x what Ethereum can handle. And with Tenderbake, which probably arrives this year, it will eventually reach 1000 tx/sec. That should hold it over until Tezos develops its sharding system.)
Peanut Gallery: Is it possible that Tezos will be top dog (as compared to Ethereum)?
Answer: Well anything is possible of course. Admittedly it looks unlikely at the moment, and if you believe in the efficient market hypothesis, the market thinks it has something like a 1 out of 60 chance of happening. But here is what it has going for it. Michelson continues to be optimized while it is possible that the EVM will be put out to pasture with ETH 2.0. Also, for crypto-cultural reasons it is highly unlikely Ethereum will ever utilize on-chain governance. That means Tezos will very likely continue to innovate at a faster rate. As Elon Musk says Speed of innovation is all.
Also, if the EVM had some heartbleed type problem, the only Ethereum alternative would be Tezos. All the Ethereum Extenders use the EVM (which they often cutely rename as if they aren’t using it) so that would take them out of the picture. If such an event were to happen then Tezos would probably be instantly vaulted up the ranks. (Actually I take that back, because this is crypto and it is often brain-dead Cardano would probably be instantly vaulted up the ranks, but then maybe the markets would wise up and start heading to Tezos — which is a functioning alternative system to Ethereum and has been for years.)
But even if the EVM never has a big problem (and I hope it doesn’t as the majority of my crypto is in Ether and Ether tokens) Tezos should continue to differentiate itself from both Ethereum and the Ethereum Extenders due to the fact it is building everything from the ground up — and the innovation that that fosters.
Peanut Gallery: How is anyone going to innovate on Tezos when I heard that it was difficult to build a dapp there?
Answer: Things have changed and now some devs think that it is EASIER to develop on Tezos than on Ethereum. The smart contract languages and the tooling on Tezos are much more accessible than in the past.
And Tezos is experiencing a building boom as it experiences 100x year over year growth in interactions with smart contracts.
Now of course the Ethereum extenders can post data about how many transactions they are doing extending Ethereum. But it is very important to note that what is going on with Tezos is a totally different animal. This is an attempt to build a new system. A system that hopes to create is own hegemony through iterative optimizations of everything that it touches in the upgrade process.
And the Tezos teams are well funded to do just this — slogging away as long as needed:
And the price of Bitcoin has roughly doubled since the date that this chart was created. So the funding is there. But I think it is important to note that Tezos also has a culture of delivering the goods, that is practical applications, as opposed to abstract theory, by which I mean a focus on writing academic papers.
And I admit this is a shot fired at Cardano. But if you could pick, would you rather have Tezos which is a functioning POS blockchain complete with working smart contracts, working private smart contracts, working decentralized exchanges, working stablecoins (both IOU and on-chain collateral backed), a working virbrant NFT ecosystem, working NFT exchanges, and more. Or would you rather have Cardano which is a bunch of academic papers and a working POS system and nothing else — literally nothing else. (I mean maybe tone it back on the papers and start doing some practical stuff? Sir, step away from the chalkboard! Put the chalk down! For the love of all that is holy in this world put the chalk down!)
And it is right for Tezos to fire a shot at Cardano as Cardano is the only other blockchain I know of (again maybe Alorgand) that is trying to best the champ. That wants that title fight.
Peanut Gallery: Will Tezos get a title fight?
Answer: Well at 4 billion marketcap versus a 240 billion marketcap it is not yet in the same weight class. But I think that pound for pound, Tezos is the greatest fighter in the blockchain world.
And where Tezos has been starting to get some traction is with the #cleanNFT movement. There is vibrant social interaction on Twitter among digital artists who are embracing Tezos and its lower carbon footprint:
Tezos is also starting to get some momentum with defi. For example Kolibri is growing its stablecoin protocol:
And again it is important to note that all of this is being done on a non-Ethereum system. To me that would imply that the potential upside is much greater than with an Ethereum extender. An extender is only trying to play second fiddle to the champ. A contender is trying to best the champ. Also you will get innovation with a contender and you will get 0% innovation with an extender.
Sugar Ray Robinson has been called the best pound for pound fighter of all time. That is how I feel about Tezos in the crypto space, and maybe just maybe one day it will get a chance at the title fight.
Disclosure: Not financial advice. Long eth and eth tokens. Long tez.
Thanks to: Oyster
