The key to building the right application starts with the right blockchain.
Content
- Introduction.
- Why does blockchain selection matter?
- Criteria for selecting the right blockchain
- Conclusion
Introduction.
The internet has come a long way since its inception. From static web pages to dynamic social media platforms, the web has become more interactive, collaborative, and user-centric. Web3 is the latest step in this evolution process.
Web3 aims at decentralization where, ideally, users can interact with each other and applications in a trustless, permissionless environment. In practice, decentralization is a spectrum, and, generally, more decentralization leads to increased complexity (at least at the current stage of the technology’s maturity). For example, decentralized applications may offer more security, privacy, and ownership than centralized ones, but they may also suffer from scalability issues and user experience challenges.
As a consulting firm, HLV helps teams and projects grow their Web3 presence with our expert guidance. We know that choosing and using the right Web3 tools and solutions can be challenging, especially when it comes to balancing decentralization, security, and usability. That’s why we provide technical advice to our customers on how to achieve acceptable system decentralization without compromising user experience. It’s a technology selection and integration process. Whether it’s helping customers choose the right smart contract framework, NFT standard, DAO model, wallet selection, or DeFi protocol, we try to help navigate the Web3 landscape with confidence and clarity.
From a technical perspective, decentralization is achieved by relying on a peer-to-peer network of nodes, reaching agreement among themselves on the current state. This service is generally provided by a “blockchain,” which typically acts as a foundation layer of Web3 applications and services.
Having worked side by side with dozens of projects of different sizes and complexity, we have noticed that insufficient attention is given to selecting the right blockchain. Rather, the choice of the underlying blockchain tends to be made at the beginning of our engagement without consideration of the needs of the project. We always challenge that approach.
Why does blockchain selection matter?
Choosing the right blockchain can be a crucial element for the success of any project.
That is particularly true for dApps serving specific verticals (e.g., gaming, enterprise systems, metaverse, distributed digital identity, etc.) Even for a fungible token launch, it is worth posing the question.
Let’s look at a few examples:
- The ApeCoin token was launched on the Ethereum blockchain to take advantage of the platform’s security, smart contract capabilities, interoperability, and broader adoption among the existing Bored Ape (BAYC, MAYC, BAKC NFT holders) community. The token claim was available for the existing Bored Ape NFT holders, making it possible to execute a real-time claim using on-chain NFT ownership on the Ethereum blockchain.
- PancakeSwap on the other hand, chose to launch its decentralized exchange and token on Binance Smart Chain (BSC), a blockchain network that has a close integration with the Binance exchange. This decision allowed users to seamlessly transfer assets between the exchange and the network, as well as benefit from fast and cheap transactions, which are essential for the project’s business model.
- dYdX, a decentralized trading service, has a more convoluted story. It started on Ethereum, but soon faced the challenge of high transaction fees. To solve this, it moved to a layer 2 solution, StarkEx, configured in a ZK-Rollup mode. Layer 2 architectures can process batches of transactions independently. This decreases the total number of transactions that must be validated on layer 1, reducing congestion, latency, and cost. The move addressed these problems but came at the cost of undesired centralization. dYdX wanted to achieve both scalability and decentralization, so it decided to host its future “V4” release on a dedicated blockchain built on the Cosmos SDK.
As we can see, the choice of which blockchain platform to use depends on the specific needs and requirements of the project and its community. Selecting the right blockchain is a strategic decision-making process. The wrong decision may result in limited functionality, poor scalability, and low adoption. Different blockchains have distinctive features, capabilities, and limitations, which can impact the application’s or token’s functionality and usability.
For all the above reasons, and to reiterate the concept, it’s important to carefully consider the pros and cons of different blockchain platforms before launching a new dApp or token and to choose the one that best meets the project’s needs and its users.
Criteria for Selecting the Right Blockchain.
While the blockchain selection should be made based on a comprehensive evaluation of the project’s needs and goals, the following list of criteria and questions can serve as a starting point with the selection process.
- Security — Security is a key aspect of any blockchain project. The blockchain should be able to resist attacks, scams, and other threats. To assess the security level of a blockchain, one should look at how it achieves consensus, how it encrypts data, and what other security measures it has. Moreover, if the project involves valuable digital assets, one should also consider how widely adopted the blockchain is, as this affects its resilience and trustworthiness.
- Scalability — Scalability is the ability of a blockchain to handle a large number of transactions without compromising speed or cost. Different blockchains have different scalability limits and trade-offs. To choose the right blockchain for a project, one should consider how much volume, latency, and fees the project can afford and tolerate.
- Interoperability — Interoperability is the ability of a blockchain to communicate and cooperate with other blockchains and systems. Some projects may need this feature, depending on what they want to achieve. For instance, if the project involves a token, it may need to allow cross-chain transactions or connections with other apps. Not all blockchains are equally interoperable; some factors that affect this are smart-contract support and the availability of bridging solutions. If the project can be flexible, one should also consider (and re-consider) the pros and cons of using multiple chains versus just one chain.
- Development ecosystem — A development ecosystem refers to the network of developers, users, and other stakeholders who are involved in the blockchain’s evolution and adoption. The main questions to ask are: Would the project benefit from a vibrant ecosystem of developers, users, and other stakeholders? Could that community be engaged to provide support, contribute to its development, and create additional use cases?
- Standards — When architecting a new fungible token launch, ERC-20 is a popular choice because of its wide adoption, interoperability, ease of creation, security features, and flexibility. Many wallets, exchanges, and other platforms already support ERC-20 tokens, making buying, selling, and trading them easier. It’s important to note, however, that other blockchain platforms and token standards (BEP-20, SPL Tokens, etc.) may be better suited for certain use cases, depending on the project’s specific needs. The same applies to NFT projects, where ERC-721 on Ethereum Virtual Machine (EVM) chains is the reference (but not the only one) for tradable collectibles. Still, non-fungible tokens can be used for different use cases (e.g., loyalty points, ownership of physical assets, copyrights, etc.) that different blockchain technologies and supported standards may better serve. The same applies to single components of more sophisticated dApps and services, e.g. standards for distributed digital identity are being actively defined (Decentralized Identifiers).
- Airdrops for Existing Community — Some projects need to airdrop tokens to existing communities, which must be done fairly and transparently. Hosting the token on the same blockchain where existing communities hold other digital assets may be the best solution in such cases. If specific cost or throughput requirements suggest the adoption of a multi-chain approach, Oracles and/or Merkle trees can be used to support cross-chain communication. As Oracles are often guaranteed by a small number of validators and Merkle roots are typically calculated off-chain, adopting such solutions has the side-effect of introducing some centralization.
- DAO Governance and Tools — Most projects moving or expanding to Web3 need to democratize some or all their decision-making and operating processes. Typically, a token is used as a Governance token in decentralized autonomous organizations (DAOs) to enable token holders to vote on proposals related to the operation and development of the DAO ecosystem. In this case, we need to make sure that the chosen DAO management tools support the specific blockchain.
- DEX\CEX ecosystem — Exchange ecosystems are crucial for any project that needs token trading support. However, not all blockchains offer the same level of exchange options and performance. Ethereum dominates the field with its rich and diverse DeFi landscape, featuring popular DEXs like Uniswap, SushiSwap, and Curve. It also has the best support from CEXs, which often only list tokens based on Ethereum’s smart contracts. Other smart-contract-enabled chains may have their own DeFi protocols but lack liquidity, usage, or security. Therefore, choosing the right blockchain involves balancing various factors such as scalability, fees, and user experience, while keeping in mind that Ethereum is the benchmark.
- Adoption — Another factor to consider when selecting a blockchain for a specific project is the adoption potential. The project’s success relies on how widely it is used and recognized: whether it has practical applications for fungible tokens, attractive marketplaces for NFTs, and exposure for new projects and dApps. Different blockchains may have different ways of supporting the project’s growth and reputation, such as offering opportunities for partnerships and collaborations.
Conclusion.
The possibilities of Web3 technology are truly endless. From revolutionizing how we interact with digital content through decentralized finance and non-fungible tokens to transforming social media and autonomous organizations, Web3 is already making its mark.
We can already perceive what’s coming next:
- With faster and cheaper consensus algorithms, cryptographic ownership of digital assets will become the norm in digital games and ecosystems.
- Cryptographic proofs of computation will continue to improve, allowing for higher throughput and data privacy on open ledgers.
- Integrating mobile apps with certified off-chain data and blockchain consensus will extend Web3 beyond digital-only worlds.
- With ongoing innovation in UI/UX, Web3 will become accessible to the masses.
- … and more and more!
In conclusion, the current state of Web3 technology is just the tip of the iceberg. It’s comparable to the early days of personal computers with 64K byte RAM and dial-up internet access. The pace of change will continue to be rapid. It’s important to carefully evaluate each design choice, starting with the foundation — the selection of the blockchain — and continuing up the stack. Whenever possible, it’s crucial to choose cutting-edge, future-looking solutions that have proven robust and enterprise-grade. As you can probably guess at this point of your reading, at HLV we help our customers achieve both these goals.
