In this article, what challenges does the network effect of the Ethereum virtual machine bring to other L1s?

EVM may be more important than blockchain itself

In fact, Ethereum as everyone knows it is just an implementation of the Ethereum blockchain. On the other side of the coin, the Ethereum Virtual Machine can be understood as a blockchain-based open-source software “development platform” that allows developers to create decentralized applications. You can also think of it as an open virtual computer that can store on-chain data and the state of each smart contract.

The EVM was the first software to provide smart contract capabilities to developers and has grown into a thriving ecosystem with valuable developer network effects that extend beyond the Ethereum blockchain itself. In fact, some blockchains that use EVM have built well-established token economics and consensus mechanisms that are completely independent of ETH tokens and ETH mining. Innovation, infrastructure and user growth on other EVM chains can be seamlessly leveraged by the Ethereum blockchain and vice versa.

Permissionless network effects

A network effect is a phenomenon whereby an increase in users or participants increases the value of a good or service. To put it simply, in the world of the Internet, traffic can be equated with value, and today’s social media is a perfect example.

Open source software and ecosystems benefit from a similar network effect: the more developers build or integrate on top of it, the more valuable it becomes to everyone. But that’s not all that OSS might benefit from. If most of the infrastructure and applications on the network were also open source, the network effects would multiply.

This is what makes the EVM network effect so powerful: every user can log in without permission, every line of code is publicly written, and increases the value of all EVM chains, no matter which network it is used for. It also increases the security level of the EVM compared to other alternatives.

EVM compatibility

A protocol is EVM compatible if its smart contracts can be executed on the Ethereum Virtual Machine. This condition is met if the contract must be written in Solidity, or have a package that compiles its code into code that can be run on the EVM.

zkSync is a zero-knowledge protocol designed to reduce transaction costs and increase speed, which supports solidity smart contracts without changing in most cases. Also, StarkNet – another roll-up, has a language called Cairo which is currently not EVM compatible, but the team is working on building the compiler so that it can be executed on the EVM, and has built the other direction (EVM – > StarkNet) translator. Other examples of EVM compatible/native blockchains and Layer 2 include Ethereum Classic, Polygon, BNB Chain, Optimism, Arbitrum, Gnosis Chain, Avalanche, and Celo. You can view other EVM compatible chains on the Chain List.

Why is composability important?

EVM can be seen as a “next-generation” JavaScript that has garnered billions of dollars in capital investment in a short period of time. It has a first-mover advantage, and all funds and resources used to advance new solutions for EVM can be used and scaled permissionlessly. Therefore, building a new public chain or sidechain on the EVM does not require starting from scratch.

It’s worth noting that some people consider JavaScript to be a bad programming language, but attempts to replace it (Dart) have all failed, only improvements as a transpiler (Typescript) have succeeded. The network effects are so powerful that, regardless of the quality of the language, any disruption to composability makes attempts to replace it infeasible. The same may be true for EVMs.

For builders and operators, composability means they can take advantage of one or more of the following:

  1. Rich metadata, identity system and social graph: addresses are the same across EVM chains, which means any new project or chain can leverage the metadata associated with users/addresses to address cold start issues, content provenance, add sybil-resistence , build social/interest graphs for each user, airdrop on cheaper chains, etc.
  2. A thriving developer ecosystem: Community support on active platforms like Ethereum Stack Exchange, a question-and-answer site for Ethereum users. EVM is used by many top smart contract blockchain developer ecosystems.
  3. Tools for Web3 builders: Some tools include Gnosis Safe, Snapshot, WalletConnect (and most supported wallets), Zerion, Metamask, and Etherscan. There are many open source toolkits such as OpenZeppelin, Hardhat and Foundry.
  4. Interoperability: Cross-chain governance using snapshot strategies, cross-layer transactions between stablecoins and base tokens (ETH, MATIC, etc.), same address system, etc.
  5. Versatility: Developers developing on one chain or instance can smoothly migrate to a better chain or launch their own. For developers, this is a huge advantage.

In this article, what challenges does the network effect of the Ethereum virtual machine bring to other L1s?

The case for using EVM

In addition to building on Ethereum itself, traditional enterprises have seized the advantages of building on EVM. For example, JPMorgan built their enterprise blockchain on their own fork of Ethereum called Quorum. TikTok launched NFT on ImmutableX, the second-layer expansion scheme of Ethereum NFT. 100 Thieves released their first NFT airdrop on Polygon, the Ethereum sidechain running EVM.

Other blockchains are also trying to interoperate with Ethereum and build EVM implementations on their own chains. These include Solana (Neon), NEAR (Aurora) and Cosmos (Evmos).

Evidence for EVM network effects

  1. Ethereum has by far the largest developer ecosystem of any blockchain. According to Electric Capital’s 2021 developer report, Polygon and BSC (also an EVM chain) are ranked 6th and 7th respectively. In fact, at least 8 of the top 20 blockchain ecosystems are running EVM.
  2. Many chains have built EVM-compatible implementations on their own chains (such as Solana and Cosmos), but no one has built on Ethereum or called for building contracts compatible with other chains (such as Move or the Cosmos SDK).
  3. Looking at the top projects built on Ethereum, they took several times longer to migrate to non-EVM chains than EVM chains. For example, Celo (EVM-compatible L1) benefited in the first few days/weeks from Etherscan, a versatile block explorer, Metamask, a wallet used by millions, and a robust and well-vetted multi-signature solution (Gnosis Safe ) mainnet. Chains like Solana or Cardano may not have a trusted multi-signature solution for years.
  4. Some of the largest EVM blockchains continue to apply the learnings of Ethereum in real time. For example, Polygon (EVM-compatible L1) is already destroying MATIC after implementing nearly the same proposal as Ethereum’s EIP-1559. The winning EVM blockchain will continue to leverage this strategy.

In this article, what challenges does the network effect of the Ethereum virtual machine bring to other L1s?

Potential challenges for L2 EVM composability

Some Layer 2 networks are currently trying to convey the idea that they may soon break equivalence with EVM at some point to try something that only makes sense on L2 or will take a long time to integrate with Ethereum L1 function. In a sense, we may be entering a world where the L2 EVM is implemented slightly differently and becomes a testing ground for new EVM features. This may break the deployability of 1-1 code at some point in the future.

Having said that, as long as the state between layers remains composable, L2 is unlikely to subvert the EVM equivalence, typically keeping execution properties to a minimum when bridging data between chains. And as long as an adapter can be written on the other end, and the state format is reasonable between the two chains, small differences in execution probably won’t be a hindrance.

Non-EVM chain

What does this mean for competing chains and ecosystems? They will require a large budget and will have to find a way to serve the EVM audience. The ecosystem model can work if non-EVM projects can grow quickly and efficiently. Solana is one of the competitive challengers, but despite spending a lot of money to catch up, applications are still slightly lacking.

Of course, there are many things that the EVM can’t do, and there will be applications that will only be used long-term outside of the EVM and that will bring value to other VMs as well. It is worth noting that some unique projects have started to choose a different solution than EVM, for example, Stepn is on Solana. This may be evidence that EVM is not a winner-take-all, and there will be many applications out there. It’s worth mentioning that the same is true for JS, but the number of applications that cannot be built with JS in the browser is declining every year.

Cross-chain and Parachain

The composability-first approach of Cosmos, Polkadot, and other blockchains has won over capable builders and users. Although many years behind the EVM ecosystem, the Cosmos SDK enjoys very similar network effects, but most composability is asynchronous, meaning it occurs in multiple steps with various validations. As of now, Cosmos does not have the same address for cross-chain accounts, although this will change soon. CosmWasm is very new and the ecosystem lacks important mechanisms such as a robust oracle solution for DeFi. For example, JunoSwap (AMM on Juno) came out a few months late, and the code was messy and incomplete.

Solutions like Celestia appear to account for these network effects, allowing Ethereum and other EVM chains to act as a settlement layer. This preserves the composability of EVM, but with more optionality and scalable security. This approach is likely to be the subject of discussion around Layer 1 blockchains for years to come.

in conclusion

Developers and Layer 1 competitors should seriously consider the huge advantages of building on EVM today. In most cases, I would expect an existing EVM chain or Layer 2 to suffice for most needs, although they may require specific features that are not built into the EVM. EVM is years ahead of its competing ecosystem, which will continue to increase adoption and network effects. However, ETH proponents need to prepare ahead of time for the possibility that a different EVM-based chain might not necessarily trigger demand for ETH, yet capture the majority of Ethereum’s market share.

Posted by:CoinYuppie,Reprinted with attribution to:https://coinyuppie.com/in-this-article-what-challenges-does-the-network-effect-of-the-ethereum-virtual-machine-bring-to-other-l1s/
Coinyuppie is an open information publishing platform, all information provided is not related to the views and positions of coinyuppie, and does not constitute any investment and financial advice. Users are expected to carefully screen and prevent risks.

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