Is Polkadot Really a Threat to Ethereum?

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“The race is on” said recently Jorge Izquierdo of Aragon, an ethereum dapp that might also be built on Polkadot, a new ethereum2.0-like blockchain built by Parity Tech.

Parity runs one of ethereum’s main client which is currently being used by circa 30% of the network, while the Ethereum Foundation managed Geth operates about 50% of all nodes.

Parity’s eth share.

That means Parity has significant influence over the ethereum network as the two clients have to be in consensus, thus the two teams have to coordinate and reach agreement on proposals.

That could cause difficulties as the Polkadot blockchain is pretty much a direct eth competitor.

It sort of has the same design as eth 2.0, but instead of shards being identical, in Polkadot you can tweak some parameters.

Gavin Wood (pictured left) Polkadot’s founder who left the Ethereum Foundation in 2016, said that Polkadot will launch by the end of the year in a somewhat finalized state.

“I wouldn’t call it ‘dummy’ or ‘Phase 0’ or whatever,” Wood said, describing a relay coordinator which works a bit like the Beacon Chain in managing parachains which are sort of shards.

Ethereum itself could potentially be a Parachain, but it would have to connect through a bridge. How the bridge will work is not clear, with Wood stating the end of year release will lack “peripheral and auxilliary stuff; bridges, off-chain infrastructure and so forth. They’ll be released as they become ready.”

Designing a connection between two different chains in a trustless manner would be a breakthrough, so it’s not clear whether the bridge is more of a trusted peg, but they plan to launch a smart-contracts parachain called Edgeware.

Developers therefore will soon have the choice of waiting for ethereum 2.0, or moving to Polkadot to launch their own parachain or to build a dapp within one of the parachains.

Permissioned Parachain Launches

Permission from Polkadot token holders, the dotters, is required to launch a parachain. Maciej Hirsz of Parity Tech says:

“We can’t add infinite amount of parachains, so we have to be exclusive about which parachains we add, that’s really all there is to it.”

In ethereum 2.0, the number of initial shards is fixed at 1024. That could be increased later on, but the design is permissionless.

Why permission is really needed in Polkadot was difficult to establish, but it appears there’s an attack vector where block producers (collators) in one parachain can affect the consensus of other parachains:

“If consensus mechanisms on Polkadot parachains are variable, then a valid but ‘collusioned’ state on one parachain (say a dPOS parachain with back-channel collusion or poor distribution) can be bridged to other parachains, and this would effectively compromise the consensus value of the other parachains.

It seems the solution would be governance around parachain inclusion, but the downside would be that it would have to be either done reactively, enacted after damage is done, or proactively, removing the permissionless aspect of the network.”

That might be one reason why some dapp developers might want to stick with eth, in addition to the inbuilt governance mechanism which has a council of sorts that is voted into “power” and can with unanimous consensus overturn any proposal.

Three Million ETH

A bigger reason, however, might be the close to three million eth held by dapps that have ICO-ed in the past 2-3 years.

Aragon itself is the 4th biggest eth holder among dapps, currently having in its possession 180,000 eth according to data by Santiment.

That’s worth about $22 million dollars which could “easily” double or more if ethereum’s ecosystem improves in utility.

That should be a sufficiently big incentive to prioritize eth development, in addition to its head start in network effects, dapp development tools, usability tools and so on.

That has given ethereum the second biggest community in the blockchain space, with a friendly and generally peaceful community. While in Polkadot there seems to be a little bit of a feisty or even trolling inclination at least from some devs:

You’d expect a new project to have a lot more humility and to befriend the dominant network at least until it has itself gained sufficient traction.

Instead we already have claims that this chain which doesn’t yet exist will somehow be better than something else which also doesn’t exist.

With that creating a PR fire, you would have expected some water. Instead we have Parity personnel ridiculing very reasonable concerns about a competitor effectively having 30% of the “board” seats.

Worse actually. It’s like Yahoo having veto rights over what Google can do. Realistically Parity can’t veto any proposed change if doing so appears unreasonable, but they have to be ready before a change goes into production, they have to produce bug free code, they have to implement things.

They weren’t working on the Beacon Chain at all, for example. They had to be given a $5 million grant to work on eth2.0 even though previously they were happy to self-finance themselves mainly through VC funding.

Now that there’s Polkadot they want to be paid, with Parity failing to clearly state why they suddenly asked for this grant when previously they were happy to self finance their efforts except for Pierre Krieger of Parity stating:

“Employing full time developers for several years building an ethereum client costs money, I’m not sure we’re not losing money building parity-ethereum.”

They are now working on an Eth 2.0 implementation using the Substrate framework, but with numerous other eth2.0 implementations making some significant advances, it isn’t clear why limited resources are being given to a direct competitor.

$5 million might not be much to some in this space, but other projects are getting nothing or far, far less and those projects are actually making impressive progress in some cases.

Ultimately, however, competition can only be good for end users, but fair competition. Otherwise, unfair competition can be quite damaging for end users as they don’t get the best product due to unfair practices.

On the other hand, ethereum is decentralized and permissionless, with all having free choice. Parity can built or maintain any product or client they like, it’s up to everyone to decide whether they want to use it.

Just as it’s up to anyone to build a better client that the network wants to run, with the Ethereum Foundation too presumably free to launch a Polkadot client.

Why would they, is a good question. Just as why Polkadot would maintain the Parity client is a good question. They even have a bitcoin and BCH client. If you can get them to run it, why not have influence over as many chains as you can?


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