Altcoins Explained — Part 1: Layer 1 Blockchains Competing with Ethereum

The Layer 1 Competition — why it exists

By 2020–2021, Ethereum’s base layer could process roughly 10–15 transactions per second, and during the NFT frenzy of mid-to-late 2021 average fees at times surged well past US$100 per transaction for users stuck on L1. This bottleneck created a clear market opening for general-purpose smart contract platforms that promised faster settlement and cheaper user experiences.

Entrepreneurs and investors framed a contest between “Ethereum killers” and the incumbent. From 2020 to 2022, Solana, BNB Smart Chain, Avalanche, Cardano, and Polkadot each made credible pushes with differentiated designs. Yet, the outcome was not binary. Liquidity and developers spread across chains, while Ethereum strengthened as a settlement hub with rollups.

The blockchain trilemma: you can optimise for decentralisation, security, or scalability — and at best hit two strongly while making design tradeoffs on the third.

That trilemma has guided engineering choices since Bitcoin (2009) and Ethereum (2015). Designs that maximise throughput often centralise validators or require high-end hardware. Designs that preserve low barriers to validation accept slower throughput and higher latency. Finding sustainable middle ground is the art of Layer 1 architecture.

Taken together, the field ended up multichain. Ethereum kept the deepest liquidity and the widest developer base, while competitors won users with cheap, fast execution for distinct use cases or demographics.

For analysis of altcoin boom and bust cycles, see Bubblepedia →

Ethereum — the Incumbent

Ethereum’s moat is network effects. A massive developer community, composable DeFi protocols such as Uniswap (2018) and Aave (2020), and NFT culture from 2020 onward made it the default venue for digital asset experimentation.

On 15 September 2022, “The Merge” replaced Proof of Work with Proof of Stake, cutting energy use by over 99% and setting the stage for data sharding. On 13 March 2024, the Dencun upgrade introduced EIP‑4844 (proto‑danksharding), reducing the cost of posting data for rollups and making L2 transactions far cheaper.

The roadmap is rollup‑centric: keep the base layer conservative and decentralised, while rollups handle most execution. With full danksharding and mature rollups, aggregate throughput is projected to reach the five‑figure to six‑figure range.

Why accept slower L1 speed? Because validation should be accessible. By 2024, Ethereum had roughly a million active validators securing the network, an order of magnitude larger than most rivals. Solana, by comparison, has a few thousand validator nodes contributing to consensus. The tradeoff is clear: Ethereum gives up raw TPS to keep participation broad.

The EVM became a standard for programmable blockchains. BNB Smart Chain, Avalanche’s C‑Chain, Polygon PoS, and many sidechains opted for EVM compatibility so developers could port Solidity code and users could reuse familiar wallets like MetaMask.

For a readable origin story of Ethereum’s early years, see Camila Russo’s The Infinite Machine (2020), which chronicles the founding era up to the 2016 DAO hack and beyond.

BNB Chain — Binance’s Bet

Binance launched Binance Smart Chain (BSC) on 1 September 2020 as a companion to its earlier Beacon Chain. The idea was simple: an EVM‑compatible chain with cheap fees and rapid block times that could absorb retail demand when Ethereum was congested.

The strategy worked quickly. PancakeSwap’s food‑themed yield farms drew millions, made possible by cents‑level fees and a direct funnel from the Binance exchange’s user base. Within months, BSC hosted a thriving, if chaotic, DeFi scene.

BSC’s design concentrates block production to keep costs low — a deliberate centralisation tradeoff that accelerates throughput while placing greater trust in a small validator set.

BSC’s consensus (Proof of Staked Authority) relies on a limited number of active validators at any time. Critics argue this exposes users to governance capture or censorship risk. Proponents contend that millions of retail users prefer speed and low fees over purist decentralisation.

Rapid growth also brought security fallout. Throughout 2021, opportunistic forks and anonymous teams proliferated, and a string of exploits and rug pulls on BSC‑based apps resulted in losses well above US$1 billion across the year. The problems were often in application code and project governance rather than the base chain, but reputationally the chain was associated with “copy‑paste” DeFi and scammy launches.

In February 2022, Binance rebranded the network to “BNB Chain,” reflecting a broader vision spanning the BNB Smart Chain (EVM execution) and BNB Beacon Chain (governance/DEX). The rebrand also aimed to position BNB as “Build and Build,” distancing branding from the exchange while keeping strategic ties.

Avalanche — Subnets and Institutional Interest

Ava Labs was founded in 2018 by Cornell computer science professor Emin Gün Sirer and colleagues, building on research into metastable consensus. Avalanche mainnet went live on 21 September 2020 with a three‑chain architecture and a consensus family that targets fast finality with broad validator participation.

Avalanche comprises the X‑Chain (AVAX asset transfers), C‑Chain (EVM smart contracts), and P‑Chain (staking, validators, and subnet coordination). Its Snowman‑based consensus achieves low‑latency finality — typically on the order of seconds — making it attractive for financial applications where waiting a minute for confirmations is too slow.

A cornerstone of the design is subnets: application‑specific networks with their own validators, fee tokens, and virtual machines, all anchored by staking AVAX. Teams can customise compliance, throughput, and economics, then plug into Avalanche’s validator set.

On 18 August 2021, Ava Labs launched “Avalanche Rush,” a US$180 million liquidity mining program with Aave and Curve to jumpstart DeFi. In November 2021, Deloitte announced it would use Avalanche technology for “Close As You Go,” a disaster reimbursement platform to help U.S. state and local governments coordinate with federal agencies.

Like the broader market, Avalanche faced a steep drawdown in 2022 and early 2023. TVL fell from multi‑billion highs, and the cadence of new subnets was slower than the hype suggested. Yet developer tooling matured, and by late 2023 into 2024, interest returned via tokenised assets pilots and gaming subnets experimenting with custom fee tokens and near‑instant finality.

Cardano — Peer Review and Slow Deliberation

Cardano was founded by Charles Hoskinson, an Ethereum co‑founder who left in 2014 and subsequently formed IOHK (now IOG) in 2015 with Jeremy Wood. The project emphasises a research‑first approach with formally peer‑reviewed papers and a Haskell‑based stack for high assurance.

Its Proof of Stake protocol, Ouroboros, progressed through several iterations (Classic, Praos, Genesis), each peer‑reviewed and presented in academic venues. Cardano’s base network began operating in September 2017, with the Shelley upgrade in 2020 enabling staking and delegation to community pools.

Smart contract capability arrived with the Alonzo hard fork on 12 September 2021, enabling Plutus contracts written in Haskell‑inspired languages. The wait — roughly four years from initial mainnet — set expectations for a cautious tempo. That caution appealed to a loyal community, even as DeFi adoption remained modest compared to faster‑moving chains.

The chain’s staking model is liquid with no protocol‑mandated lockups, and historical yields have tended to sit in the 3–5% range before pool fees. Scaling efforts continue with innovations like Hydra heads (first mainnet‑compatible components shipped in 2023), which aim to move some interactions off‑chain while retaining L1 security assumptions for settlement.

Polkadot — the Interoperability Vision

Polkadot was proposed by Gavin Wood — the author of the 2014 Ethereum Yellow Paper and coiner of “Web3.” The Polkadot whitepaper appeared in 2016, followed by the Web3 Foundation to steward development. The relay chain began limited operations in 2020, with a DOT redenomination that August to improve unit economics for users.

Polkadot’s model is a shared‑security relay chain that provides consensus and messaging for a set of sovereign parachains. These parachains specialise — DeFi, identity, storage, or smart contracts — and lease connectivity via auctions. The original target capacity was on the order of a hundred parachains, with eventual scaling through parathreads and scheduling optimisations.

Parachain slot auctions started in November 2021. Projects locked DOT in crowdloans to win multi‑year leases, bootstrapping communities while signalling demand. Cross‑chain messaging (XCM) matured in 2022, enabling richer asset and data flows between parachains without central bridges.

Kusama, launched in 2019 as a “canary network,” let teams test upgrades and economic assumptions in production under faster governance. While the cross‑chain vision is compelling, adoption has been gradual as developers contend with toolchain complexity and business models that justify the overhead of running a full parachain.

How to Evaluate a Layer 1 Altcoin

Investors can structure analysis around on‑chain data and off‑chain realities. The following framework helps compare L1s competing with Ethereum without getting lost in marketing claims.

• Developer activity: Track public repositories, merged pull requests, audit cycles, and the rate of mainnet deployments. Raw GitHub stars are a poor proxy; cadence and contributor breadth matter more.
• TVL and liquidity quality: Follow changes in total value locked and where liquidity concentrates. Incentive‑driven spikes fade; sticky liquidity in credit markets and spot DEXs signals durable traction.
• Real usage: Active addresses, transaction counts, median fees, and time to finality. Differentiate bots and airdrop farming from genuine usage with retention and cohort analysis.
• Tokenomics: Supply schedule, issuance vs. burn, validator and foundation allocations, and cliff unlocks. Validate whether staking yields come from real fees or inflationary subsidies.
• Decentralisation and resilience: Validator/producer count, geographic spread, stake distribution, slashing design, client diversity, and the cost to run a validating node. Check outage history and incident postmortems.
• Business model fit: Which users is the chain winning — institutions, consumer apps, traders — and does the architecture serve them without frequent liveness tradeoffs?
• Correlation trap: Within crypto, cross‑asset correlations rise during risk‑off periods. Diversifying across L1s that all depend on speculative flows often reduces idiosyncratic risk less than expected.

Crypto beta is powerful: many altcoins move together when macro or BTC flows dominate. Position sizing and cash management often matter more than picking the “fastest chain.”

For portfolio construction that weighs these factors and position sizing, see Learn More. A helpful primer on valuing crypto networks and monitoring on‑chain signals is Cryptoassets by Chris Burniske and Jack Tatar (2017), which, despite its age, still frames network value vs. utility with clarity.

Putting the L1 Contest in Context

Ethereum’s design sacrifices raw execution speed in exchange for decentralised validation and credible neutrality. Competing L1s explore a different point on the trilemma: higher throughput and lower fees through tighter validator sets, alternate consensus, or application‑specific separation.

History suggests a multi‑chain reality persists because different users value different guarantees. Retail traders who want instant swaps at minimal cost often choose BNB Chain or Solana. Projects needing compliance‑aware isolation spin up Avalanche subnets. Academically minded teams who care about formal methods might pick Cardano or Polkadot.

The contest is therefore less “winner take all” and more about who can consistently deliver uptime, attract developers, and secure durable liquidity through cycles — while still offering an experience the next wave of users is willing to pay for.