A few years ago, cryptocurrencies existed on the fringes of the finance world, and many investors saw little long-term appeal or value in digital assets. But this sentiment is slowly changing. Today, investment banks like Goldman Sachs are involved in the cryptocurrency market, and 83% of millionaire millennials own cryptocurrencies.
Decentralized Finance (DeFi) is one of the engines of this trend. DeFi allows people to borrow, lend and earn interest on money without going through a traditional financial institution. And by removing banks from the equation, DeFi can make financial services more efficient and more accessible.
Ethereum has long been the largest decentralized software and services ecosystem in the blockchain industry, but challengers like Avalanche (AVAX 0.41%) and Fantom (FTM 1.26%) are gaining ground and may eventually overtake Ethereum. Because of this, both cryptocurrencies appear to be long-term smart investments.
Here's what you should know.
Avalanche is a smart contract platform designed to be a faster and cheaper alternative to Ethereum. Its main innovation lies in the Snowman consensus protocol, a proof-of-stake (PoS) mechanism that accelerates throughput by allowing validators to confirm transactions by randomly sampling a small subset of nodes (computers), rather than checking each transaction with each network node.
As a result, Avalanche can handle 4.500 transactions per second (TPS), and can finalize these transactions in just two seconds.
This speed makes Avalanche much more scalable than Ethereum, which currently only handles 14 TPS and takes up to six minutes to reach finalization. Furthermore, since users are not competing for the limited computing resources on the blockchain, the average transaction on Avalanche currently costs around $ 0,20, while the average transaction on Ethereum will cost you $ 11.
Better yet, Avalanche is compatible with Ethereum's self-executing smart contracts, which means that developers can easily port their Ethereum-based software and services to the Avalanche blockchain, which itself is a faster and cheaper alternative. Unsurprisingly, this value proposition has resulted in strong adoption.
The Fantom blockchain was designed to be a more scalable alternative to Ethereum. Its main innovation is the Lachesis protocol, a proof-of-stake consensus mechanism that allows validators to confirm transactions at their own pace, without checking every transaction with every other validator on the network. This makes Fantom the fastest public blockchain in the cryptocurrency industry, according to the development team.
If this is true, the platform can handle thousands of transactions per second, and can finalize transactions in just one second. Similar to Avalanche, Fantom's scalability keeps fees low: The average transaction currently costs a fraction of a cent.
Furthermore, Fantom is also compatible with Ethereum smart contracts, which means that Ethereum-based software and services can be easily added to the Fantom blockchain. For example, the popular yield farming service Yearn Finance went live on Fantom in October. This interoperability could be a significant tailwind for this Ethereum challenger.