Applications and Use Cases

Which Blockchain Is Right for You?

January 20, 2022

Blockchain technology is inherently confusing, especially when it comes to assessing a particular blockchain for a project or investment. Each blockchain and the organization behind it has different use cases, consensus and validation methods and long-term objectives and assessing their differences may be frustrating.

There are a few variables even novice blockchain users can look at to determine which choice may be the best fit for them. One of the largest and most controversial of those factors is the consensus method, which is how transactions are validated on the blockchain. The proof-of-work (PoW) method of consensus is the most common way to validate transactions, and is used by Bitcoin. It requires blockchain miners to use their computing power for consensus, which means massive amounts of energy are required, creating environmental concerns.

The other commonly used consensus method is proof-of-stake (PoS), which enables blockchain users to stake their digital assets to validate transactions, removing the need for miners. PoS consumes significantly less power than PoW. Ethereum, the second largest cryptocurrency behind blockchain, is in the process of moving from PoW consensus to PoS with its Ethereum 2.0 rollout. The Cardano, Solana, Avalanche and Polkadot blockchains are already using PoS for consensus.

Use case is another important variable when assessing blockchains. For instance, Bitcoin's primary use is as a cryptocurrency. Other blockchains have a wide range of uses for everything from decentralized finance (DeFi) applications to supply chain validation and democratization of goods and services. Along the same lines, each blockchain will have a particular community of users and developers fostering its growth and use. The community will provide a good indication of how the blockchain is being used and the types of development projects and applications that are in the works.

Transaction speeds and scalability are important factors when assessing blockchains. Potential users, investors and developers should be aware of a network's typical transaction speeds and performance levels, as well as how easily it may be scaled. The blockchain's roadmap should also be closely examined to determine its team's long-term vision for the network and technology.

The blockchain team will also provide valuable insight on the viability and longevity of the blockchain. A transparent development team with clear goals and benchmarks for future projects is an important part of any blockchain.

Of course, a blockchain's market capitalization and total value locked (TVL) are important variables for investors and developers. The TVL will indicate the total amount of funds locked into the platform's smart contracts, indicating how many users are taking advantage of it. Market capitalization measures the value of existing assets within the blockchain ecosystem, which may be a good indicator of its potential for growth.

Blockchains have proven they have much more to offer than cryptocurrency. Assessing how they are being used, how their teams are planning to guide their future growth and the types of communities surrounding a particular blockchain can provide valuable insight on which blockchains have a promising future.

Edited by Luke Bellos

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