Smart contracts have been around for nearly two decades, and only recently have we seen a fraction of their potential. Nick Szabo, an American computer scientist, first mentioned the concept of smart contract platforms back in an article in 1994. More than 10 years before Bitcoin was created. Szabo defined smart contracts as “computerized transaction protocols that execute terms of a contract.”
It’s safe to assume that Bitcoin is the most commonly trusted cryptocurrency. However, it does not offer the same programmability found in Ethereum. That is because when Ethereum was developed back in 2015, it was the first blockchain to implement smart contracts within its platform. This opened the door for many users to freely create content where no central entity is required.
What Are Smart Contract Platforms?
Most emerging blockchains nowadays are seeking to set the pavement by trying to create the most innovative smart contract platform in order to surpass Ethereum’s. So what are smart contract platforms? And how do they work?
A smart contract is a set of pre-determined agreements between two parties. They are written in the form of a high-level programming language and are executed within the platform once certain conditions of an agreement have been met. They are processed by blockchain nodes and are then implemented if all the conditions needed for the transaction to be valid are accepted. A transaction can be sent to any node within the blockchain. It is then transmitted to the rest of the nodes within the network. Eventually, the transaction gets to be processed by every node in the blockchain. Once the transaction is deemed successful, it will be recorded on the blockchain’s public ledger and will be viewed by everyone. This method of carrying out transactions has eliminated the need for third-party authorization.
Furthermore, smart contract platforms enable digital contracts to be developed and executed by the blockchain. They create a decentralized environment for the smart contracts to run in. These platforms have, in a way, revolutionized the blockchain industry. Not only did they eliminate the need for third-party authorisation, they also established a pathway for developers to create content. Smart contract platforms can be used to develop decentralized applications such as gaming apps and exchange platforms (DEXs). They are also considered to be the starting point for maximizing the potential of decentralized financing (DeFi).
What Industries Use Smart Contract Platforms In Their Operations?
Smart contract platforms could be used by many different industries. Some of the biggest organizations in the world are revealing their implementation has created transparency within their business operations. Listed below are industries in which smart contracts would excel.
Real Estate Industry
Most of us have in some way experienced the hassle of buying or selling a house. You could be accompanied by months worth of negotiations and document signings. And it could very much create a stressful environment. With the introduction of smart contracts in the Real Estate industry buying or selling a house has never been easier. It creates a sense of trust between real estate agents and those who seek to buy or sell. So, how can it be used by the agents and their clients?
In this scenario, the smart contract acts as an automated regulator. It contains the specific instructions for the transaction to be deemed as successful. Then the parties involved can link the documents and the digital ownership of the property into the blockchain and trust that it will not be tampered with. The smart contract will hold onto all funds until all terms within the contract have been met. When all the conditions of the agreement are present within the blockchain, the smart contract will automatically execute the transaction. This eliminates the need for brokers, lawyers and a vast amount of bureaucracy.
Supply Chain Management
Big organizations, like Walmart Canada, are leveraging the transparency and reliability found in blockchain technology and are implementing them within their operations. With IoT sensors and smart contracts, Walmart is able to satisfy the needs of almost 1.2 million customers on the daily.
“Walmart Canada is dedicated to efficiency across our business, including most importantly in our supply chain and logistics management. Our carrier partners move over 500,000 loads of inventory nationally, which creates an extraordinary volume of transaction data. This new dynamic and interactive blockchain technology platform is creating complete transparency between Walmart Canada and all of our carrier partners.”John Bayliss, senior vice-president of logistics and supply chain of Walmart Canada.
The combination of smart contracts and IoT enables organizations like Walmart to have the satisfaction of tracking all items in its inventory. Each item is labeled with a unique numeric identifier. And by looking for said item you can see all the information needed about it. For example Walmart can keep track of the products during their shipment process, check for expiration dates, and keep track of the origins of the products’ supplier. That way there is no need for data to be manually recorded by people since smart contracts are automatically updated. It also ensures that all products received are completely authentic.
The gaming industry is always enduring constant growth and innovations. Nowadays, competition between game developers has grown like never before. Gamestop recently announced its plans for expanding its niche into blockchains. With the help of Web 3.0 and smart contracts, Gamestop has great plans to enter the Metaverse. The implementation of smart contracts in the gaming industry created a transparent environment between developers and gamers.
Developers can now use smart contracts to build gaming applications. Any application built on a smart contract platform is considered to be decentralized, which is a major advantage for developers. Moreover, gamers can check smart contracts at any time to learn about the game’s latest plans and future upgrades. That’s because smart contracts provide transparent information flow. So, you can get any information you need about the other players or developers in just a few clicks.
Are Smart Contract Platforms A Good Investment?
Now that you briefly understood the concept of smart contracts and how they could be implemented in different industries. Let’s discuss whether they’re considered a good investment or not. No one can deny that the introduction of smart contracts in blockchain technology opened the door for many opportunities to be created. Yet there are still some areas where they require needed improvement.
The implementation of smart contracts within Ethereum’s technology allowed developers to be able to create their own content. With the help of smart contracts, anyone with a tech background can use blockchain to create their own cryptocurrency, decentralized application, NFTs, etc. In addition, smart contracts created the advantage of eliminating the need for financial intermediaries (i.e Banks) and middlemen (i.e Lawyers, brokers, etc.) In return, this has reduced the time spent for a transaction to be carried out. It also reduces the costs associated with transaction fees than if they were made through bureaucratic measures. Furthermore, smart contract platforms provide transparency with information flow. And any data recorded on the smart contract is immutable. Hence, why they create a reliable and a trusted environment for people all around the world to conduct transactions.
Although smart contracts are widely known for their benefits, they still face some unresolved issues. The main difference between a traditional contract and a smart contract is that traditional contracts are made with people in mind. Smart contracts, on the other hand, were invented to enhance the capabilities of machines. A smart contract is a form of binary code. So, unlike a traditional contract, a smart contract platform mainly relies on computer programmers. It performs competently when the conditions set are pretty straightforward. However, if the terms and conditions are deemed subjective, it may be hard to translate them into a form of code. Moreover, the parties involved in a smart contract are pseudonymous, which makes it difficult to pursue matters in court in case of a disagreement.
Furthermore, smart contract platforms have yet to have an enforcement of legal regulation of any sort. Hence, why investing in a smart contract platform is believed to be risky. Due to the fact that if an investment were to ever go south, there is no central entity, or laws set in place to protect you from losing your assets. Also, due the technological nature of a smart contract, it is more susceptible to being hacked and bugged. Therefore, even with the reliability associated with blockchains, some may always prefer traditional over digital.
The 5 Most Popular Smart Contract Platforms
In the recent years, blockchain technology reached a level of popularity like never before. An increase in popularity also created an increase in the demand for smart contract platforms. In return, many more organizations are now expanding their niche into smart contact use cases and blockchains. Listed below are the top 5 smart contract platforms in relation to their market cap.
The Ethereum platform was founded in 2013 by crypto-visionary Vitalik Buterin when he was just 19 years old. It was launched in the market two years later after collecting almost 16 million dollars in initial coin offerings (ICO). The platform was the first ever to implement smart contracts within its network. Giving the chance for many developers to be able to create applications on top of the Ethereum blockchain.
Similar to Bitcoin, Ethereum uses the Proof-of-Work consensus algorithm in order to validate transactions within its network. Although Ethereum is considered the most popular smart contracts platform. Many have complained over its massive consumption of energy that has subsequently lead to an inflation in its gas fees. In addition to that, some find Ethereum a relatively slow protocol. It has a maximum scalability of 20 transactions per second. That’s the consequence of the fact that the nodes within the blockchain reach consensus by using the PoW mechanism. Therefore, many developers have made the switch to different smart contract platforms.
According to its founders, Solana is a highly scalable smart contract platform. It was founded in the year of 2017 by engineers from some of the biggest software companies, like Intel and Dropbox. It was developed with the aim of solving the issues commonly found in blockchain. Which is to create a decentralized platform that is able to endure high scalability and ensures the utmost security.
It’s been said that it can carry up to 50,000 transactions per second. A major difference than with using the Ethereum platform. That is owed to the fact that it uses Proof-of-History consensus mechanism. The PoH consensus ensures transactions within the network to be carried at a much faster rate. It also ensures that the system will not waste computational power on already processed transactions. Solana’s architecture meets all the requirements needed for it to be deemed as an efficient platform. It is a highly scalable and a secure platform, and most importantly, it allows the development of decentralized applications.
The Cardano blockchain was founded in the year 2015 by Charles Hoskinson, one of Ethereum’s Co-founders. It is powered by its own native cryptocurrency, ADA. Hoskinson developed the protocol in hopes of improving the faults found in Ethereum. The main goal behind it is to solve the interoperability and scalability issues found within blockchain technology.
Ouroboros is a Proof-of-Stake consensus mechanism specifically designed to be used by its platform. It is the first-ever protocol to be formed on peer-reviewed research. Cardano’s solution to scalability includes building Orobouros Hydra, which will act as a second layer to the Cardano network. According to its founders, Hydra has been in the works for a while. It will be implemented in a way which fits well with a stake pool model. Each stake pool within the platform can add a Hydra head. And each Hydra head can process up to 1000 transactions per second. Theoretically speaking, this means that if there were up to 1000 stake pools in the network, the Cardano platform will be able to achieve a scalability of 1,000,000 transactions per second.
Polkadot is a newly developed smart contracts platform. It was launched in the year of 2020 by Gavin Wood, Ethereum’s former Co-founder. It is powered by its native token, DOT. The goal behind its development is to incentivize the global use of blockchain. It hopes to achieve that by solving the issues of interoperability and increase cross-chain communication by allowing multiple blockchains to operate under one network.
It offers the use of two blockchains within its network. The first blockchain, known as the Relay Chain, is said to be “the heart of Polkadot.” It’s the network’s main chain and is responsible for carrying out all transactions. The Relay chain is what enables cross-chain communication within the network. It also provides shared security with the blockchains built on top of it. The second blockchain, Parachain, is what supports the use of smart contracts. It enables developers to create their own blockchain, cryptocurrency, dApps, and much more. All while benefiting from Relay chain’s security. This design guarantees the network will work efficiently. It will allow for transactions to be executed with low consumption of energy and high security. Since the network’s architecture is built to preserve computational power.
The Avalanche protocol was founded in the year 2020 by Emin Gün Sirer. It was specifically created to enhance the development of smart contracts and dApps. Its founders refer to it as “the fastest smart contract platform measured by time-to-finality.”
Avalanche uses three blockchains within its network, each designed to execute a specific task. The Exchange Chain, (X-Chain), is the blockchain that is in charge of creating and executing transactions. The Contract Chain (C-Chain), is what developers can use to create smart contracts while benefiting from Avalanche’s scalability and interoperability. Last but not least, is the Platform Chain (P-Chain). It’s what allows the staking of tokens within the network. It also enables users to develop and power subnets within the Avalanche protocol. Furthermore, the Avalanche platform reaches consensus by using the Proof-of-Stake mechanism. This means that the protocol requires lower consumption of energy, which leads to lower costs in transaction fees.
The implementation of smart contracts within blockchain technology has, with no doubt, taken the blockchain industry to another level. It allowed the creation of a trusted ecosystem for anonymous parties to create and execute content and transactions. Investing in a smart contract platform may seem like a good crypto investment. However, choosing the right platform for you to invest in is where things get complicated.
With the emergence of so many smart contract platforms, trying to figure out which has a promising future is becoming more difficult. The crypto marketplace is under constant manipulation from factors out of its control. Since there aren’t enough laws set in place to guide the crypto community. Therefore, always do your own thorough research before investing in any smart contract platform or cryptocurrency.
Sally is a student of International Business Management and is interested in topics related to blockchain technology. She is an author for gBlogo’s “Crypto World” column and provides insight on topics related to cryptocurrencies and NFTs.