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The rise of blockchain technology has revolutionized pretty much everything around us. But while bitcoin and other cryptocurrencies showed us that it was indeed possible to facilitate decentralized peer-to-peer payments, it was the advent of smart contracts that well and truly opened the floodgates. In fact, given its rate of proliferation, it’s probably safe to assume at this point that we are living in the smart contract era. Today, the number of blockchain-based smart contract platforms available is now greater than ever and there are thousands of decentralized applications designed to redefine the world as we know it.
So what exactly are these smart contracts? What are the popular smart contract platforms and how do they differ from one another? How do their technologies compare? This guide provides these answers by taking a closer look at the three leading smart contract platforms -- Etherum, EOS and Cardano. The native currencies of these platforms are traded here on CoinFalcon.
What is a smart contract?
A smart contract is just like a normal legal contract except that it is written on immutable code and enforced by computers. Okay that seems like an oversimplification, so think of it like this -- if you enter a normal legal contract with someone and the person doesn’t hold up their end, you can resort to the legal system and law enforcement to step in and make them oblige. Let’s say you agreed to buy a website, but what’s to stop the seller from taking your money and refusing to send the logins and other ownership info as agreed. One solution is to bring in a third-party service like an escrow agent, but then these types of services take their own cut so you end up spending way more than you planned to spend on purchasing that website.
With a smart contract, the agreement is executed automatically based on the terms of the contract, thereby eliminating the need for a middleman. In this instance, if you make the payment, the ownership of the website automatically transfers to you on the specified date. If the website isn’t transferred on that date, the blockchain releases a refund. If the website is sent earlier, the system holds it and your payment until the specified date of release to both parties. Since the contract is on the blockchain, the terms are unchangeable and the codes cannot be interfered with, since all participants are simultaneously alerted. Both parties walk away satisfied.
Smart contracts essentially define the terms of an agreement in the same way that a normal contract does, and then automatically enforces those obligations when triggered. You can use smart contracts for various sorts of situations, from financial services to credit enforcement, legal processes, crowdfunding agreements and even property law.
With so many platforms available today, you should note that the money you would put in a smart contract must be in the native currency of the blockchain. So if you’re building your contract on the ethereum blockchain, then the money you’ll put in as the buyer needs to be Ether (ETH) tokens; ADA for the Cardano blockchain, and so on.
Comparing Smart Contract Platforms
Now that you have an understanding of smart contracts, let’s see how these three popular smart contract platforms stack up against one another.
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Proposed in late 2013 by Russian-Canadian programmer Vitalik Buterin, Ethereum has since grown strength-to-strength to become one of the most vibrant developer communities in the crypto space today. Like many other programmers at the time, Buterin was intrigued by the blockchain and its potential utility, but he believed that this revolutionary technology could offer so much more than a peer-to-peer payment system.
He began working on his vision for a future where developers could easily and quickly build their applications on the blockchain. Ethereum was going to be a decentralized global supercomputer from where these developers could rent computing power or “gas” as it’s known in the ethereum space, and use it to create their decentralized applications or dApps. The ethereum network went live in July 2015 and essentially ushered in the era of the second generation blockchain.
Ethereum’s Strengths and Weaknesses
Ethereum pioneered smart contract applications. It was the first cryptocurrency network on the blockchain to allow developers to code smart contracts and have them self-execute on the platform. Anyone in the world can use this platform to build dApps using smart contracts and have them operate with no downtime, fraud, or interference by malicious actors. Ethereum’s main strength lies in the fact that it currently has the highest number of users, developers, documentation and dApps on its network.
However, Ethereum’s main strength has also turned out to be its weakness. Because the network has the most users and developers, there is often congestion and sometimes long wait times for transaction confirmation. This also means that interacting with dApps can cost way more than they should. The good news is that Ethereum has been actively working on solving these issues and we should begin to see these solutions reflected in its upgraded version, dubbed ETH 2.0, later this year.
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EOS is a relatively newer blockchain project designed to handle smart contracts. It is one of many Ethereum alternatives and is usually advertised as the “operating system” for decentralised applications. The project was first launched in 2017 by a company in the Cayman Islands called Block.One. Daniel Larimer, the leading developer on EOS, has also gone on to develop other successful blockchain companies, including BitShares and Steemit.
The EOS network prides itself on being the fastest, cheapest, and most scalable smart contract blockchain in the world thanks to its delegated proof of stake (Dpos) consensus mechanism, which makes a fundamental tradeoff to become more centralised in exchange for a faster, more scalable network. Transactions are being verified by the community in a similar way to Ethereum and it also has its cryptocurrency, known as EOS, which can be used to send and receive funds, wallet-to-wallet.
EOS’s Strengths and Weaknesses
Ethereum is a highly established blockchain project with a fully functional platform but is currently stuck at 15 transactions per second, while EOS has successfully managed around 6,000 transactions per second which makes it already significantly better than Ethereum in terms of speed.
What's more, there are no transaction fees which creates a much better experience for users of EOS dApps. Rather than use fees paid by developers and end-users, the fees used for securing the EOS network are paid through inflation, the 1%yearly increase in supply of EOS tokens. Essentially, the burden of securing the network is borne by the dApps built on the platform rather than the consumers.
However, EOS is still in its early days, meaning there is a much steeper learning curve for developers looking to build dApps on the EOS network than on Ethereum. It also means that there are less state-of-the-art dApps overall on EOS and there are fewer users willing to try out them out.
The other potential drawback with EOS is its semi-centralized nature. There are only 21 block producers responsible for keeping the EOS blockchain operational, which means control of the platform is essentially in the hands of a very small group. This is the price it pays for its scalability and ability to process such a high amount of transactions within a given timeframe.
That being said, if EOS is able to get past these hurdles, it would not only be one of the most scalable blockchains in the industry, but it could evolve to be able to handle just about any real-world application.
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Cardano is a technological platform designed to handle various financial applications around the world, making it possible to run fast, direct transfers. Its approach is unique in the space itself as it is built in layers through scientific philosophy and peer-reviewed academic research, which provides flexibility to the system that allow for easier maintenance and upgrades through soft forks. It has its own Ada cryptocurrency and people love it because it is supported by a team of academic experts, researchers, and scientists who contributed to the development of the Cardano blockchain and its advanced consensus algorithm, Ouroborous, the first peer-reviewed consensus algorithm in the crypto space.
Charles Hoskinson who happens to be one of the co-founders of Ethereum is the brain behind Cardano and what makes Cardano unique is the sheer amount of expertise and care that goes into its upkeep. Three organisations work in synergy to make sure that Cardano stays on course and at a good pace. They are:
- The Cardano foundation
Thanks to its layered architecture, a separate computing layer exists to handle smart contracts and run dApps. With the integration of the Shelley Incentivized Testnet into the Cardano mainnet, it’s only a matter of time until the Cardano blockchain transits to its full decentralization.
Cardano’s Strength and Weaknesses
Cardano prides itself as a 3rd generation blockchain, meaning they took the two positive elements from the first two generations of the blockchain (Bitcoin and Ethereum) and added some elements of its own because they knew blockchain needed to evolve even more. In addition, the fact that Cardano’s ecosystem is focused on being interoperable means it can one day provide seamless cross-platform support to many smart contracts and dApps across different blockchains.
On the flip side, Cardano is still in its infancy so it missed out on the first-mover advantage that Ethereum had. The network does have its share of developers and users, but nowhere near what Ethereum and even NEO have. Also, even though Cardano is a really exciting project, it would seem the team is ahead of their time both culturally and technologically so it might take a while to see its advanced applications gain public acceptance. Lastly, the Ada token has a massive supply of 45 Billion tokens so there’s always the possibility of inflation.
Smart Contracts and the diversification of decentralized applications may end up becoming among the most important blockchain inventions of all time, even trumping the revolutionary power of cryptocurrencies. As with every new technology, deciding in the winner in this battle will ultimately come down to your perspective -- Ethereum has the most market share, EOS has the processing speed and Cardano has the potential for Interoperability, a system where individual blockchains can communicate with one another and also with external legacy financial systems.