Smart contracts are game changers, but they're not all the same.
Contracts and agreements underpin many daily interactions, whether it's your contract with an employer, your rental or mortgage agreement, or the guarantee on a new TV. The magic of smart contracts is that all those agreements can be codified and set up to work automatically -- without any third-party involvement.
For example, a life insurance policy might pay out as soon as a death certificate is issued, without any need for the beneficiaries to file a claim. Or the deeds from a house sale might be transferred as soon as the payment is received. A mortgage could be tracked on the blockchain, and the property released when it is fully paid.
Smart contracts can transform our lives
Smart contracts are one of the reasons blockchain technology could be so powerful -- but as yet, they've only reached a fraction of their potential. If they are to reach mainstream adoption and transform our day-to-day lives, the platforms need to be faster, secure, scalable, and more affordable.
They are the engines behind the emerging decentralized finance (DeFi) industry, which refers to various applications that cut the middleman out of traditional finance. They're also crucial for decentralized applications (dApps) being built on smart contract (or programmable) platforms.
Here are some top smart contract platforms to watch, in no particular order.
1. Ethereum (ETH)
Ethereum was the first cryptocurrency to launch smart contract functionality. As a result, it powers the lion's share of applications. According to State of the dApps, about 80% of DeFi applications run on Ethereum's network.
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Unfortunately, it has been a victim of its own success. The network is heavily congested, has a large carbon footprint, and developers complain of high gas (transaction) fees. It's a bit like a big old expensive engine churning out fumes as it toils uphill. Ethereum also doesn't work well with other blockchains.
Eth2 -- an upgrade to solve some of these issues -- is on the way, but it won't be complete until at least 2022. Other cryptocurrencies, like Polygon (MATIC), offer something called layer 2 solutions which sit on top of the Ethereum network and process transactions faster and cheaper.
2. Solana (SOL)
Solana is the fastest crypto on the block right now, with speeds of 50,000 transactions per second (TPS). To put that in perspective, Ethereum runs at 15 to 45 TPS, though it will speed up dramatically post Eth2. Average fees on Solana are a fraction of a cent.
It uses something called "proof of history" to process transactions more quickly. Without getting too technical, incorporating timestamps into its transaction records means it doesn't waste computing power checking transactions that have already been processed.
Solana has about 400 projects running on its system, including the rapidly growing stablecoin USDC. USDC runs on both Ethereum and Solana.
3. Polkadot (DOT)
Solana stands out for its speed, but Polkadot stands out for its interoperability (how well it works with other platforms). This is the crypto that hangs out by the coffee machine and chats with everybody else.
Polkadot uses something called parachains. These run parallel to the main blockchain and allow it to process transactions faster. Smart contracts run on the parachains, not the main blockchain.
4. Ergo (ERG)
This smart contract platform doesn't charge gas fees, which sets it apart from the other cryptos on this list. Ergo is designed to process more complex contracts, which could appeal to the DeFi industry.
However, it's not yet listed on many major crypto exchanges and will have to work hard to build its profile.
5. Alogorand (ALGO)
Like the other new smart contract platforms, Alogorand promises low costs, scalability, and speed, without compromising security. The man behind the project is MIT professor Silvio Micali, who, among other things, prioritized making smart contract language accessible.
Developers can use different programming languages to write smart contracts on Algorand. One of them, Clarity, is designed to make it easy for users to understand what the contract will do, even if they are not seasoned developers.
6. Cardano (ADA)
Strictly speaking, Cardano shouldn't be on this list, because it will only launch its smart contract functionality in September. However, it's worth watching because news of the long-awaited upgrade has pushed Cardano into the top three cryptos by market cap.
Cardano takes a slow-and-steady approach to development. Each step is peer-reviewed and carefully tested, which means it has taken a long time to introduce functionality that others have been running for years. However, the expectation is that when it does launch, it will quickly catch up.
Investing in smart contract platforms
Smart contract cryptocurrencies are an exciting area. We don't know how this nascent industry will evolve, but there's a good chance these digital currencies will not only survive long-term, but also perform well.
If you decide to invest, you'll find most of these coins on top cryptocurrency exchanges. Always research these and other cryptos in this field for yourself, and only invest money you can afford to lose, as all crypto investments carry risk.
The two biggest risks on the horizon are regulation and technological advancement. Increased regulation could impact DeFi and the crypto market overall, especially in the near term. And, given the speed at which technology can develop, it's worth paying attention to quantum computing. There may come a time when this threatens the security of various blockchains.
Right now, smart contracts are an interesting market, and we've only seen the tip of the iceberg in terms of what they might achieve.
