Of the more than 10,000 crypto, token and altcoins, there is a special class of projects. These are the smart contract platforms.
Smart contract platforms began with Ethereum and have grown into dozens of iterations.
Even Bitcoin, with Blockstream’s Liquid and the Lightning Network, has evolved to develop this layer of applications.
The decentralized token ecosystem is being developed on top of the smart contract ecosystem.
Each project builds on the learnings and flaws of the projects that came before it.
Each project demonstrates a unique vision built around blockchain.
And each project has some version of consensus and governance based on a vision of something better.
By looking at the breadth of smart contract platforms, we can see the dynamism and flexibility of blockchains and smart contracts. And we can see how the space for decentralized apps and DeFi are evolving.
Smart contracts are computer algorithms that automatically execute transactions or instructions of various kinds between parties.
Smart contracts are used for a whole host of services. These include trading, yield farming, managing rights for NFTs, and Decentralized Autonomous Organizations (DAO).
The idea behind smart contracts has been attributed to Nick Szabo’s paper on vending machines.
The vending machine executes a transaction automatically. It does it without direct human intervention based on a defined set of rules.
This has been extrapolated into smart contracts on blockchains. The vision of automated market-making using smart contracts was described by Vitalik Buterin and brought to life by Uniswap.
Smart contracts have unlocked new forms of value discovery. Brand new ways of creating and distributing wealth. Ways of building new virtual products and services.
Ethereum was first to develop smart contracts. But what has followed is numerous ideas around what a platform is and what can be done using these algorithms.
Smart Contract Platforms have some similarities
In examining various platforms, you will notice that they have several elements in common.
They usually have a development arm. These platforms also have a foundation to guide the development and fund it. Many of these foundations are located in Switzerland.
These platforms are heavily invested in building community.
Many of these platforms started pre-2018 during the ICO boom. And many of them raised money through ICOs.
Almost all of the projects use some form of proof-of-stake consensus. And if you look through their documents, almost all of them contrast this with Ethereum’s old proof-of-work standard.
Every platform also has some form of governance standard. These standards vary, demonstrating a range of ideas about how governance should operate.
Some platforms have a dual token standard. Typically one token operates almost as a form of ownership or participation. A second token usually acts as a reward that you can use for platform fees.
Some platforms have a relatively fixed coin issuance, while others have a hybrid mint and burn profile.
And while some are meant to be built on, other platforms are tackling unique blockchain challenges presented by the market. One unique challenge being addressed is activity across different chains. This remains a major challenge. Another is the intersection between data outside the network and bringing it into the network.
And it is notable that only now are several of these platforms coming into their own. This is after several years of development.
Let’s have a brief look at some of the ideas that are out there.
Cardano (ADA) was founded in 2015 by Charles Hoskinson and Jeremy Wood. Both were former members of Ethereum, Hoskinson being credited as one of the founders.
Cardano is in development but well along in its five stages.
The project was developed by Input Output Hong Kong (IOHK), also founded by Hoskinson and Wood. They have a couple of additional partners, including the Cardano Foundation and Emurgo from Japan.
They are differentiating themselves by using peer-reviewed academic research. They are also using a relatively unique proof-of-work consensus mechanism called Ouroboros.
This is a time-based consensus mechanism that emphasizes selected staking pools. Individuals participate in these staking pools to validate and receive rewards.
Cardano raised their funds in 2015 and 2017, and the project is operating and well into development as of 2021.
As a platform for the development of dApps, this is one of several Ethereum challengers.
Polkadot (DOT) is another smart contract platform. It was co-founded by Dr. Gavin Wood, co-founder of Ethereum and author of the Ethereum Yellow Paper. Wood is joined by Polkadot co-founders Robert Habermeier and Peter Czaban.
Polkadot is being developed by the Web3 Foundation and Parity, both founded by Wood.
Polkadot is designed around the concept of a Relay Chain. It connects various para-chains (blockchains) together in one network to run transactions in parallel. The lack of interaction between different chain standards has been a major drawback of early blockchains.
So you don’t build on Polkadot. You connect your chain to the Relay Chain.
The foundation provides security and consensus. Consensus for Polkadot is called nominated proof-of-stake. Anyone can nominate their tokens to a dedicated validator. The PoS operates with an interaction between four parties. They are Collators, Validators, Nominators and Fishermen.
The Collators act like miners managing transactions where the Fishermen watch the performance of the validators.
The initial DOT supply is 1 billion coins with a 10% inflation rate. And DOT is used for fees, governance, interoperability between chains and bonding.
This is one of the most anticipated platforms in the space.
In 2013, Sunny Lu started BitSE, a company primarily focused on Bitcoin mining. In 2015, he took a modified Ethereum fork and converted it into the blockchain platform VeChain.
VeChain (VET) is a Blockchain as a Service offering. Their BaaS service is called ToolChain.
The objective is to create a scalable off-the-shelf blockchain service to serve numerous real-world areas. These include supply chains, food, carbon, retail solutions and logistics, amongst others.
VeChain brings together data derived from various sources, including IoT sensors.
VET acts as the main token for governance with a current limit of 100 billion. They have a sub-token called VeThor (VTHO) for rewards and transaction fees on the platform.
This is one example of the early promise of blockchain we were presented back in 2017.
Justin Sun is well known in the crypto space. Depending on your point of view, he is either a hero or a devil.
Justin is the founder of Tron (TRX), an entertainment and content blockchain platform. It was founded in 2017. The platform has a wide variety of assets, including a wallet, Bittorrent, games, stablecoins and various other content generation and distribution assets.
There is a strong emphasis on content creation and distribution.
The coin limit is 100 billion, and the consensus mechanism is delegated proof-of-stake.
Justin is also famous for his takeover of Steemit, another content creation blockchain, and the debacle that followed. In defiance, the community forked the Steem blockchain and created Hive while locking out Sun.
NEO, a smart contract platform founded in 2014 by Da Hongfei and Erik Zhang. The founders began their project as Antfarms and rebranded it as NEO in 2017.
They have a coin limit of 100 million and use a proof-of-work mechanism called delegated BFT.
Their mission is to create a next-gen internet that includes digital ID, digital assets contracts and payments. As of 2021, NEO says they are moving to N3, which will add storage, naming and oracles.
They claim to be the only ICO or token sale that has returned all the money to investors.
NEO uses a hybrid token model with NEO as the main token and Neo Gas as a sub-token. Neo Gas incentivizes validators and is split between NEO holders, the NEO governance council and successful voters. NEO holders are always rewarded for their loyalty.
Their governance is derived from token holders voting for a council. The platform is also difficult to fork.
Jae Kwon and Ethan Buchman founded Cosmos SDK (ATOM). Cosmos was developed by Tendermint founded by Kwon in 2016.
Tendermint was started as a way to solve the challenges with proof-of-work consensus.
It has developed into a vision of how multiple blockchains can work together. They are supported by the Interchain Foundation.
Cosmos SDK is designed around an interoperable and scalable token economy. The idea is to create an internet of blockchains that can communicate with each other.
So Cosmos acts as a marketplace, security provider, router and custodian.
Cosmos uses the Tendemint BFT consensus mechanism, which allows for signatures on multiple blockchains in parallel. And the native token, ATOM, is used to secure the chain, earning rewards and governance.
Their initial coin supply was 236,198,958 ATOMS, with a floating inflation rate between 7-20%.
Cosmos and Polkadot are exploring similar concepts but in unique ways.
Tezos (XTZ) has had an adventure since its founding in 2014. The husband and wife team of Kathleen and Arthur Breitman founded the project.
The initial coin offering of 763,306,929.68 XTZ raised 65,681 BTC and 361,122 ETH in 2017. The value at the time was about $232 million.
A dispute delayed the issuance of the XTZ to buyers, resulting in a class-action lawsuit and some embarrassing press.
The project was developed by Breitman’s Dynamic Ledger Solutions and is supported by the Tezos Foundation.
Tezos is described as a self-amending protocol with on-chain governance. The idea is to avoid or prevent network forking.
This approach is sometimes contrasted with Bitcoin and Ethereum’s off-chain governance.
Arthur describes Tezos as a platform for higher language proofs, making it easier for users and developers to build smart contracts and dApps.
The consensus mechanism delegated proof-of-stake with a twist. Holding Tez (XTZ) gives the holder block creation rights. The rights holder, called a baker, can either exercise the right, out up a bond and create the right. Rights holders require a minimum of 8000 XTZ.
Or you can rent out block creation rights to a third party called an endorser. There is a variable rewards structure between bakers and endorsers.
Smart contracts and the future of crypto
These are just a few of the numerous smart contract blockchain projects in development. Many of these have come to life due to a prolific ICO market and an explosion of ideas influenced by Bitcoin.
All are evolving from a consensus model of proof-of-stake. The idea is to increase throughput, cut energy use and increase scalability.
The structure is often, but not always, a development arm and a foundation for financing and guidance.
But each one is approaching the problem from a different angle with its vision of a community.
Blockchain began as a mundane ledger-based record. It has become an integral part of an ecosystem still relatively new in development.
While some of these platforms have been around for several years, they are still very much in the process of evolution.
And there are many other well-known projects with solid communities. These include Solana, Terra, Avalanche and EOS.
The crypto economy will be built on these foundations of ideas around blockchain, smart contracts and tokenomics.
And there will be many more new and evolving ideas as the space continues to develop.
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