Smart contract platforms are decentralized digital platforms that provide a layer for deploying blockchain-based decentralized applications.
Smart contracts are tamper-proof programs that run on blockchains and execute when certain conditions are met. Smart contracts are powerful infrastructure for creating trust-minimized interactions because they are not controlled by a central administrator and are not vulnerable to single points of failure. As such, smart contract applications can reduce counterparty risk, increase efficiency, lower costs, and provide new levels of transparency in the global economy.
Since any developer can create a smart contract and deploy it on a blockchain, the emergence of on-chain verticals such as decentralized finance, NFTs, and blockchain gaming led to an explosion of smart contract platforms, which allow developers to deploy decentralized applications in a permissionless manner.
In this post, we’ll define what a smart contract platform is, examine why there are many different smart contract platforms, and provide a general framework for the comparison of smart contract platforms.
Ethereum—the First Smart Contract Platform
While the general idea behind smart contracts was described by computer scientist Nick Szabo in 1994, the first digital, permissionless, and tamper-proof smart contract was arguably the Bitcoin blockchain in 2009. Bitcoin established a set of conditions that must be satisfied for the transfer of bitcoins between addresses on the network. While designed for a purposely narrow focus, this can be called a protocol smart contract. Over the coming years, Bitcoin developers introduced additional functionality such as multi-signature transactions and operation codes (or opcodes) that are also akin to smart contract functionality.
The next major leap in smart contracts was the first blockchain that could act as a platform for programmable smart contracts—Ethereum. Initially proposed by Vitalik Buterin in 2013 and launched in 2015, Ethereum offered developers the ability to deploy permanent and immutable decentralized applications (smart contracts) on a blockchain. Instead of the network itself acting as a smart contract, Ethereum aimed to create a “world computer” that could run many smart contracts at the same time.
New Smart Contract Platforms
While smart contracts had many initial use cases, such as the issuance of tokens (both fungible and non-fungible), decentralized domain name systems, prediction markets, and more, their adoption didn’t significantly take off until the emergence of the first few successful decentralized finance protocols, such as Uniswap, MakerDAO, and Compound. DeFi demonstrated on a large scale that smart contracts have tremendous potential to reshape digital agreements.
With the rise of on-chain activity thanks to the growing adoption of DeFi, the demand for Ethereum blockspace started growing significantly, increasing user transaction gas fees in the process. With the growing demand for on-chain finance, many users were priced out from using these applications, which are supposed to bring open, global, permissionless financial services to anyone with an Internet connection. The opportunity emerged for developers and entrepreneurs to fulfill the growing demand for Web3 blockspace and experiment with deploying additional smart contract platforms, giving rise to the multi-chain ecosystem.
As a result of this phenomenon, many new layer-1 networks (smart contract platforms) emerged, each offering unique benefits by making different design choices and tradeoffs regarding the “blockchain scalability trilemma”—a concept that states that traditional blockchains can only maximize two out of three properties: scalability, decentralization, and security.
One limitation of traditional blockchains is that achieving scalability usually requires sacrificing decentralization, security, or some degree of both. For instance, a scalable and decentralized network will need to incentivize a large number of active participants in order to achieve high security. A scalable and secure network will generally raise the cost of running a node at the expense of decentralization. Furthermore, secure and decentralized networks keep the requirements for running a full node low and the cost of attacking the network high but end up with scalability bottlenecks as a result.
New smart contract platforms typically make a different set of tradeoffs so they can offer unique benefits to developers and users, while others opt for fundamentally different designs. Due to the significant market opportunity presented by the disruption of many large industries, such as finance, insurance, and gaming, building a smart contract platform and underlying application ecosystem can involve very distinct business development approaches in an attempt to find product-market fit in different target markets.
Smart Contract Platform Comparisons
As mentioned, different smart contract platforms take significantly different approaches to fostering a decentralized application ecosystem. While not an exhaustive list, below are some of the most important considerations when it comes to comparing smart contract platforms:
- Security—One of the most critical aspects when it comes to comparing smart contract platforms is security. The more secure a layer-1 network is, the more difficult it is to create invalid blocks or arbitrarily change the protocol’s rules, making the network more dependable as a credibly neutral settlement layer.
- Scalability—A smart contract platform must be able to handle a large number of transactions and support a growing user base. Blockchain scalability concerns itself with the challenge of maintaining strong trust-minimization properties of security and decentralization while achieving the high speed and low cost of traditional computing environments. Achieving scalability usually requires sacrificing decentralization, security, or some degree of both.
- Decentralization—Decentralization is a critical component of generating trust-minimization, but it’s typically the property that makes blockchains slow. While there are many aspects to consider here and decentralization is more of a spectrum than a binary category, one of the most significant metrics for gauging decentralization is the number of full nodes in a network—entities that independently store a full copy of the chain’s ledger and continually validate new blocks.
- Developer experience—Ideally, a smart contract platform has an intuitive and user-friendly development environment with adequate documentation, tools, and support so it can attract as many developers as possible to deploy innovative smart contracts that attract users to the platform.
- Community/ecosystem—A vibrant and active community is crucial to bringing success to a layer-1 network by spreading awareness about the platform’s unique benefits and attracting users and capital to its dApp ecosystem.
- Economics—A smart contract platform is essentially a software business that’s selling blockspace. Making that business long-term sustainable is key to creating a successful layer-1 ecosystem.
- Adoption—Due to the inherently transparent nature of blockchains, on-chain activity, such as unique addresses, monthly active addresses, and number of transactions can provide a rough barometer for the underlying trend of adoption of the smart contract platform.
The Path to Widespread Smart Contract Adoption
Smart contracts help realize a vision of collaboration based on decentralized systems, allowing blockchains to facilitate interactions underpinned by trust-minimization and cryptographic truth. Even with the explosive growth of the smart contract economy through the emergence of many smart contract platforms, the far-reaching applicability of the technology is a clear sign that the blockchain ecosystem has only scratched the surface of what’s to come.
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