The advent of Ethereum created a new paradigm in a still-young blockchain industry and shifted its focus away from cryptocurrencies as financial tools and toward a more utilitarian purpose. With smart contracts on Ethereum and similar blockchains, processes that involve some transaction of data can achieve autonomy while remaining irrefutable and transparent. Startups and mature firms alike have developed ways to use smart contracts to build low-overhead work flows, and creatives are using them in their innovations as well.
A recent project on Ethereum’s platform called Crypto Kitties was the talk of the community for many reasons. The idea behind Crypto Kitties is that people can use Ethereum to trade and breed virtual pet cats via smart contract, which results in some interesting and rare “cattributes.” The more uncommon a cat’s trait, the more it’s worth in ETH.
Despite the novelty of the idea, or perhaps because of it, the simple game exploded in popularity. It temporarily managed to take over 13% of traffic on Ethereum’s blockchain through the Crypto Kitties smart contract. The event slowed down Ethereum significantly and revealed some daunting problems facing its scaling efforts. (See more: CryptoKitties Are Still a Thing. Here's Why.)
Ethereum’s Achilles Heel
Ethereum has a long road ahead if it wants to achieve its ambition of becoming the world’s “decentralized computer." Even Vitalik Buterin, the creator of Ethereum, doubts its current ability to scale, saying, “Scalability [currently] sucks; the blockchain design fundamentally relies on bottlenecks where individual nodes must process every single transaction in the entire network.”
He’s correct. The Ethereum blockchain keeps getting bigger, and exhibits an increasingly large footprint for the hardware of miners and users alike. Additionally, its relatively outdated algorithmic programming makes inefficient use of the chain’s processing power, and returns a dismal number of transactions per second. This is a problem for businesses who rely on Ethereum smart contracts and impacts its future applicability and price. Fortunately, there are other smart contract platforms built on blockchain that are working to evolve the concept further.
One of the most promising contenders for Ethereum’s title is QTUM, a hybrid cryptocurrency technology that takes the best attributes of bitcoin and Ethereum before blending them together. The result is a solution that resembles bitcoin core, but also includes an Abstract Accounting Layer that gives QTUM’s blockchain smart contract functionality via a more robust x86 Virtual Machine.
Essentially this is an off-layer scaling solution akin to what bitcoin seeks in SegWit and the Lightning Network, combined with the ability to build and host smart contracts. This has made QTUM a popular destination for developers, who appreciate the protective clauses installed in the platform that make it nigh impossible to commit the kinds of coding infractions that might one day become a multi-million-dollar problem. They also appreciate the presence of second-layer storage, despite its implications on decentralization, because stable business applications are their primary desire, as well they should be.
2. Ethereum Classic
The first hard fork that the cryptocurrency community witnessed was Ethereum forking from Ethereum Classic in 2013, which created a new prototype with ambitions to fill the gaps in Ethereum’s code. The controversy surrounded a hack where one individual stole over $50 million in ETH from a smart contract that was holding them in escrow as part of the original DAO (Decentralized Autonomous Organization) project.
After the hacker created a glitch that withdrew ETH from users instead of depositing it, the community voted to create a new chain that was backwards-compatible with the old one, so that mistakes like these could be reversed, and coins returned to their rightful owners. The hard fork installed a new update to the old Ethereum’s code which made it impossible to backtrack, even in the case of heinous breaches, of which there have been several. Ethereum Classic is continually being upgraded in this manner, thanks to a vibrant and active community, and keeps on pace with other projects despite its age.
NEO is what people like to refer to as “China’s Ethereum,” and for good reason. First, the two are very similar, and bill themselves as hosts of decentralized applications (dApps), ICOs, and smart contracts. They’re both open source, but while Ethereum is supported by a democratic foundation of developers, NEO has the full backing of China’s government. This has made it popular domestically but also abroad, and for its unique value proposition as well.
NEO uses a more energy-efficient consensus mechanism called dBFT (decentralized Byzantium Fault Tolerant) instead of proof-of-work, making it much faster at a rate of 10,000 transactions per second. Moreover, it supports more computer languages than Ethereum. People can build dApps with Java, C#, and soon Python and Go, making this option accessible to startups with big ideas while helping to add to its long-term viability.
One of the newest entries into the smart contract platform contest, Cardano is a dual-layer solution, but with a unique twist. The platform has a unit of account and a control layer that governs the use of smart contracts, recognizes identity, and maintains a degree of separation from the currency it supports.
Cardano is programmed in Haskell, a language best suited for business applications and data analysis, making its future applications likely to be financial or organizational. This ideal blend of public sector usability and privacy protection makes Cardano a potentially groundbreaking solution, but it’s still very young. While the developer team’s use of deliberate, airtight scientific methodology make progress slow, it will likely be void of any parity or security mistakes that are an unfortunate reality in its more haphazardly assembled peers.
The Bottom Line
Despite its issues, Ethereum remains the gold standard for smart contracts and blockchain-based apps. These new challengers all offer exciting value propositions, but they must also prove capable of attracting a wide enough user base to allow for mainstream adoption and success.