Since its launch in 2015, Ethereum has been ruling the smart contract blockchain sector. And this shouldn’t come as a surprise.
While Bitcoin provides store of value and transactional functionality, Ethereum allows developers to run self-executing digital agreements (smart contracts), create decentralized applications (DApps), as well as ERC-20 tokens on top of the ETH blockchain.
However, while it offers tremendous benefits to developers and end-users as well, Ethereum’s main weakness is limited scalability.
Due to this problem, Ethereum has become congested due to the network’s heavy usage, which significantly increased gas fees, especially for those utilizing DeFi DApps.
And, despite Ethereum devs working hard to fix these issues with ETH 2.0, the major upgrade’s launch is still at least a year away.
For that reason, multiple blockchain platforms have gained increased popularity recently.
These solutions feature (or will be implemented in the coming months) the same smart contract functionality as Ethereum. At the same time, they are highly scalable, effectively preventing network congestion in the future.
Now, let’s take a look at them!
- Market cap: $35.76 billion
- Daily transactions: 32,960
- Addresses created (total): 1.13 million
- Daily new addresses: 37,410
Cardano (ADA) is among the most interesting smart contract platforms that compete with Ethereum.
Founded in 2015 by the Input-Output Hong Kong (IOHK) organization managed by Ethereum co-founder Charles Hoskinson, Cardano features a smart contract blockchain platform that aims to operate in a more sustainable and inclusive way than its main competitor.
Interestingly, unlike most crypto projects, Cardano is developed through an evidence-based methodology, with the whole process being supported by peer-reviewed academic research.
While Ethereum currently uses the Proof-of-Work (PoW) consensus mechanism – with a transition to Proof-of-Stake (PoS) with Ethereum 2.0 on the horizon – Cardano uses PoS-based Ouroboros protocol.
In addition to that, Cardano’s blockchain operates via two layers: the Cardano Settlement Layer (CSL) for facilitating peer-to-peer (P2P) transactions (e.g., for tokens between users) and the Cardano Computational Layer (CCL) for maintaining the network’s security. Besides that, the CCL also acts as ground zero for deploying smart contracts while serving as a framework for regulatory compliance.
As a result of its two layered and PoS consensus mechanism, Cardano is highly scalable, achieving approximately 1,000 transactions per second (TPS) compared to Ethereum’s roughly 15 TPS.
It’s important to highlight, like most Ethereum competitors, Cardano is still under development, with some of its core functionality still waiting to be implemented, such as smart contract and decentralized application support.
That said, Cardano developers are very active and have made good progress with the project since launch. While they laid the foundation with the Byron phase, they almost finished decentralizing the network in the Shelley era.
After that, the Goguen era will follow, which will introduce smart contracts and DApps to Cardano, allowing the blockchain project to compete with Ethereum in the DeFi space.
Earlier this month, Cardano successfully launched the Mary fork, which is promised to set the stage for Goguen’s rollout. As a result, the project’s native ADA token significantly increased in price, becoming the fifth top cryptocurrency by market cap.
Binance Smart Chain
- Market cap: $44.77 billion (BNB)
- Daily transactions: 2.61 million
- Addresses created (total): 58.2 million
- Daily new addresses: 39,925
Binance Smart Chain (BSC) is one of the most prominent Ethereum competitors among fully-functional blockchain networks (where the developers have already introduced most core features).
Interestingly, BSC is the second blockchain of the cryptocurrency exchange Binance. While the first, the Binance Chain, features a highly scalable network, it lacks the functionality and the flexibility of Ethereum.
Binance Chain has no virtual machine, doesn’t support smart contracts, and is mostly used for running the Binance DEX and some other native DApps.
Launched in September 2020, the Binance Smart Chain aims to solve the above issues by featuring the same high throughput of the Binance Chain but with smart contract functionality and Ethereum Virtual Machine (EVM) compatibility.
While the BSC is not an off-chain or a layer-two scaling solution, it runs in parallel with the Binance Chain. To achieve high scalability and 3-second block times, the Binance Smart Chain utilizes the PoS-based Proof-of-Staked-Authority (PoSA) consensus mechanism.
Interestingly, since the BSC supports both smart contracts and the EVM, Ethereum-based DApps can easily be launched on top of the Binance Smart Chain with minimal configuration.
Maybe this is the reason behind the recent surge in popularity of BSC, now processing twice the amount of transactions as that of Ethereum on a daily basis.
- Market cap: $20.47 billion
- Daily transactions: 795,912
- Addresses created (total): Not available
- Daily new addresses: 1,606
When you hear DeFi or smart contracts, Ripple (XRP) is not among the top five (or even 10) crypto projects that come to mind.
The reason for this is that Ripple is a blockchain-based global payment network that facilitates inexpensive and instantaneous cross-border transactions between individual and institutional users.
However, the cryptocurrency project has recently entered into the DeFi industry after the Flare Network’s launch, an Ethereum Virtual Machine-compatible blockchain network that works on creating bridges with other chains.
One of Flare Network’s first bridges is with the XRP Ledger (the blockchain network powering Ripple).
When that bridge is built between the two blockchains, it will add smart contract functionality and DApp support to Ripple, allowing developers to create a DeFi ecosystem natively around the crypto project’s network.
- Market cap: $33.63 billion
- Daily transactions: 14,319
- Addresses created (total): 196,457
- Daily new addresses: 5,910
Although Polkadot is focused on interoperability rather than rivaling Ethereum, we still listed it as a competitor to Ethereum.
The reason for the above is that Polkadot – after the integration of multiple parachains – will have smart contract and virtual machine functionality that will allow it to compete with Ethereum in the DeFi space and beyond.
In short, Polkadot is a blockchain-based Web3 interoperability platform that aims to link otherwise separate chains via bridges.
To achieve high scalability (up to 1,000 TPS on the relay chain and up to 1 million TPS with parachains), the crypto project uses the Nominated Proof-of-Stake (NPoS) algorithm for reaching consensus.
Polkadot’s ecosystem consists of four crucial elements:
- The relay chain: Polkadot’s main blockchain that ensures network security and functions as a communications hub between parachains.
- Parachains: Parachains are independent blockchains deployed on top of the relay chain. While they serve a unique purpose in the ecosystem, they can communicate with each other while running parallel with the main chain.
- Parathreads: Similar to parachains, parathreads are separate blockchains in the Polkadot ecosystem but without dedicated slots. For that reason, they share a slot among a group, featuring less-frequent uptime and operations.
- Bridges: Bridges are special parachains responsible for connecting Polkadot with other blockchain networks and facilitating transactions between them.
It’s a matter of time until we see whether Polkadot will complement or compete with Ethereum (or both).
Like Cardano, Polkadot is still in the production phase, with developers currently adding functionality to launch parachains on top of the relay chain.
There are now nearly 400 projects that are being built on Polkadot. If you are interested in learning more about them, we recommend reading our recent post on some of the most promising projects being built on Polkadot.
What About Layer-Two Scaling Solutions for Ethereum?
It’s also important to mention layer-two scaling solutions that are being deployed on Ethereum.
With examples including MATIC and OMG, a layer-two scaling solution is a blockchain on top of another blockchain that frees up crucial block space on the main chain by channeling transactions to a faster chain.
As a result, it can speed up transactions and decrease transfer fees.
Since Ethereum has been heavily congested in recent months, layer-two scaling solutions have been trending in the crypto community, with multiple projects getting increasingly closer to launch on the smart contract platform.
However, when they get deployed on top of Ethereum and get heavily used, layer-two scaling solutions won’t present any competition for ETH.
Instead, they will complement Ethereum with each layer-two platform becoming a competitor of other layer-two solutions deployed on the same blockchain.
Will Ethereum Lose its Dominance Over DeFi and Smart Contracts?
While Ethereum has provided tremendous value to the crypto community, it faces issues with limited scalability that leads to a congested network during busy times like now.
For that reason, multiple smart contract platforms featuring high scalability and innovative functionalities have emerged to take on Ethereum.
However, except for Binance Smart Chain and a few other projects, the blockchain networks (or the functionalities they need to compete) of most Ethereum competitors are still under development.
Therefore, it will take some time to see whether they might displace Ethereum as the dominant smart contract and decentralized application platform.