Cardano Smart Contracts: Can They Help ADA Overtake Ethereum

The Alonzo hard fork launched in September 2021 made it possible for the significant upgrade to the Cardano network that introduced the much-anticipated smart contract functionality. 

However, months after the mainnet smart contract rollout, Cardano still trails far behind Ethereum and other smart contract platforms in terms of on-chain dApp activity. 

In this article, we’ll try to answer whether Cardano can reverse the slow smart contract development and deployment trend and emerge as the top Ethereum killer.

What are Cardano smart contracts?

Cardano smart contracts are digital contracts between two or more parties that are similar to traditional contracts. When particular prerequisite requirements (or inputs) are satisfied, transactions (or outputs) are the result of execution. Once the requirements are met, the transactions are carried out automatically.

Smart contracts for beginners: Smart contracts are computer programs stored on a blockchain that run automatically when certain predefined conditions are met and verified. They are one of the most important innovations made possible by blockchain technology.

Following the Alonzo upgrade earlier this year, anyone can create and deploy their own smart contracts on the Cardano blockchain, paving the way for native decentralized applications (dApps). This has made it possible to develop a wide range of dApps as well as migrate projects from other blockchain platforms to Cardano.

Transactions serve as the main input and output for these Plutus-language apps. If predetermined criteria are met, the blockchain-based programs automatically run.

In September 2022, Vasil hard fork brought several new improvements for Cardano smart contracts, including on-chain data sharing, lower script execution costs, higher throughput, and transaction size reduction. The number of smart contracts on the Cardano network increased past 4000 following Vasil and saw a major spike towards the end of the year.

Number of smart contracts (Plutus scripts) since the Alonzo upgrade went live. Source

For comparison, roughly 160,000 smart contracts have been deployed on Ethereum in the time period that Cardano needed to reach the 4500 mark, per Etherscan data.

About Cardano

Cardano was introduced in 2017 by the development and blockchain research company IOHK. Prominent crypto consultant Jeremy Wood and American entrepreneur Charles Hoskinson started working on Cardano two years before it officially launched. Hoskinson was a co-founder of Ethereum, one of Cardano’s main rivals in the cryptocurrency market.

Girolamo Cardano, an Italian mathematician who lived in the 1500s, is the inspiration behind the naming of the Cardano platform. The majority of Cardano’s projects and sub-entities bear the names of historical figures like Byron and Ada Lovelace. The projects and their development are under the control of the Cardano Foundation. Cardano’s native ADA token has a market cap of more than $8.5 billion, which ranks Cardano among the top 10 largest crypto projects.

How do Cardano smart contracts work?

Cardano smart contracts automate digital agreements between two or more parties. In principle, smart contracts function like traditional contracts: when particular conditions are satisfied, transactions are automatically executed. Due to the nature of blockchain, smart contracts are more difficult to tamper with and are more easily enforceable than traditional contracts.

The Plutus smart contract platform is powered by the ADA token, which is used as the native transaction and gas asset. Plutus is based on the functional programming language Haskell, which offers a high level of predictability and security. However, the fact that Haskell is not a widely used programming language may deter some developers from using Cardano to host their smart contracts.

What are the benefits of Cardano smart contracts?

Cardano smart contracts offer several advantages that allow developers and users to benefit from their capabilities, including:

Autonomy and savings

Smart contracts prevent the possibility of third parties manipulating the agreement because they don’t require brokers or other middlemen to ratify it. Moreover, smart contracts save money because there is no intermediary involved.

Accuracy

By using smart contracts, errors that arise from manually filling out several forms are eliminated. Also, parties don’t have to worry about the enforceability of contracts, since they run automatically on the blockchain.

Speed

Smart contracts use computer protocols to automate functions, cutting hours from a variety of commercial processes. The speed at which ADA smart contracts are executed is directly correlated with the speed of the Cardano blockchain.

Safety 

All the documents are protected against intrusion by cryptography, which is used in smart contracts. While offering significant safety improvements over traditional contracts, which can be easily falsified, blockchain-based smart contracts are not completely immune to various hacks and tampering.

Backup 

Since every piece of information on the blockchain is duplicated numerous times across a decentralized network of public ledger validators, originals may always be recovered in the event of data loss.

Is Cardano (ADA) a good investment?

Cardano uses the novel proof-of-stake consensus process known as Ouroboros, as opposed to the proof-of-work consensus protocol used by Bitcoin. Compared to more conventional blockchain technologies, Ouroboros is said to offer higher security and efficiency. Overall, Cardano is proving to be a very useful and strong platform for creating the next generation of decentralized systems and apps.

However, despite its strengths, Cardano suffered in 2022, losing over 80% of its value year-to-date. This raises the question of whether it is prudent to invest in Cardano in cryptocurrencies in 2023.

Scalability without sacrificing decentralization is a significant selling point for Cardano. Most platform blockchains now available on the market have not been able to accomplish this. Cardano is also very energy efficient, which is significant given that everyone is looking for ways to save energy today. 

Can Cardano overtake Ethereum as the best smart contract platform?

Given its current trajectory, Cardano is unlikely ever to overtake Ethereum as the dominant smart contract platform anytime soon. This is primarily due to the fact that compared to Ethereum, Cardano has a much smaller DeFi ecosystem. For context, Cardano boasts a total value locked (TVL) of “just” $50 million, while Ethereum boasts a TVL of more than $23 billion, according to a blockchain analytics site DeFiLlama.

* Data as of December 21, 2022 

Presently, Cardano displacing Ethereum doesn’t appear to be particularly likely. There is a larger selection of dApps available in the Ethereum ecosystem, which is also far more active in terms of user count and trading volume. In addition, other smart contract platforms, like TRON, BNB Smart Chain, and Polygon, also boast billion-dollar DeFi ecosystems, which makes Cardano becoming the top Ethereum killer all the more unlikely. 

However, Cardano investors are betting that the project will eventually produce a superior platform for smart contracts as a result of its cautious and methodical approach. Given the broader volatility of the crypto market and how quickly things can change, Cardano could see a massive boost in popularity going forward. Only time will tell.