In 2009, Satoshi Nakamoto created Bitcoin: a decentralized digital store of value that is not controlled by a central government. Although Satoshi successfully created the largest decentralized digital currency network in existence, with a market capitalization of over $750 billion (as of March 18, 2022), many people believe that the Bitcoin network lacks programmability and can only be used as a store of value or to facilitate simple peer-to-peer value transfers. In 2015, the first well-known smart contract platform, Ethereum, was launched, laying the foundation for the development of an ecosystem of decentralized applications (dApps) and unlocking the potential use cases of the cryptocurrency ecosystem.
Decentralized networks fundamentally operate as ledgers, tracking transactions and balances as users transfer tokens. Smart contracts are programs that run on these networks and allow users to conduct transactions and build dApps. A dApp is a degree of software developed and run in conjunction with a blockchain.
While smart contracts are not a technology unique to decentralized networks, Ethereum was the first protocol to integrate smart contracts into decentralized networks by introducing the Ethereum Virtual Machine (EVM). By enabling programmable actions (smart contracts) to create dApps, the EVM expands the network’s capabilities beyond just moving money.
The vast majority of on-chain user activity occurs on smart contract networks, so every transaction or action completed by individuals and dApps must be paid for with the smart contract platform’s native token, capturing value from the activities of all users on the network.
Despite processing millions of transactions per day, smart contract platforms in their current state cannot handle even 10% of the world’s internet traffic. The number of transactions processed on traditional exchanges and financial markets alone is enough to congest the current smart contract platform ecosystem, which will result in failed transactions or much slower confirmation speeds.
