So, first of all, we need to understand what a smart contract is?
A smart contract is a self-executing contract in which the terms of the agreement between buyer and seller are explicitly spelled out in lines of code. Essentially, it is an application layer developed in a blockchain system that defines the conditions under which users can interact with the program.
Simply put, these are coded contracts, if well written, that allow tasks to be performed on the blockchain without individual review or approval by a third party or central manager. If the contract specifies that the number of users exceeds 20, two random users must be selected as voters each week, this is what happens. Once the 21st user joins the platform, two users will be randomly selected and shown to all participants. The selection process will be repeated after 7 days and so on.
It is this type of automation that makes smart contracts a great addition to the transparency and immutability of blockchain systems.
But how does it work?
Smart contracts were originally developed back in 1993 by a cryptographer, lawyer and computer scientist who compared the capabilities of a contract to those of a vending machine. This means that once you make a certain input, you can expect a certain output. Following Sabo's initial research, the introduction of the Bitcoin and Etherium blockchains in the last decade has brought smart contracts closer to mass implementation. Bitcoin is based on low-level smart contracts in which currency moves based on selected input/output protocols written into the code, but it was Ethereum that brought smart contracts to the forefront.
Ethereum developed a full Turing, easy-to-use, object-oriented programming language called Solidity, which was specifically designed to allow free creation of smart contracts.
Influenced by the languages JavaScript, Python and C++, Solidity uses a readable language with curly braces to create code that can then be compiled into machine-level instructions, processed and executed by an EVM (Ethereum Virtual Machine). This system allows contract parameters to be written into the Ethereum blockchain and executed.
Free platforms such as Remix (an integrated open source development environment or IDE, an application specializing in Ethereum development) are available that allow users to create and compile code in Solidity for EVM. While Ethereum remains the most popular chain for deploying smart contracts, others such as Cardano, Neo and Hyperledger also support smart contracts and have their own languages (in Cardano's case, Marlowe) or use standard existing programming languages to develop their contracts.
A smart contract consists of two separate parts, code and data, each with an address on the blockchain. The code tells the contract how to work, and the data determines the state of the contract. Because the blockchain is immutable, meaning records cannot be changed once they have been verified, any written smart contracts must be carefully checked for accuracy and security before release. This propensity for security breaches is one of the weakest points of digital contracts and must be addressed to ensure long-term and core viability.
What are smart contracts used for?
Smart contracts are best used in situations where an agreement needs to be enforced automatically without trust. They ensure that all parties involved can be assured of the expected outcome without the need for third-party intervention. Some popular uses include real estate leasing, payment services, supply chain management and digital identity verification. Getting rid of intermediaries lowers the cost of these transactions, since the third party usually charges for its services. It also allows processes to be completed faster, since the contract can execute the agreement itself at any time, just as long as the agreed upon requirements are met. This, as opposed to a series of signings and approvals that can take days, not to mention the risk of lost or misplaced documents in the process.
These smart contracts also serve as the backbone of decentralized organizations, allowing groups of participants and companies to automatically complete tasks according to their mission and goals. When used most effectively, smart contracts can make traditional hierarchical management structures obsolete. It enables fully transparent planning and inclusive decision-making through open voting systems.
The capabilities of an individual smart contract used in isolation are quite limited, since it can only perform a single transaction (if this, then that), but a series of interconnected smart contracts can perform complex software functions. NFT smart contracts are widely used in the gaming industry and in other areas where article tokenization, digital or real, is useful for tracking ownership and performing exchanges.
In some places, smart contracts are being adopted as legally binding documents, allowing expanded use cases in areas that traditionally required convoluted legal processes, such as probate and estate planning, renting and owning apartments or cars, and more.
Taking this a step further, blockchain systems and smart contracts can be integrated with other existing and emerging technologies to create even more powerful programs. Artificial intelligence and machine learning, combined with the autonomy of smart contracts, on blockchain could accelerate the development of artificial intelligence and perhaps make vehicle sensor response systems more efficient and somewhat more human.
Like everything related to blockchain, smart contracts have already made a lot of noise and are showing a lot of potential, they are also still under development, and they still have a lot to prove before they become a mass application. The possibilities are truly endless - all you have to do is dive into Solidity or your chosen smartcontract programming language and start creating.
As new uses are constantly being developed and growing complexity is discovered, there is no doubt that we are only seeing the beginning of what smart contracts have to offer.
And that's it for today We'll say goodbye to you, see you in the next article ;)
May fortune favor you in all your endeavors!
Always yours C.J.
