A Quick Dive into the World of Smart Contracts.
This is a beginner-friendly guide that lets you in on what smart contracts really are.
Imagine a world where agreements execute themselves, where transactions are secure, transparent, and instantaneous once the requirements of the agreements are met. That’s the world of smart contracts.
Maybe you’ve been hearing about smart contracts and have been curious to know what they are about, but you can’t sieve the meaning out through the blockchain jargon.
In this article, we will explore what smart contracts are, their history, use cases across industries (real-world examples that showcase their potential), the programming languages for developing smart contracts, and answers to other frequently asked questions.
Now, let’s dig!
What are smart contracts?
Smart contracts are digital, automated agreements that run on the blockchain.
They are like regular contracts, but they’re written in code and automatically executed when certain agreed conditions are met.
They are self-executing, which means they run by themselves, once the conditions are met. No further actions are needed for the contract to execute the agreement.
Smart contracts are hosted on the blockchain; a secure and decentralized digital ledger.
The blockchain networks provide the necessary infrastructure for the deployment and execution of these contracts.
Once deployed, smart contracts operate autonomously, carrying out their programmed instructions (agreement) when predetermined conditions are met.
Smart contracts are immutable and can’t easily be changed, making them tamper-proof, and reliable.
This feature of immutability is one of the top benefits of smart contracts, as it ensures that no party alters the ‘agreed conditions’ for selfish reasons once they are deployed. Because of this, smart contracts provide a high level of trust and reliability and have revolutionized the way agreements are made.
Ever heard of Decentralized Applications,” abridged to “dApps.”? Yes? No?
Well, they are simply applications that are developed using smart contracts as the backend.
So if you read or hear someone talk about building or using a decentralized application, know that he/she is building or using an app that is powered by smart contracts.
Brief History of Smart Contracts
Nick Szabo, an American computer scientist and cryptographer, was the first to propose the concept of smart contracts in 1994.
Nick invented a virtual currency called “Bit Gold” 10 years before Bitcoin was created and has been rumored to be the ‘anonymous’ Bitcoin inventor (Satoshi Nakamoto), though he has denied this rumor.
Nick drew inspiration from various fields, including law, computer science, and cryptography to develop the idea of smart contracts.
He proposed the idea of using cryptographic techniques to create digital contracts that could operate autonomously without the need for intermediaries.
He envisioned self-executing contracts with the terms of the agreement directly written into code, which would automatically enforce and execute the terms when predefined conditions were met.
Though the term “smart contract” was coined by Nick, his idea wasn’t fully implemented until the blockchain technology ‘era’.
Blockchain, introduced by Satoshi Nakamoto in 2008 as the underlying technology behind Bitcoin, provided the first decentralized infrastructure necessary to support smart contracts in the form of scripts.
With the launch of Ethereum in 2015, the concept of smart contracts became fully realized. Ethereum’s founder, Vitalik Buterin, built upon Nick’s ideas and integrated smart contract functionality directly into the Ethereum blockchain.
This allowed developers to write and deploy smart contracts, opening up a wide range of possibilities for automating agreements and transactions.
Today, smart contracts play a central role in various blockchain-based applications and continue to evolve and shape the future of digital agreements and transactions.
Use Cases of Smart Contracts
The versatility of smart contracts enables their application across various industries, but we’ll look at the top 5 industries that leverage smart contracts to execute agreements.
Finance:
Smart contracts are used to automate financial transactions like loans, payments, and insurance claims without the need for intermediaries, thereby reducing costs and speeding up processes.
For example, a smart contract can automatically transfer ownership of digital assets once payment is received, eliminating the need for middlemen and reducing transaction costs.
E.g., in the purchase of NFTs.
Supply Chain Management:
Here, smart contracts facilitate transparency and traceability by recording every transaction and movement of goods on the blockchain.
It ensures the authenticity of products and enables efficient tracking of their journey from manufacturer to end consumer.
This transparency in the supply chain not only helps in tracking but also helps identify inefficiencies and combat counterfeiting of products, especially in this age where fake products are on the rise.
Real Estate:
Smart contracts are used in real estate to streamline transactions by automating tasks such as property transfers, rental agreements, and escrow services.
These contracts ensure the secure and transparent transfer of property ownership from one person to another while minimizing the need for intermediaries like lawyers and brokers.
Healthcare:
With smart contracts, health workers can securely manage patient data, automate insurance claims, and ensure compliance with regulations.
Smart contracts also ensure that patient data is preserved, preventing cases of loss of patient medical history.
Entertainment:
Smart contracts can also help with paying royalties in a changing entertainment world where the usual agreements sometimes don’t work out.
Since new artists mostly depend on the money they earn from streaming services, this technology can help them get their payment when it is due.
How?
These contracts can say how much of the money goes to the record company and how much to the artist, such that once conditions are met, the agreed amounts get distributed fairly without any hassle or breach of the agreement.
Programming Languages for Smart Contracts
Several programming languages are used to develop smart contracts. The most popular ones include:
Solidity: This is the dominant language used for writing smart contracts deployed on the Ethereum blockchain.
It is a high-level language with a syntax that’s similar to JavaScript and is specifically designed for developing decentralized applications (dApps) and smart contracts.
Vyper: This is an efficient programming language with a focus on security, readability, and simplicity.
It aims to minimize the potential for errors and vulnerabilities in smart contracts by providing a restricted and readable syntax. Vyper also lets you deploy smart contracts on Ethereum.
Chaincode (Go): Chaincode, written in the Go programming language, is used for writing smart contracts on the Hyperledger Fabric blockchain.
Scilla: It’s designed for writing smart contracts on the Zilliqa blockchain. It emphasizes formal verification techniques to ensure the correctness and security of smart contracts, especially in decentralized finance (DeFi) applications.
Conclusion
Smart contracts are one of the good things that blockchain technology affords us in this age, and it is already changing the way agreements are made and executed in various industries.
By automating agreements, enhancing transparency, and reducing reliance on intermediaries (middlemen), they offer numerous benefits over traditional contracts.
Whether you’re in finance, healthcare, entertainment, legal, supply chain, or any other industry, smart contracts have the potential to streamline processes, reduce back and forth, save time, and increase trust among parties in agreement.
FAQs
What is the most popular blockchain for smart contracts?
Ethereum
Ethereum is the world’s first and one of the best smart contract platforms, and it remains the most popular choice among developers. Ethereum has become a leader in smart contract platforms. Since its inception in 2015, the platform has launched more than 4,400 dApps.
Can smart contracts be hacked?
Smart contracts are vulnerable and could lead to security issues that can put valuable assets at risk. The evolution of Solidity smart contract hacking attacks has been one of the major concerns for blockchain developers and companies adopting blockchain.
What is the difference between smart contracts and blockchain?
Think of the blockchain as the vehicle, while smart contracts are the drivers.
Blockchain technology provides the foundation of trust, security, and transparency, while smart contracts enable the automation and execution of agreements without intermediaries.
Is a token a smart contract?
A token contract is a type of smart contract written specifically for token management. The key difference between token contracts and other smart contracts is their functionality.
In our next article, we will learn more about token standards and their role in smart contracts.
I hope you learned something about smart contracts on the blockchain, from this article.
Till I write you again; simplifying another blockchain concept, Ciao. Stay winning.
