A quick disclaimer upfront: All information given in this presentation is researched and intended to be educational and illustrative to the specific topic, as always. Any companies, products, people, or other items mentioned do not constitute an endorsement, recommendation, or relationship. Every owner must do their due diligence, as the decisions and responsibility regarding any investment lie with them. All information within this content is not financial advice.
What is a smart contract?
As mentioned in my previous presentation about blockchain technology, smart contracts are computer-coded contracts made to automate specific tasks when triggered through the blockchain. For example, an exchange of money or shares. These tasks can be triggered between two or more parties depending on how the contract is coded and its purpose. There are also smart contracts that only interact on the blockchain and regulate actions internally. These contracts are coded to automate internally when specific set triggers are met. A good example of this is SafeMoon's buyback and burn protocol coded into SafeMoon’s smart contract. When triggered from a SWaP, for example, a portion of the SWaP fee buys SafeMoon directly, strengthening the ecosystem.
The chaining of several smart contracts overall has the potential to form a stable structure of interactions internally and ensure simple, fast trading within the blockchain.
Why are smart contracts important?
Smart contracts can create complex tokens, special decentralized apps, or fast connections in blockchain negotiation. In the Internet of Things (IoT) era, smart contracts are used permanently with networking devices and components to create performance relationships. Surveillance cameras, sensors, and automated machines can operate and act based on data provided by smart contract retrieval. Smart contracts can also automate backup data for high data centers preventing human error, creating efficiency, and protecting data.
Smart contracts are used currently in many different ways, and the possibilities for their use are virtually endless. Smart contracts are now easily accessible and can be utilized on the Ethereum blockchain and other platforms such as Binance, EOS, Tron, and Polkadot. Promoting efficiency and security, smart contracts have a promising future.
How do smart contracts work?
Smart contracts are written with a programming language and made available on the blockchain in the current version. Programming languages such as Solidity, Web Assembly, and Michelson are used and are considered the basic foundation for smart contracts. The smart contracts are formulated with their basic function, paired to their corresponding points on the blockchain, and then loaded onto the blockchain.
The blockchain and all nodes then store the smart contract in the most current state and replicate it so that it is available across the network and is the same everywhere. If the smart contract changes or variables are adjusted, the smart contracts in all copied areas must also be corrected and updated. If the blockchain is already running and smart contracts are on it, they cannot be modified unless the user or operator includes the rights to modify variables. Functions, however, remain unchanged in themselves.
A fee, or gas, is added to the respective action, as each action has a fee to execute, which is paid by the user or operator.
In total, there are three facts that must always be clarified and firmly written down in a smart contract in order for it to exist:
1. Signature of the respective contact partners with the smart contract
In its handling, the smart contract will create a connection with the blockchain and the respective end partner or other operation within the blockchain, which must be signed and verified. Thus, if it is about a function that is within a blockchain, the beginning and end point of the operation will be verified with the respective connection point of the smart contract in the blockchain. However, if it is a smart contract with influence of user input such as buying and selling a token by triggering an action by a user outside the blockchain, the variable will be set. signed and confirmed with each triggered action of a transfer by the user (or even rejected in case of doubt if parameters such as enough liquidity for gas fees are not available).
2. Subject of the agreement
The contract clearly states what the smart contract will execute on the blockchain. The actions, decisions, or validations that the smart contract is to perform must be clearly noted and specified.
When the smart contract is then transferred to the blockchain and this is then started, the basic function can no longer be changed and only variables can be adjusted if necessary.
3. Extra conditions necessary for the execution of the smart contract
Specific conditions and rules for exercising the contract, for example, mathematically complicated equations, calculation of fees under different circumstances, or even provision of values from permanently updating databases, are recorded here. Just like the previous point, these can no longer be changed when the blockchain is repaired and are usually regarded as statistical output values or fixed values. If there are no special conditions, nothing is defined here either and the smart contract functions without special conditions.
Advantages and disadvantages of smart contracts
Smart contracts are reliable, secure and independent. There is no need for monitoring and the function is free from any regulation in the system, as it runs automatically and works according to the "trustless" method (functioning without control). Automating processes increases efficiency in a system and reduces processing and costs because the actions are always the same.
However, this can also have disadvantages. If, for example, a smart contract is faulty or has not been written properly, errors can be generated and entire transactions, such as the purchase of a token, cannot function. This also gives hackers the opportunity to exploit any gaps or faulty functions to take advantage of the operation. Since many operations within a smart contract cannot be corrected by the blockchain, this can even lead to the end of the project in the worst case.
The future of smart contracts
Making functions and actions within a system work with smart contracts is a good thing. The actions, if properly programmed and tested, will work independently and always consistently, saving capacity and helping to optimize a process. Currently, most smart contracts are used not only in simple systems, but in entire projects for managing and processing data, whether in handling processes, healthcare, processing data from wholesalers or the like.
As digitization increases and cryptocurrencies continue to adapt, the use of public and private blockchains will also increase, making smart contracts much more prevalent. The improvements in the world's processes are hard to imagine with this, and it's a technological leap that everyone can take. The programming language and the associated possibilities in the programming environment will increase and expand significantly with the growing requirements, because in the end, the possibility of using smart contracts is only possible if everything grows with it. And with cryptocurrencies and the possible applications, we are just at the beginning.