Smart contracts: what makes Ethereum the king of smart contracts
Before we get down to business, let's briefly talk about smart contracts, their features and applications in today's world of digital finance. A smart contract is a computer protocol intended to help you exchange money, stocks, property, or anything of value in a digital environment without conflict. With smart contracts, the services of a middleman are made obsolete, saving you time and conflict.
One of the best things about blockchain technology is that since it is a decentralized system, existing between all permitted parties, there is no need to pay intermediary fees, saving you time, conflict, and money. Blockchain is faster, cheaper and more secure compared to traditional banking systems.
It was in the early 1990s that a cryptographer and legal scholar, Nick Szabo, came to the conclusion that a decentralized ledger could be used for smart contracts or so-called self-executing contracts or blockchain contracts.
In his famous example, he referred to smart contracts as "vending machines." He explained how users could enter data or rate and receive a finite item from a machine.
In such a format, the contracts are computer codes, stored and replicated in the system. The network of computers running the blockchain also monitors the process. This results in general ledger feedback such as transferring money and receiving the products or services.
In summary:
Smart contracts are written as code and committed to the blockchain. The contract itself, as well as the terms of the contract, are publicly available on the ledger.
When a certain event is triggered in the contract, for example an expiration date or target price of an asset is reached, the code will be executed.
Regulators can observe contract activity on the blockchain, but still maintain the privacy of individual actors.
Smart contracts are useful for basically any type of agreement between two people, including financial services, legal process, crowdfunding activities, credit, property law, and more. While a standard contract describes the specific terms of a relationship, a smart contract enforces the relationship with a cryptographic code. Smart contracts are basically programs that execute what their creators asked them to do.
For example, if you rent an apartment and want to pay for it with cryptocurrencies , you can do it entirely through a smart contract. Both the landlord and the tenant will be notified when a rental date, specified by the parties, arrives.
Where do smart contracts work best?
Smart contracts work better in some industries than others due to their self-executing nature. For example, in industries like banking, health care, real estate, and insurance, smart contracts are becoming more and more popular. Since these are industries that are based on clear rules, algorithms, and quantifiable terms, smart contracts work best for them. By comparison, smart contracts might be less suitable for industries with a more qualitative service nature, such as food, beverage, and hospitality companies.
Smart contracts can be encoded on any blockchain. However, Ethereum development is the most popular as it provides unlimited processing capabilities. Ethereum is specifically designed to create smart contracts.
Ethereum is a decentralized computing platform. It should not be confused with Ether, which is the cryptocurrency token that the platform generates. Programmers can write smart contracts on the Ethereum blockchain and the contracts will execute automatically, according to their code and the way they were programmed.
How does it work?
It is worth mentioning that although Bitcoin was the first to support basic smart contracts (in the sense that one person can transfer value to another on the network), Bitcoin is limited to the currency's use case.
By comparison, Ethereum has replaced the restrictive language of Bitcoin with a language that allows developers to write their own programs.
The term “smart contract” is often used as a substitute for Ethereum scripts because it is primarily associated with this platform.
Basically, on the Ethereum platform, developers can program their own smart contracts or so-called "autonomous agents". The language supports a broader set of computational instructions, making it easier for programmers.
The entire structure of Ethereum smart contracts, combining programming language, platform development, and verification by a large number of connected computers, ensures that smart contracts are secure, trustworthy, open, and unlikely to be compromised. possible mistakes.
Most people know about the Ethereum project because of the Ether token .
However, many are unaware that this is one of the most successful startups of the last two decades. It also became the world's leading smart contract platform, chosen by most developers. Since the platform went live in July 2015, it has grown by leaps and bounds and is now able to facilitate smart contracts for everything from online gaming to ICOs. Most of the ICOs are now using the ERC-20 token standard to facilitate their offering.
What is the secret of the Ethereum smart contract platform and why is everyone calling it the king of smart contracts?
Let's start by introducing two very important concepts that you need to understand before working with Ethereum: Ethereum Virtual Machine and gas.
Ethereum Virtual Machine – This is the platform where smart contracts run on Ethereum. In terms of scripting, it provides a more expressive and comprehensive language than Bitcoin. Think of it as a global computer where smart contracts run.
In the EVM platform, there is a mechanism in place to limit the resources used by each contract. Every operation executed on the EVM platform is executed simultaneously by all nodes in the network. That is the reason gas exists.
Gas : A transaction contract code can do several things: make calls or send messages to other contracts, perform costly calculations, trigger data reads and writes, etc. Each of these trades must be paid for in Ether, based on a gas/Ether price, which changes quite frequently. The price is usually deducted from the Ethereum account sending the transaction. Transactions also have a gas limit that shows how much gas the transaction can consume. It is intended to guard against errors. You can read more about gas here.
Let's talk more about the Ethereum platform and its smart contract advantages.
Apart from having the largest market capitalization among all other smart contract platforms out there, the beauty of the platform is the degree of standardization and support it offers. There is also a clear set of rules that developers must follow, which makes developing Ethereum smart contracts quite easy and less risky.
In terms of support, the development of Ethereum is constantly updating and improving the way its smart contracts are created and operated.
On top of that, Ethereum has developed its own smart contract programming language, known as Solidity. It makes it ten times easier to set up a smart contract and helps with standardization. Solidity is a high-level contract-oriented language, quite similar to JavaScript. It is designed for Ethereum Virtual Machine (EVM). There is another high-level language used to write Ethereum contracts, called Serpent. It is quite similar to Python, but Solidity is still the development language of choice for Ethereum developers.
Let's summarize some of the best features of the Ethereum smart contract platform that make it so popular among programmers:
Own smart contract programming language, called Solidity.
Free to set up your smart contract. Smart contract transactions are charged in gas, which is the initial price to execute a transaction or contract on the Ethereum platform.
There are clear guidelines and rules for developers.
Long list of literature and support available.
ERC-20 technical standard, used in the Ethereum blockchain to implement tokens.
Cutting-edge technology, incorporating core benefits of blockchain such as security, decentralization, fast transactions, and immutability.
What makes Ethereum smart contracts so valuable?
Ultimately, the power of the Ethereum blockchain is its programmability.
The reason Ethereum is the best option for executing smart contracts is because the agreements are built into the code itself so that transactions are executed automatically.
Ethereum digital agreements, or “smart contracts” as everyone calls them, have unlimited formats and conditions. Additionally, smart contracts can even request other contracts, making Ethereum useful for payment settlement as well as arbitration of transactional events in real estate, law, government records, energy networks, trade finance, and many others. sectors.
A special feature of how smart contracts work on the Ethereum platform is that each one has its own address on the blockchain. This means that the corresponding code is not included in each contract; instead, a note launches a transaction that creates and attaches a unique address to each contract. After the main transaction, the smart contract becomes an inseparable unit of the blockchain and its address never changes. After that, the smart contract will “act” without stopping until it reaches the gas limit or until the successful end of the operation.
drawbacks
So far so good. However, keep in mind that smart contracts are still a new technology. Whether we are talking about the Ethereum platform that basically dominates the smart contract blockchain industry or another smart contract platform, problems can arise.
One of the drawbacks of smart contracts is that they must contain zero errors in order to correctly perform the activities for which they are programmed. These bugs can be exploited by scammers and can steal money.
Governments are also trying to intervene, questioning what will happen if something unexpected happens or if the contract cannot access the deal issue.
With traditional contracts, the court will be involved. However, with smart contracts, “Code is law”, which means that the contract will be fulfilled no matter what.
The problems that come with smart contracts will probably be resolved in time, since it is a relatively new technology. There is room for perfection, but financial experts agree that they will become an integral part of our society and Ethereum will continue to lead the pack.
Some other drawbacks of the Ethereum platform include:
It is more expensive than other platforms;
The Ethereum network is overloaded quite often: most of the time, the network is running at 100% capacity. Application developers are concerned that their contracts may not always be processed as quickly as they would like.
Security: Low-quality smart contract codes are exposed to hackers. A recent study found that more than 30,000 Ethereum-based smart contracts are vulnerable to bugs and consequently hacks.