Smart contract is a contract that automatically executes its terms when the conditions are met. It is now being used in various industries, especially crypto. Smart contracts enhance the safety and security of transactions on various blockchains like Bitcoin and Ethereum. Here, you will find a detailed explanation of smart contracts and their applications.
A smart contract is a computer program consisting of a code that automatically executes the agreement when the predetermined conditions are met. It is stored on a blockchain, and the contract becomes irreversible once the transactions are complete.
Since smart contracts execute the transactions only under certain conditions, they are tamper-proof and can be trusted. By circumventing the need for a middleman, smart contracts boost operational efficiency and drive down transaction costs.
The decentralized nature of blockchain ensures that smart contracts are less vulnerable to malicious attacks. Furthermore, they are helpful in automating the workflow.
Smart contracts distinguish themselves from traditional contracts with the help of their various features, and they are:
Smart contracts work by following a simple logic: “if/when….then….” For instance, the conditions of the contract would be if A event happens, then immediately execute Y action. A developer can set multiple conditions for a single smart contract to execute, and one application can have multiple smart contracts to support a set of processes.
Once the pre-set conditions are met, a network of nodes will help execute actions like sending notifications, releasing funds to one party, and more. Once the actions are complete, the blockchain is then updated.
Now, let’s discuss the steps involved in creating a smart contract on the Ethereum network.
1. Create a MetaMask Wallet:
To connect to the Ethereum mainnet, you need a MetaMask wallet. Open your Chrome browser and download the MetaMask wallet. Install the wallet on your browser and enable it. Once the installation process is over, you will see its icon on the top right corner of the browser page and click it. A MetaMask page will open in a new window on your browser.
Select “I agree” in the terms and conditions section and click “Create Wallet.” You will be asked to create a password, and once the password has been created, MetaMask will send you a secret backup phrase restoring and backing up the account. Note down the phrase and make sure to keep it safe or in an encrypted hard drive. Keep in mind not to disclose the password and phrase to anyone. Once the setup has been completed, you can connect to the Ethereum mainnet.
2. Choose the Test Network:
MetaMask wallet will offer many test networks that can be used to test the smart contract you are building. Choose any one of the available test networks:
3. Add Testnet ETH to the Wallet:
It is always a good idea to have Testnet ETHs in your wallet because once you are ready to test the smart contract, you will need Ethers. The process of adding Testnet ETHs isn’t complicated, all you need to do is click on “Deposit” and “Get Ether” under the Test Faucet.
Click on “Request one ether from the faucet” to proceed, and 1 ETH will be added to your wallet. There is no limit to the number of ETH you can add to your wallet in the test network.
4. Use the Remix Browser To Write The Smart Contract:
You can use the Remix editor in the Remix Browser IDE to write the smart contract code in Solidity. The remix browser is used to write smart contracts because it offers several features and is considered the best option for writing basic smart contracts. Its features include:
5. Create a .sol Extension File:
Launch the Remix browser, and on the top left side, you will see a + icon click on it to create a .sol extension file. This is to make sure all programmed files are compatible with Solidity.
6. Create the Smart Contract Code:
Enter the smart contract code on the extension file and choose a version of the compiler from the Remix browser to compile the code.
7. Deploy Your Smart Contract:
Deploy your smart contract code on the Ethereum test network by selecting the “Deploy” button. Once the transaction is done, you will find the smart contract address on the browser’s right-hand side.
In 1994, an American computer scientist called Nick Szabo was the first person to propose Smart Contracts. He defined them “as computerized transaction protocols that execute the terms of a contract.” Furthermore, in his paper, Szabo proposed the development of new securities by combining bonds and derivatives while supporting smart contracts for payments.
The first ever smart contract protocol with a set of conditions was used on the Bitcoin blockchain in 2009. With the development of the Bitcoin blockchain, smart contracts evolved into another type called multi-signature transactions.
The next major revolution of smart contracts came with the release of the Ethereum whitepaper in 2013. When the Ethereum blockchain was launched in 2015, it brought along with it a programmable smart contract. The main distinction between a smart contract on the Ethereum blockchain and other blockchains is its robustness and efficiency in executing complex transactions.
The main function of smart contracts is to execute agreements. Its applications extend to a wide range of industries due to its varied features.
1. Entertainment Industry:
Leveraging smart contracts in the entertainment industry can make paying royalties easier. It is useful in resolving royalty disputes in OTT platforms, helping lesser-known artists gain small but regular payments. For instance, a singer can store their song in the blockchain and embed a smart contract to that block. Royalties will be automatically credited to the singer’s account whenever the song is used for commercial purposes.
2. Real Estate:
Smart contracts can reduce the time it takes to handover property ownership. For instance, once the buyer pays the complete amount to the seller, smart contracts enable an immediate transfer of control of the asset to the buyer.
3. DeFi Applications:
DeFi applications empowered by smart contracts can provide financial services like options trading, exchange trading, borrowing, lending, and more without the need for an intermediary. They can manage the funds in escrow and distribute them when predetermined conditions are met.
4. Gaming Industry:
The video game industry has been growing exponentially with the onset of blockchain technology. In the gaming ecosystem, smart contracts are used to provide a tamper-free environment in blockchain-based games. Furthermore, they enable players to securely transfer digital assets guaranteeing transparency and ownership.
5. Supply chain management:
Smart contracts operate autonomously, executing actions only when predetermined conditions are fulfilled, eliminating the necessity for third-party supervision.
6. Government Elections:
Each vote is encrypted and ledger-protected, making it extremely hard to decrypt the address and change the votes. So, there’s a minimum chance of voter manipulation when voting using smart contracts. Furthermore, incorporating smart contracts into online voting systems has the potential to enhance voter turnout.
7. Healthcare Industry:
Implementing smart contracts in the healthcare industry can reduce the number of insurance fraud cases. For instance, when a person claims insurance, smart contracts validate all medical data and authorize a payout only when the information is true and accurate.
Disadvantages of Smart Contracts:
Smart Contracts are undoubtedly a step forward when compared with traditional contracts. It helps save time and money while reducing the need for human involvement. Due to their irreplaceable advantages, smart contracts are already being used in crypto, banks, and other sectors.