Understanding Smart Contracts: The Future of Digital Agreements
Discover the benefits and potential uses of smart contracts in various industries.
Over the past two years, we have seen a boom in blockchain technology. In 2021, everyone was investing in crypto and DeFi. Smart contracts and their applications were all the rage. But unsincere influencers saw a different opportunity.
They scammed the public of millions with monkey and other random NFTs. The FTX scandal, Ponzi schemes, and recession have left a sour taste and made us forget about the actual benefits and applications of blockchain technology.
To better understand how the Ethereum blockchain, in particular, works, let us look at smart contracts in detail.
What is a Smart Contract
Ethereum is a decentralized, open-source blockchain platform that was specifically designed to support the creation and execution of smart contracts. Smart contracts on the Ethereum platform are written in Solidity, a programming language specifically designed for the Ethereum Virtual Machine (EVM).
A smart contract is a computer program that is stored on a blockchain and is designed to automatically execute the terms of a contract when certain conditions are met.
The EVM is a decentralized, Turing-complete virtual machine that executes smart contracts on the Ethereum network. Smart contracts can be used to facilitate, verify, and enforce the negotiation or performance of a wide range of agreements and transactions, including financial transactions, supply chain management, and even voting systems.
Other blockchains have started to integrate smart contracts after seeing the success of Ethereum smart contracts. Cardano and Solana are two organizations pushing smart contract development on their blockchains.
Benefits of smart contracts
Smart contract blockchain provides several advantages: speed, effectiveness, precision, confidence, transparency, safety, and savings.
The automatic agreements eliminate the need for brokers and any intermediaries to confirm already agreed legal agreements to the extent necessary. In addition, the absence of intermediaries in smart contracts reduces costs. The relevant parties can view all conditions of these contractual arrangements in detail.
How do smart contracts work?
Think of Smart Contracts like digital “if-then” declarations from a two-party party. Unless all group requirements have been satisfied, the contract could still go forward and be considered complete.
You can also think of smart contracts as code stored on the blockchain. It can denote complex relationships with variables, data structures, and mappings. That’s how you can code social media apps and other applications.
Smart contracts are the pillar of blockchain technology. They opened up the opportunity for companies to integrate it into their tech stacks.
History of Smart Contracts
Computer scientist Nick Szabo first proposed the concept of smart contracts in the 1990s. Szabo recognized that traditional contracts, written in legal language and enforced by courts, are not always well-suited to the digital world.
Szabo proposed the idea of using computer programs to automate the execution of contracts, thereby reducing the need for intermediaries and increasing the efficiency and security of transactions.
The concept of smart contracts remained largely theoretical until the emergence of blockchain technology, which provided a secure and decentralized platform for storing and executing smart contracts. The Ethereum platform, launched in 2015, was the first to support the creation and execution of smart contracts on a large scale.
Since then, the use of smart contracts has grown rapidly, with a wide range of applications being developed in areas such as finance, supply chain management, and even voting systems.
While smart contracts are still a relatively new technology, they can revolutionize how contracts are created and enforced and bring significant benefits in terms of efficiency and security.
Smart Contract Applications
Smart contracts can be used to create deterministic solutions that work on promises. You can create agreements using smart contracts. Oracles can help you get outside data. Based on the information, the smart contract will output data.
You can also use smart contracts to store data. Any variable created on a smart contract is stored on the blockchain. But, you should note that it is expensive and will cost you lots of gas fees for large amounts of data. That’s why it is better to use IPFS for images and larger files.
Smart contracts are also paving the way for NFT development, dApps, games, and the Metaverse.
Developing Smart Contracts
If you want to start smart contract development, I suggest checking out Hardhat. It makes writing and testing smart contracts simple.
You can even deploy your smart contract locally and connect it to your frontend. You can check out the OpenZeppelin wizard to get boilerplate code for your smart contracts.
The Future of Smart Contracts
Developers, founders, doctors, and lawyers are all excited about the promise of smart contracts. But the truth is that we are still in the initial stages, and it will be a few more years before we see any mass adoption.
Smart contracts have the potential to revolutionize a wide range of industries by automating complex processes and reducing the need for intermediaries. They can be used to facilitate, verify, and enforce the negotiation or performance of a contract.
Some possible future developments for smart contracts include:
- Increased adoption: As more organizations and individuals become aware of the benefits of smart contracts, they may be more widely adopted in a variety of industries.
- Enhanced security: As smart contracts become more widely used, there will likely be a greater focus on security and the development of measures to protect against potential vulnerabilities.
- Integration with other technologies: Smart contracts may be integrated with other emerging technologies, such as artificial intelligence and the Internet of Things, allowing for even more complex and sophisticated applications.
- Regulation: As the use of smart contracts grows, regulatory frameworks may need to ensure their proper use and protect the rights of those using them.
Overall, the future of smart contracts is likely shaped by the continued development and adoption of blockchain technology and the evolving needs and requirements of businesses and individuals.