Smart contracts are one of the keys to ecosystem development in cryptocurrencies . Moreover, the existence of smart contracts is often referred to as the future of financial services in the world. What exactly is a smart contract ? Here’s the explanation.
Understanding Smart Contracts
Smart contracts are computer programming languages that are written in code and run on a blockchain network. Smart contracts allow developers to create applications that take advantage of the security, reliability and accessibility of the blockchain while offering advanced peer-to-peer functionality . Starting from insurance, loans, to games and logistics.
Basically, smart contracts serve automatic transactions between contract makers and recipients without going through intermediaries. This is because smart contracts are not controlled by a central administrator. Thus this technology is also less vulnerable to entity-specific attacks, increasing efficiency, reducing costs, and providing transparency into processes.
Smart Contract Tokens
Below are examples of tokens that use smart contracts :
According to the official Ethereum website , the smart contracts on their system are more like Ethereum account types. Smart contracts have balances and can send transactions over the network and are not controlled by any particular party, but are propagated to the network and executed as programmed.
User accounts can then interact with smart contracts by submitting transactions that perform the functions defined on the smart contracts. Smart contracts cannot be deleted by default, and interactions with them cannot be changed.
· Binance Coin
Binance Coin has a smart contract feature in its network called BSC (Binance Smart Chain). BSC goes hand in hand with another Binance technology, namely Binance Chain (BC). This allows users to take advantage of BC’s transaction speed while also taking advantage of smart contracts in BSC. In addition, BSC can also be used by developers to build decentralized applications.
Smart contracts on the Cardano network are written using the Plutus script, unlike Ethereum which uses Solidity. The Plutus programming language is based on Haskell, but adapted specifically for developing smart contracts.
When created on the Cardano blockchain, these contracts provide complete visibility to all contract parties in a secure and self-executing manner according to the terms of the defined smart contracts .
Avalanche is an open, programmable smart contracts platform for building DApps (Decentralized Applications). With transaction speeds of more than 4,500 TPS, Avalanche claims to be the fastest in the industry with low fees and eco-friendly technology .
Smart contracts Algorand implements the logic associated with distributed applications. It can generate asset transactions and payments allowing it to function as an Escrow account on the Algorand blockchain. Smart contracts owned by Algorand can also store value on the blockchain.
Advantages and Disadvantages of Smart Contracts
The advantages of smart contracts consist of:
· Transactions that use a decentralized system make this technology have high security.
· Cost-effective because there are no third-party intermediaries.
· Transactions run quickly and efficiently considering that data recording is done automatically, not manually.
· Smart contracts operate transparently.
· Smart contract automation processes provide a high level of data accuracy.
Meanwhile, the disadvantages of smart contracts are as follows:
· Human error is still very possible because after all the programming code for smart contracts is made directly by the developer.
· Smart contracts have no legal regulation.
· Smart contracts require high maintenance which requires developers with a high level of expertise to manage the technology.
How Smart Contracts Work
Smart contracts run on the logic “if/when event x occurs, then execute action y.” One smart contract can have several different conditions and an application can have several different smart contracts to support a series of interconnected processes. Examples of programming languages for smart contracts include Solidity, Web Assembly, and Michelson.
Each code is stored in the blockchain. This allows interested parties to check the contract code and current status to verify its functionality. All existing and current state copies of smart contracts along with blockchain and transaction data will be stored by every computer in the network.
In the case of Ethereum, when a smart contract receives funds from a user, the code will be executed by all computers to reach a consensus on the outcome and the resulting flow of value. Thus the smart contract runs securely without a central authority, even if the user has complex transactions with unknown entities.
To be able to run smart contracts on the Ethereum network, users have to pay a fee commonly known as “gas”. It is named gas because of these fees that keep the blockchain running. Once applied to the blockchain, smart contracts are immutable, even by their creators.
Examples of Using Smart Contracts
· Financial Products
Decentralized finance (DeFi) consists of applications that use smart contracts to recreate traditional financial products and services. Smart contracts can store user funds in Escrow and distribute them among users based on predefined conditions.
For example, Aave (Avalanche) uses smart contracts to facilitate decentralized and unauthorized lending and borrowing.
All policy terms will be written into smart contracts and will be read automate trading and signed by policy registrants if they agree. The contract will remain open until the responsible party requires it.
Users simply upload the required form proving their need for insurance payments. Only then will the funds be sent.
The use of smart contracts in the realm of government allows the voting system to be more fair and secure. For example, the FollowMyVote application which uses smart contracts to avoid fraudulent voting results .
All voting results are entered into the blockchain and cannot be changed. When completed, smart contracts will send tokens to the address that represents the voting winner .