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What are Smart Contracts?

What are Smart Contracts?

It’s impossible to deny that the global economy is inevitably moving towards a digital ecosystem, and right now, thanks to the rise of blockchain, the word “cryptocurrency” is on everyone’s lips. The world of cryptocurrency is evolving by leaps and bounds. Right now, the focus of most crypto communities is broadening the use of tokens, improving their function, and enhancing what they can do; in other words, giving cryptocurrency real utility, not just monetary value. With that objective in mind, the concept of blockchain 2.0 arises, with smart contracts as its base.

This article will tell you everything you need to know about smart contracts, speculate on what the future may hold for them, and provide a code example so that you can get a solid grasp of the basics of smart contracts and, hopefully, start getting more involved with this amazing technology in the future.

So, what is a smart contract?

In its more basic definition, a smart contract is a simple program stored on a blockchain that runs when predetermined conditions are met. But this definition is not enough to understand the full picture (the impact, the real value, and where this technology is heading). So, let’s dive deeper into the world of smart contracts. 

How do smart contracts actually work?

Smart contracts let us exchange things of value like shares, properties, assets, NFTs (non-fungible tokens…more about this later), and pretty much anything you can think of. Smart contracts help make these exchanges transparent, so there is no need for a middleman (think lawyer).

What is special about smart contracts? 

Let’s review the 9 key features of smart contracts that make people so excited about them:  

  1. Autonomy: With smart contacts, there’s no need for a middleman to make sure the contract is processed as it should be. At the same time, smart contracts ensure that the contractual obligation can’t be manipulated, because the execution of the smart contract is managed by the network nodes, not just one individual.
  2. Trust: Because the smart contract operates on top of the blockchain, all data is encrypted in a shared ledger.
  3. Transparency: All transactions in the blockchain are public, so that means that the smart contract is trackable, too. 
  4. Back-Ups: Thanks to the nature of blockchain, the document will not be stored in just one blockchain node. Rather, it will be stored in the whole network, reducing the possibility of losing the document. 
  5. Speed: Thanks to the power of code, smart contracts are getting really fast (we are talking seconds, instead of hours or days).  
  6. Immutable: Once published into the blockchain, smart contracts cannot be changed. 
  7. Safety: As smart contracts are secured by cryptography, it would be extremely abnormal for the code to be changed or manipulated in any way by a hacker. 
  8. Savings: Without the need for a middleman, smart contacts can save you a lot of money. 
  9. Accuracy: Because there are no middlemen, the human error in the execution of smart contracts is removed, thanks to the software.

What are the disadvantages of smart contracts?

It’s important to know that smart contracts are still a very new technology There are some issues with smart contracts that exist today, although most will likely be resolved soon. Let’s review some of them:

  • Physical Products: Right now, there is not a robust solution for the trading of physical assets. Some technologies are being developed for this, though, like special chips with unique IDs or the use of NFTs. 
  • Customer Regulation: Even though there is full transparency in the blockchain, at its core, there are no “know your customer” regulations that help prevent money laundering, etc.
  • Adoption: Just like any new technology, there is a learning curve. The curve for the crypto ecosystem is intense, even more so now thanks to smart contracts. This will likely affect its adoption.

What does the future hold for smart contracts? 

Well, the future is bright. It is not a lie to say that every single day we are getting new utilities for smart contracts. Many organizations and communities are starting to use smart contracts for things like voting processes and medical services, ensuring the privacy of patients’ medical records thanks to the blockchain.

Earlier in this article, I mentioned NFTs (non-fungible tokens). A year ago, these tokens revolutionized the world of crypto. But what are NFTs? In simple words, NFTs are unique assets stored in the blockchain. No two NFTs are the same, bringing uniqueness to the crypto world. And guess what the base technology for NFTs is? That’s right, smart contracts. From songs to paintings and even collectible trading cards, the possibilities are endless with NFTs. They are a great way to prove the ownership and authenticity of creative works.

If you want to learn more about some real-world cases for smart contracts, click here.

A Code example of smart contracts

Now that we know what smart contracts are and what the future may hold for them, let’s get a little more technical and take a look at a code example. As I mentioned before, a smart contract operates on top of a blockchain. So, if you are wondering what the most popular blockchain right now is for smart contracts, the answer is Ethereum.

Ethereum smart contracts are coded in an object-oriented language called Solidity, heavily inspired by Javascript. So, if you’re a JavaScript developer wanting to write your own smart contracts, now is your chance to get familiar with this. 

Ethereum smart contracts are coded in an object-oriented language called Solidity, heavily inspired by Javascript

We won’t go too deep into how this works (stay tuned for a future blog that will), but, as you can see, the above contract is for buying coffee tokens. It receives the crypto and the amount of desired tokens that the user wants to buy and then assigns the tokens to the buyer’s address.

What’s the use of the coffee tokens? Well, we can go to the physical store, show our address (a simple QR code), and exchange our current tokens for some sweet coffee

Closing thoughts 

Smart contracts are here, and we can expect them to stick around for a while. The hype for them is real, the crypto community is getting bigger day by day, and with that, the daily surge of new use cases for them. I can’t wait to see what is next for smart contracts; the possibilities are endless!

Next in the Series

  • Smart contracts tutorial: deploying your first smart contract

 

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