To understand smart contracts, you need to first understand what it is and why it is used. Let’s go with a short incident that you can relate to.
You need an urgent loan. Now you go to the bank and the bank denies your loan request as you have a low credit score and default history. But after a few requests, the bank agrees on a term of keeping collateral for availing of your loan. You get the loan but default on the payment and as a result, the bank tries to liquidate your collateral. But to the bank’s surprise, the collateral that you have given was null and void. Due to these, many loans have been marked as NPA in our country.
Now, you might be wondering how smart contracts can address this issue.
Smart contracts are programmable self-executing contracts that work on pre-defined conditions. Banks can use smart contracts to create a loan collateral agreement with a borrower. In the smart contract, the conditions of the loan like amount, duration, interest rate and collateral type can be mentioned along with the pre-deposit of collateral in the form of cryptocurrency. The smart contract will ensure that if you default on your loan repayment, your collateral can be liquidated and automatically sent to the bank.
Blockchains are the new face of what experts call a “trustless environment” where security, reliability and immutability are its fundamental concepts.
Smart Contracts are agreements between two parties written in a programming language that is deployed in blockchain automating the transaction without the need for constant monitoring from any parties. It’s primarily based on if-then logic.
Smart contracts are written in a popular programming language called Solidity with the sole purpose of recording and validating each transaction.
Smart contracts work on conditions i.e., it works by executing predefined functions when the given conditions are met. You might even compare smart contracts with vending machines i.e., when you pay you get something. However, smart contracts are a bit different from that. In a typical vending machine, the code is owned by the company but in the smart contract, its code is not owned by a single entity.
The code within the smart contract cannot be altered as every data block is marked with its unique “hash”. This is what we call Immutability. Moreover, once a transaction is recorded in the block, it remains there forever.
1. Efficiency
Smart contracts eliminate the need for intermediaries that can slow down or complicate the whole process. Additionally, they minimise the cost and reduce the risks associated with human errors, frauds or disputes.
2. Security
Smart contracts are secure digital contracts that are stored & encrypted on a blockchain network distributed across multiple nodes. This makes it resistant to hacking, tampering and censorship. Additionally, it also ensures that the involved parties are with the terms & conditions of the transactions.
3. Innovation
If you are using smart contracts, then you can leverage its potential to offer better services and improve product quality for users. Moreover, you can use smart contracts for automating the process of tokenisation to create new market opportunities for industries like real estate, gaming or finance.
Being the most popular blockchain platform for smart contract development, Ethereum has one of the largest and most active communities of developers, users and projects. Its powerful community facilitates its growth and innovation.
To get started with the development and deployment of smart contracts on Ethereum, you will need to have the following:
A Programming Language: To start writing your first smart contract, you would require the programming language called Solidity, which is specifically designed for Ethereum smart contracts. The language is like JavaScript in syntax and follows OOPS concepts.
An Integrated Development Environment (IDE): Next you would require a familiar IDE like Remix, to help you write, compile, test and debug your smart contract code. Additionally, the IDE comes with interesting plugging and features to enhance your development experience.
A Framework: After that, you would need to use a framework like Truffle which is a suite of tools to help you manage your smart contract project. Truffle helps you to create, migrate, test and deploy smart contracts using a command-line interface. Moreover, it can be integrated with platforms like Ganache, to stimulate the Ethereum network for testing purposes.
A Wallet: Now you would require a wallet such as MetaMask (a browser extension-based blockchain wallet) to allow you to interact with the Ethereum network and smart contracts. Moreover, MetaMask helps you to connect with various DApps and platforms like OpenSea, Rarible, SuperRare etc.
A Network: Lastly you would be required to select a network where you want to deploy your smart contact. You can either use the Ethereum mainnet or Ethereum testnets to test out your smart contracts.
Write your smart contract code: Start writing your code in Remix or any other IDE using Solidity. However, you can also use OpenZeppelin’s library of pre-written and audited smart contract templates and customise them for your project.
Compile your smart contract code: After writing the code, you need to compile it into bytecode to make it run on the Ethereum network. Additionally, you can use Etherscan to help you verify and publish your smart contact code on the network.
Test your smart contract code: Post compiling it’s time to test out your smart contract. You can use tools to test, debug and diagnose your code. Furthermore, you can use one of the Ethereum testnets to simulate the network environment and run your smart contract.
Deploy your smart contract code: With the help of Remix or Truffle, you can deploy your smart contract code on the Ethereum network of your choice. However, you still need to pay the gas fees required for the deployment. You can also use Etherscan to view and interact with your deployed smart contract on the network.
Conclusion
Smart contracts have paved the way for businesses to facilitate transactions without compromising on value. By leveraging the potential of smart contracts, you hold the power to automate every aspect of your business and eliminate the need for intermediaries. The world has moved to web3, now it’s time for you to unlock its true potential.
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