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Smart Contract and how it work on Blockchain

Dex, NFTs, Marketplace, etc., are all applications created by smart contracts on Blockchain. In this article, we will learn what a Smart Contract is, its advantages and disadvantages, and the applications of smart contracts in Crypto.

What is a smart contract?

Smart contracts are simply programs stored on a blockchain that run when predefined conditions are met. They are often used to automate the execution of an agreement so that all participants can be immediately sure of the outcome without the involvement of a middleman or loss of time. They can also automate workflows, triggering further action when conditions are met.

Two parties to a contract can make commitments via the Blockchain without knowing each other’s identities or trusting each other.

They can ensure that if the conditions of the contract are not satisfied, the Contract will not be enforced.

In addition, the use of this contracts eliminates the need for intermediaries, which significantly reduces operational costs.

Each Blockchain has a different smart contract implementation method; for example on Cosmos has WASM, Polkadot has ink!… The most prominent of which is still this contract running on Ethereum’s virtual machine (Ethereum Virtual Machine – EVM).

How it works

It acts as a deterministic program, and it will execute a specific task in case certain conditions are satisfied. Therefore, the system usually follows “if…then…” statements.

On Ethereum, they are responsible for executing and managing the activities on the Blockchain when users (addresses) interact with each other. Any address that is not a smart contract is called an Externally Owned Account (EOA). Therefore, it will be controlled by the computer, and the EOA controlled by the user.

Smart Contract Ethereum consists of a contract code and two public keys:

The first public key is the one provided by the contract creator, and the other key represents the Contract itself, which acts as a unique digital identifier for each Smart Contract.

They are implemented via blockchain transactions, and they are only activated when a Standalone Account (EOA) or other Smart Contracts call them. However, the first trigger is always from the EOA (user) side.

Advantages and disadvantages 

While it certainly have many advantages over traditional contracts, they are not without flaws or risks.

Smart Contract and how it work on Blockchain 4

Advantages

This Contract is a set of programmable code that is highly customizable and can be designed in various ways to provide a wide range of services and solutions.

In addition, smart contracts are decentralized and self-executing programs that increase transparency and reduce operational costs. If implemented correctly, they can also improve operational efficiency and reduce administrative costs.

Defect

Smart Contract is based on the blockchain system, so it cannot be modified and interfered with. Once it is written, if you want to change it, the only way is to rewrite a new contract. Immutability is a great advantage but, in some cases, can be a disadvantage.

Risks of Smart Contract

They are just pieces of code that run on a human-made Blockchain. They are not smart. They work the way the developer wrote them, not how the developer thinks they should work. So Smart Contracts are still risky because the code is vulnerable to attacks and bugs.

In addition, the inability to modify the cons section is also something worth noting. Unfortunately, if you write any terms wrong, such as the time to pay tokens of funds, teams, etc., you have to rewrite it from scratch.

Application of Smart Contract in Crypto

Smart Contract and how it work on Blockchain 5

Most applications powered by centralized systems can be similarly designed and powered by smart contracts on the Blockchain.

They allow developers to design many different use cases. For example, Cryptocurrency wallets store Coin & Token, decentralized exchanges (DEX), games (gaming), NFT, etc…

I hope the article is helpful to you. Please contribute by commenting on improving the writing.

DISCLAIMER: The Information on this website is provided as general market commentary and does not constitute investment advice. We encourage you to do your own research before investing.

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