What Are Smart Contracts?

Simply put, a smart contract is a programming code that is implemented on a blockchain to execute certain commands given by the programmer in the event of a series of conditions occurring. Smart contract is a very revolutionary innovation that eliminates the need for us to trust others.

To better understand a smart contract, we must first know what a typical contract is.


What is a normal contract?

A normal contract is an agreement between two or more people that commits them to something in the future. For example, Allen pays Jason a monthly fee to use Jason’s house, this is called a “lease agreement.” Rosa guarantees that she will pay for the possible damages of Sarah’s car in exchange for a sum of money that is called “insurance contracts”.

Computer codes are also a kind of contract. As an example you buy a file from the internet, there are codes behind the scenes: If the user paid and had enough, show him the link to download the file, otherwise, show the error message.

To execute normal contracts, we need intermediaries that we must trust. These intermediaries can be computer servers or banks and governments.


What is the difference between a smart contract and a normal contract?

What makes a smart contract different from a normal contract is the use of blockchain technology, which eliminates the need for us to trust intermediaries.

In other words, a smart contract is a code that is activated on the blockchain to check and execute the terms of an agreement between the two parties without the need for intermediaries.


Once a smart contract is executed on a free blockchain like Ethereum, it can no longer be stopped and no one can stop it. With smart contracts, you can create programs and projects that will continue to work forever without any intermediaries and disability. These programs are also called Dapp programs. Even the smart contract developers themselves cannot change the smart contract code registered in the blockchain.


The way smart contracts work is similar to vending machines in subways. When you try to buy a drink using these devices, you enter the money into the machine and the machine automatically processes your money and delivers the drink, without the need for an intermediary.


How does a smart contract work?

The smart contract is implemented on the blockchain, and the main feature of the blockchain is that it is distributed. Aside from complex technical processes, when a smart contract is signed on a blockchain, it is shared among all members of the blockchain, or nodes, and everyone will have a copy of it. Therefore, it is almost impossible to prevent its implementation or manipulation.


Implement smart contract

The smart contract code is written as a transaction on the blockchain after being written by the programmer through a client (the official software that connects you directly to the blockchain). Smart contracts are written in one or more programming languages. For example, the programming language of Ethereum Smart Contracts is Solidity. So to learn to write a smart contract for the Ethereum blockchain, you need to learn the solidity programming language.


Execution of smart contract

To do this with a registered contract, you must do the same with the transaction. If you only need to check the status of the contract, there is no need for a transaction. A transaction is performed as input. The nodes then execute the contract using their Ethereum Virtual Machine (EVM) and the received input. Ethereum Virtual Machine is a virtual space for executing contracts. If the fee is enough, the transaction will take place.

You may be a little confused about how smart contracts work, but this is natural because the process of enforcing these contracts has a lot of technical complexity.


What is needed to create a smart contract?

In general, to create a smart contract, in addition to the above, you also need the following:

The subject of contract and access

The program must have access to the product or service under the contract to automatically control them in the supply or purchase process. For example, if the contract is to deliver a file if it receives money, it must have access to the file.

Terms of the contract

The terms of the smart contract are precisely the sequence of operations that, if the conditions occur, lead to the execution of the contract. These conditions must be specified by programming. All participants must sign these terms.


Oracle refers to something that provides external information to a contractor to process their contract. For example, if Oracle is going to review the weather contract, it could be a weather site.

Exclusive platform

The smart contract is issued to the blockchain of a specific platform and distributed among the nodes of the target platform. You also need an official client software that connects directly to the blockchain to sign a contract. Ethereum is currently the most popular platform for executing smart contracts.




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