Table of Contents
- 1 How To Create A Smart Contract
- 1.1 Identify parties and establish the conditions of the contract
- 1.2 Define the conditions for contract execution.
- 1.3 Write the smart contract code.
- 1.4 Deploy the contract to a blockchain platform
- 1.5 Trigger the contract execution automatically
- 1.6 Record the contract’s details on the blockchain ledger
- 2 Smart Contract Applications
- 3 Advantages and Disadvantages of Smart Contracts
Smart contracts are programs or protocols that execute automatically, facilitate transactions stored on a blockchain, and run in response to certain conditions. Once completed, the transactions are traceable and immutable.
In other words, smart contracts streamline the fulfillment of agreements, allowing all parties to verify the results promptly without the involvement of a third party.
Nick Szabo, an American computer scientist who developed “Bit Gold” in 1998, also defined Smart contracts as computerized transaction protocols that execute contract conditions.
Smart contracts enable secure transactions and agreements to be carried out among anonymous parties without a central authority, legal framework, or external application device.
Blockchain technology has often been associated with Bitcoin but has advanced beyond digital currency.
How To Create A Smart Contract
Identify parties and establish the conditions of the contract
Identifying the parties involved and agreeing on the terms and conditions of the contract. The contract terms, the responsibilities of each party, and the criteria for executing the contract.
Define the conditions for contract execution.
This next stage is to specify the conditions to be met for the contract to be executed. These conditions are typically expressed as standards that must be met for the contract to be legitimate.
Write the smart contract code.
This next step involves writing the code for the smart contract, which will outline the precise actions required to execute the contract once the specified conditions are fulfilled.
Deploy the contract to a blockchain platform
The fourth step involves deploying the smart contract on a blockchain platform. This entails validating the contract’s validity by uploading the code to the blockchain network.
Trigger the contract execution automatically
The smart contract’s execution is the fifth phase. The agreement is automatically executed when the predetermined circumstances are satisfied, and the blockchain network activates it.
Record the contract’s details on the blockchain ledger
The contract’s information is entered into the blockchain network when executed. This covers the contract terms, the prerequisites for execution, and the execution date and time. The contract’s specifics are immutable once entered into the blockchain, meaning they cannot be changed or removed.
Smart Contract Applications
Voting and Blockchain Implementation of Smart Contracts
Using Blockchain in voting can eliminate common problems in traditional voting systems.
A centralized voting system faces difficulties when it comes to tracking votes – identity fraud, miscounts, or bias by voting officials. Using a smart contract, certain predefined terms and conditions are pre-set.
- No voter is allowed to vote from a digital identity other than his or her own.
- The counting is foolproof.
- Every vote is recorded on a blockchain network, and the tallying is done automatically with no external intervention from a third party or dependency on a manual process.
- Each ID is attributed to just one vote.
- The users within the blockchain network itself carry out validation.
Consequently, voting can occur on a public blockchain or within a decentralized autonomous organization-based blockchain setup. As a result, every vote is recorded on the ledger, and the information cannot be modified. This ledger is publicly available for audit and verification.
Smart contracts allow you to create voting systems to add and remove members, change voting rules and debate periods, or alter the majority rule.
For instance, you can create a vote for a decision within a decentralized autonomous organization. Rather than a central authority deciding, a voting mechanism within the organization can determine whether the proposal is accepted or rejected.
Utilizing Blockchain for Smart Contracting and Crowdfunding
Ethereum-based smart contracts may be used to create digital tokens for performing transactions. You can design and issue your own digital currency, creating a tradable token.
The tokens use a standard coin API. In the case of Ethereum, there are standardizations of ERC 20 that allow the contract to access any wallet for exchange automatically. As a result, you build a tradable token with a fixed supply. The platform becomes a central bank of sorts, issuing digital money.
Suppose you want to start a business requiring funding. But who would lend money to someone they don’t know or trust? Smart contracts have a major role to play.
With Ethereum, you can build a smart contract to hold a contributor’s funds until a given date passes or a goal is met. Based on the result, the funds are released to the contract owners or returned to the contributors.
Advantages and Disadvantages of Smart Contracts
Smart contracts offer a key advantage like blockchain technology by eliminating the necessity for intermediaries. Additional advantages of this technology include:
- Efficiency: Contract execution is speedy.
- Accuracy: Human error is eliminated.
- Immutability: The programming, contract, and transaction data remain unchangeable.
Smart contracts come with certain drawbacks that should be considered:
- Permanent: They cannot be changed if there are errors.
- Human factor: The programmer ensures the code accurately reflects the agreed contract terms.
- Loopholes: Coding errors can create loopholes, allowing contracts to be breached.
