What is Smart Contract? How does it work?

Smart Contract is a protocol that ensures the fulfillment of certain conditions between users for the transactions to be carried out and helps the transactions to be carried out in a reliable manner. Smart contracts were introduced to users in the form of computerized transaction protocols by Nick Szabo in 1994. Smart contracts are one of the core structures of Ethereum. According to Ethereum.org 's metaphor, smart contracts work similar to vending machines. In the simplest terms, smart contracts digitize contracts by translating the terms of a contract into computer codes.
Smart contracts are used for transactions to be carried out on the blockchain and the transactions are kept on the network. Transactions carried out with smart contracts are not changed. Users remain anonymous in their transactions on the blockchain network. In the blockchain network, smart contracts gain functionality when users fulfill the expected conditions. The most important feature of smart contracts is that they are decentralized. Transactions carried out between users are not managed and cannot be changed by a single authority. Many countries have not yet made regulations regarding smart contracts.

How Do Smart Contracts Work?

Smart contracts are contract models used to enable easy exchange of goods or services. The main purpose of smart contracts is to optimize transaction costs and ensure open monitoring of transactions. All conditions of smart contracts are clear and the conditions cannot be deviated from. Smart contracts are executed automatically. Smart contracts promise to create security and trust for every sector in which they are intended to be used.
Smart contracts on the blockchain have a structure that can be created by anyone. The codes of smart contracts are open and cannot be changed or closed in any way once they are used in the blockchain network. Smart contracts can be written in various programming languages ​​such as Solidity, Michelson. Nodes in the blockchain network have copies of smart contracts. The smart contract helps ensure the consensus required to verify and approve new transactions made by nodes within the network.

How Did Smart Contracts Appear?

Smart contracts were used before blockchain technology became popular with people. Smart contracts were first introduced by Nick Szabo in 1994. A computer scientist named Nick Szabo developed the crypto asset called BitGold in 1998. Szabo defined smart contracts as computerized transaction protocols that execute the rules of a contract.

What are Blockchain Based Smart Contracts?

Blockchain technology is the most suitable way to store smart contracts because it has secure and immutable features. It is impossible to lose smart contract data because smart contracts are encrypted and stored in ledgers. Smart contracts implemented with blockchain technology enable low-cost and efficient transactions. Blockchain-based smart contracts are preferred in many industries. For example, smart contracts used in the healthcare industry can automate payment for services and reduce billing.
Blockchain-based smart contracts can be used in the music industry to record ownership of music and pay royalties. At the same time, smart contracts also contribute to the automobile industry by storing information such as accidents or vehicle maintenance. Programming language applications are very useful in creating smart contracts that integrate with blockchain and ledgers.

Why Are Smart Contracts Important?

Smart contracts enable decentralized execution of transactions and creation of crypto assets. Smart contracts, which can be used in various fields, are stored in blockchain networks. Transactions carried out with smart contracts implemented using Blockchain technology cannot be changed in any way, with some exceptions. Smart contracts, decentralized applications are supported and include DeFi technology. DeFi technology, encompassed by smart contracts, allows crypto assets to be included in financial transactions.

What are Smart Contract Coins?

-Crypto asset units of networks that enable the creation of smart contracts are called smart contract coins. Some of the smart contract coins are:
Ethereum (ETH)
Binance Coin (BNB)
Algorand (ALGO)
Polygon (MATIC)

What are the Advantages of Smart Contracts?

-Smart contracts increase the speed of transactions carried out by institutions or companies
-Smart contracts are decentralized and do not require a third party to manage the transactions.
-Smart contracts make use of blockchain technology and distributed ledger technology. The transaction data performed is recorded and stored within these technologies. It prevents the possibility of errors in transactions that go through complex processes and automatic processes are carried out to carry out the transactions.
-Smart contracts protect all resources to make progress traceable throughout the transaction process. Smart contracts minimize the transaction costs of institutions or companies.

Security issues

A blockchain-based smart contract is visible to all users of that blockchain due to its transparency. However, any security vulnerabilities and errors that may occur in the network are visible to everyone. It should not be forgotten that these errors and vulnerabilities cannot be fixed quickly because they are not changeable.In the "THE DAO" initiative, which is the most striking example of this issue, a hacker who caught the systemic vulnerability carried out one of the largest cyber attacks in the history of cryptocurrency and transferred 3.6 million ether, which corresponds to approximately one third of the funds, to his own account. To close this gap, the Ethereum blockchain network was divided into two chains by a hard fork by the network developers. In one of the split chains, fraudulent transactions were reversed and the chain was returned to its unhacked state. This chain is called the Ethereum blockchain. In the other chain, the participants' money was returned and their grievances were resolved. Fraudulent transactions remain untouched and the principle of immutability is preserved. This blockchain is called Ethereum Classic.

How to Create Smart Contracts?

You need to have programming knowledge and a basic understanding of blockchain technology. Popular programming languages ​​for writing smart contracts are: Solidity, Vyper and LLL. To create a smart contract, you first need to define the terms of the agreement as code. This code will be published to a blockchain network where it will be stored and executed automatically when specified conditions are met.
Once a smart contract is deployed, it can be accessed and interacted with by anyone with permission to do so. This can be done using a blockchain wallet or a dedicated smart contract platform. It is also worth noting that since smart contracts are essentially just pieces of code, they can be complex and difficult to understand. In fact, it is important to carefully review and test any smart contract before using it in a real-world environment.