What is a Smart Contract?

Contract:

It is a legal transaction that requires at least two or more persons to make a mutual and mutually appropriate declaration of will to produce a result and whose conditions are supported by law. Protocol, on the other hand, is a summarised mutually agreed agreement that explains the contracts in terms of application. In order for the contract to be valid, the parties to the contract must have made the contract with their free will and consciously.

Smart Contract:

A self-executing software/programme managed by a P2P (Peer-to-Peer) computer network that can execute transactions and agreements between parties in a reliable and consistent manner, where retrospective exchange is not possible. Smart contracts provide a coordination and enforcement framework for agreements between network participants without the need for traditional legal contracts. In this article, I would like to approach smart contracts (Smart Contracts), whose technical details I will talk about in the Solidity article series, from a more general framework.

Self-executing contract, i.e. smart

A smart contract is a self-executing contract embedded in software code managed by a blockchain.The smart contract code contains a set of rules by which the parties agree to interact with each other (Protocol) .When these predefined rules are fulfilled, the contract automatically takes effect. For example, if I want to stake the token I hold, the amount of token I specify by a smart contract is locked by the smart contract and released by the smart contract at the end of the specified staking period. Smart contracts provide mechanisms for efficiently managing tokenised assets and access rights between parties. You can think of it as a cryptographic box that opens access to the value or any resource specified in the smart contract if and when certain predefined conditions are met. The values and access rights governed by smart contracts are stored in the blockchain. Smart contracts therefore provide a public and verifiable way to embed governance rules and business logic in a few lines of code, which can be audited and enforced by the majority agreement (consensus mechanism) of a P2P network.




Smart contracts, if implemented correctly, can reduce the coordination costs of auditing and enforcing contracts, providing transaction security superior to traditional contract law. The parties to the contract can monitor the performance of the smart contract in real time and save the costs of enforcing the contract.

Security

Smart contract security is still a problem to be solved at a technical level. With decentralised dispute resolution tools, we will need to be able to enforce more complex contract clauses. Some of these tools are;

• Kleros → Justice Protocol, decentralised arbitration service
• Openlaw → A project that enables the creation of legal contracts on Ethereum
• Jur → Decentralised dispute resolution system

It seems that such developments may take more time to mature. As the technology develops further, becomes more widespread and legal standards are adopted, we will likely see a combination of legal contracts and smart contracts.

Areas of Use

With smart contracts, every agreement, every process, task and payment can have a digital record and signature that can be identified, verified, stored and shared. Smart contract use cases range from simple (sending money from one user to another user) to complex (DAO structures). Examples of simple technological use cases include official and semi-official registries (land registries, birth certificates, school grades, report cards and diploma records). Smart contracts can also be used for much more complex agreements between a large number of actors along the supply chain of goods or services, or to manage a group of people who share common interests and goals without the need for traditional centralised institutions. Decentralised Autonomous Organisations (DAOs) are an example and probably represent the most complex smart contracts. The smart contract hereby formalises the rules of governance (bylaws, governing charter, rules of procedure or articles of association of an organisation) and replaces day-to-day operational management with self-executing code. For example, a decision within the DAO is put to a vote, if the result of the vote is positive, a smart contract is automatically triggered, if it is negative, another smart contract is triggered. Smart contracts can be used in many fields such as banking, insurance, energy, e-government, telecommunications, music industry, art, sports and education.

How Do Smart Contracts Work?

Smart contracts should be written in the programming language that blockchain uses to write smart contracts on whichever blockchain they will be run on. As I mentioned in my article here, we can write smart contracts on more than 100 blockchains compatible with EVM with the Solidity programming language. With the Rust programming language, we can write smart contracts on Solana, Polkadot and Near blockchains. After the smart contracts are written, they are uploaded to the relevant blockchain and the parties to the contract can review the contract code and its current status on the blockchain. For example, to examine smart contracts on the Ethereum blockchain, we can use the etherscan site that offers the "Ethereum Blockchain Explorer" service. By typing the address of the smart contract we want to examine, we can examine the contract code of the relevant contract, and even interact with the relevant smart contract by connecting via metamask. A smart contract is triggered and executed by an internal or external event and produces an output agreed upon by all parties.