What Is A Smart Contract?
If cryptocurrencies like Bitcoin offer the power to transfer value through time and space without any controlling body, the possibilities of its network are one dimensional. Cryptocurrency supporters know that Bitcoin’s real revolution is its blockchain, which presents a multitude of possibilities, including the deployment of smart contracts. However, what are these smart contracts, what can they be used for and who pioneered them?
Origins of smart contracts
It was Nick Szabo, a computer scientist and law graduate, who first used the term smart contracts in 1994 to present digital contracts that could be executed automatically. In other words, they were put forward to allow interactions between different parties without requiring confirmation from a trusted third party.
However, it wasn’t until 2015, with the launch of Ethereum, that we saw the first implementation of these large-scale smart contracts. Their uses range from stand-alone betting contracts to the deployment of more complex systems such as decentralised trading platforms (DEX).
A smart contract consists essentially of instructions written in a programming language that are deployed on a blockchain in an immutable way. It is then up to users and applications in the ecosystem to interact with these contracts. Smart contracts make it possible to do away with various trusted third parties and now, together with the blockchain, have a legal status in many European countries. They can transfer value, as well as store it in the context of the possession of tokens for example. Their execution generally requires the user to accept costs in order to finance the platform on which they are deployed. For example, Ethereum tokens are a particular type of smart contract which meet a standard that can be used everywhere: the ERC-20 standard.
The development of smart contracts
There are many different ways of developing smart contracts depending on the needs and the objective. You can opt to choose between different projects such as Ethereum or Tezos, and also between multiple programming languages.
These can influence the duration and difficulty of development but also its security, which we will talk about later in this article. The most well-known programming languages are Solidity (Ethereum), Michelson (Tezos) or even Miniscript, which allows the development of Bitcoin smart contracts.
Security of smart contracts
Since smart contracts are strictly immutable scripts with which everyone can interact, they can be used inappropriately.
An aggravating factor is that smart contracts are increasingly managing large amounts of cryptocurrencies and are therefore becoming targets for users wishing to exploit their vulnerabilities. The security of smart contracts is therefore a very important variable in an ecosystem project. The exploitation of these flaws can have serious consequences, such as the attack on the Ethereum DAO in 2016 which ultimately generated the split between Ethereum and Ethereum Classic.
Fortunately, planning teams are more and more sensitive to the subject and to the various methods that can reduce these risks, even if they cannot be reduced to 0. In any case, making the code open source, having audits carried out by independent entities and offering bounties to developers in the event of a breach are common practices to eradicate this poison in the ecosystem.
That completes this presentation about smart contracts. These programmes support most decentralised applications in the ecosystem as well as their greatest vulnerabilities. Are you interested in the development of smart contracts? Send me a message if you want to learn more about their development and as always let us know if you have any comments or questions about this article.
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Just your average global millennial embracing, and interested in, the future of money and finance. Excited by blockchain tech as well as fintech but have a special passion for DeFi and Yield Farming, what will this technological disruption bring next?