What is a smart contract?
A smart contract is essentially a program that lives on the Ethereum blockchain. These contracts are executed on the blockchain, meaning that the terms of the contract are stored on a distributed database and cannot be changed. (opens in a new tab)The creation and execution of these smart contracts has become more simplified over the years and more complex transactions can be run on the Ethereum network.
How does a Smart Contract work?
Step 1: Writing the Smart Contract
- Language and Tools: A developer writes the smart contract using a programming language, typically Solidity, which is designed for Ethereum smart contracts. Development tools like Remix or Truffle can be used for writing and testing the contract.
- Defining Rules and Functions: The contract includes a set of rules and functions, which define what conditions must be met and what actions the contract will execute.
Step 2: Testing the Contract
- Testing Environment: Before deploying, it's crucial to test the smart contract in a controlled environment. Ethereum provides test networks (testnets) like Rinkeby or Ropsten for this purpose.
- Debugging: The developer tests and debugs the contract to ensure it behaves as expected without any security flaws or vulnerabilities.
Step 3: Deployment to the Ethereum Network
- Compilation: The smart contract code is compiled into bytecode, which is readable by the Ethereum Virtual Machine (EVM).
- Deployment Transaction: The compiled contract is deployed to the Ethereum network through a transaction. This requires Ether (ETH) to pay for the gas fees.
- Gas Fees: Gas fees are required to compensate for the computational energy required to process and store the contract.
Step 4: Interaction with the Contract
- Contract Address: Once deployed, the contract is assigned an Ethereum address. Users or other contracts can interact with it by sending transactions to this address.
- Triggering Functions: Interactions with the contract are done through its functions, which are triggered by sending transactions with specific data and, if necessary, Ether.
Step 5: Execution of the Contract
- EVM Execution: When a function of the contract is triggered, it's executed by the EVM on every node in the Ethereum network.
- Consensus: The nodes reach a consensus on the outcome of the execution, ensuring that the contract's actions are valid and consistent across the entire network.
Step 6: Updating the Blockchain
- State Changes: If the contract execution results in state changes (like transferring Ether or updating stored data), these changes are recorded on the blockchain.
- Block Confirmation: These changes become immutable once the block containing the transaction is confirmed and added to the blockchain.
Step 7: Ongoing Interactions and Contract Lifecycle
- Further Interactions: Users can continue to interact with the contract as long as it's operational.
- Contract Lifecycle: Some contracts are designed to have a limited lifecycle, deactivating themselves after certain conditions are met.
Remember that blockchains are immutable. Once deployed, a smart contract cannot be altered so any bugs or flaws in the contract are permanent unless the contract is designed with self-destruct or upgrade mechanisms.
Awesome, how do I get started?
This page was meant for you to get familiar with smart contracts. If you would like to get started developing them, please head here.
Further Learnings
Simple video that explains what Smart Contracts are (opens in a new tab)