Ethereum and Smart Contracts | #1 Smart Contract Overview

Let’s take a look at what Ethereum is and what Smart Contracts do.

Table of Contents

What is Ethereum?

The foundation for our digital future

At its core, Ethereum is a decentralized global software platform powered by blockchain technology. It is most commonly known by its native cryptocurrency, ether, or ETH. Ethereum is a turing complete platform which enables users to create limitless smart contracts, decentralized applications, and tokens which are hosted on the Ethereum blockchain. The term turing complete means that practically any computer program can be run on Ethereum, only limited by gas fees and block size.

Ethereum is permissionless, with no barriers to entry, publicly accessible around the world. Today there are thousands of applications running on the Ethereum network. In addition to its smart contract functionality, Ethereum also enables cryptocurrency transactions. Unlike Bitcoin, Ethereum presents a much more versatile network framework enabling decentralized applications. Decentralized applications are hosted on geographically separated nodes which store identical copies of the Ethereum blockchain.

Even if some of the nodes were taken offline, the decentralized applications and smart contracts would continue to function. Ethereum has no centralized authority, unlike traditional tech hosting companies which can censor applications hosted on their network at will. The permanent and un-censorable nature of the Ethereum blockchain provides an attractive alternative to traditional centralized application hosting.

It’s the words programmable blockchain.

Ethereum builds on Bitcoins innovations, with some big differences. Both enable peer to peer digital value transfer without the need for financial intermediaries, but Ethereum is programmable. It enabled the creation of stablecoins, ERC tokens, NFTs, Wrapped Bitcoin, and many other digitals assets. Ethereum is far more than just a cryptocurrency, it provides the tools to create marketplaces, decentralized finance (DeFi) services, games, decentralized applications (dApps), and much more.

What is a Smart Contract?

Smart contracts are self-executing computer programs which are hosted on a blockchain network. Smart contracts that are deployed on Ethereum are traceable, publicly available for review, and irreversible once executed. Hosting smart contracts on a decentralized blockchain allows for peer to peer contract agreement and execution in an accurate, timely, and tamper-proof manner.

Secure Blockchain Automation

Smart contracts are powerful infrastructure for automations because they are not controlled by a central administrator and are not vulnerable to single point of attack by malicious entities. When applied to multi-party digital agreements, smart contract applications can reduce counter-party risk, increase efficiency, lower costs, and provide a new level of transparency into processes.

Benefits of Smart Contracts: Accuracy, Speed, and Efficiency

Smart contracts are immediately executed when conditions are met. This automation reduces errors, eliminates paperwork, increases speed, and overall efficiency.

Security

Blockchain transactions securely encrypted making them extremely difficult to hack. Furthermore, because each entry on a distributed ledger is linked to the entries before and after it, hackers would have to change the entire chain to change a single record.

How Do Smart Contracts Work?

A smart contract is a computer program that encodes business logic and operates on a dedicated virtual machine embedded in a blockchain or other distributed ledger.

Step 1: Define criteria for the smart contract’s desired behavior in response to certain events or circumstances.

Step 2: Conditions such as payment authorization, shipment receipt, deliverables completed, or a utility meter reading threshold are examples of simple events.

Step 3: More complex operations, such as determining the value of a derivative financial instrument, or automatically releasing an insurance payment, might be encoded using more sophisticated logic.

Step 4: Smart contracts are written in Solidity, using a platform like Remix or similar to create and test the logic. After the application is written, it is sent to a separate team for security testing.

Step 5: An internal expert or a company that specializes in vetting smart contract security could be used.

Step 6: The contract is then deployed on an existing blockchain or other distributed ledger infrastructure once it has been audited and authorized.

Step 7: The smart contract is configured to listen for event updates from an “oracle,” which is effectively a cryptographically secure streaming data source, once it has been deployed.

Step 8: Once the smart contract obtains the necessary combination of events from one or more oracles, the smart contract executes the specified code.

Conclusion

Smart contracts can be used to automate a wide variety of computer programs and business functions. Ethereum provides practically limitless upgradable functionality using smart contracts. Smart contract automations are being implemented today and will continue to be adopted for years to come.

What are your thoughts about Ethereum? Do you think smart contracts could replace traditional banking functions or automate other repetitive tasks? I’d love to hear your thoughts.

-Wes

Resources

Ethereum and Smart Contracts: The Foundation for the Decentralized Economy?