In terms of decentralized blockchain technologies, a smart contract is a program code having certain terms implemented in it, and once these terms are met, the conditions written in the contract are fulfilled. SCs operate in an automatic mode without the participation of some third party. With the help of smart contracts, the security of transactions increases, the level of distrust is largely reduced, and the operations themselves have performed automatically. The main mechanism used by any smart contract development service is the Distributed ledger protocol (DLP). The feature of smart contract development is offered by several advanced blockchain platforms, including DecimalChain. DecimalChain is often referred to as one of the industry leaders.
How Do Smart Contracts Work?
Blockchains that offer smart contracts support two types of accounts – a user account for ordinary transactions and an SC account. The first one has public keys, which are essentially the user’s public address. They are used when you need to make a transaction, like a transfer of tokens. Each public key is associated with a private (encrypted) key, which gives the owner access to his crypto wallet.
Contract accounts do not have encrypted keys. They do not need them since such accounts are controlled by the smart contract code itself. But they can operate with public addresses, which is necessary for the implementation of transactions embedded in the algorithm of the smart contract program code.
The same code specifies SC conditions (implemented by language patterns of the if-else type), as well as operations performed when these conditions are met. As a rule, such operations are the transfer of tokens to an account associated with a smart contract or sending a message to it. On most distributed networks, including Ethereum, such transfers are carried out through transactions. The deployment of SC itself is also a transaction, and instead of addresses, it contains the contract code.
The scope of deployed SCs use is limited only algorithmically. If previously smart contracts were used for such simple operations as the distribution of coins between a given pool of participants, then over time, their logic expanded, even allowing recursion, that is, the launch of other contracts.
The main feature of SC is the impossibility of changing its code after deployment – just as it is impossible to change a transaction that has already been processed and recorded on the blockchain. This requires great attentiveness and concentration when writing a contract and a lot of time spent on testing it in order to identify and correct all the errors and inaccuracies of the algorithm.
Why do you need Smart Contract Development?
As noted above, the scope of the SC application is limited only by its logic: if a certain task can be automated, then language tools certainly allow it to be done, regardless of the platform used. Therefore, any smart contract development company offers a wide range of services employing smart contracts.
It’s clear that there are a lot of Applications aimed at increasing the efficiency of blockchain functioning. But modern smart contracts are expanding their involvement into all new areas, from the automobile industry to the Internet of Things and healthcare. But it is the first type of smart contract, focused on decentralized networks and DLT, that is developing most actively. Let’s briefly consider some of the most popular areas.
Tokenization of assets
Such a popular product of blockchain technology has become available solely due to the emergence of smart contracts.
The Ethereum ecosystem uses two types of standards for asset tokenization:
- ERC-20 (works with interchangeable tokens – cryptocurrencies, security tokens, various service tokens);
- ERC-721 (works with non-interchangeable tokens).
As an example, we can cite the Hedera Hashgraph platform, which employs the DLT protocol on the basis of DAG technology.
NFT
This type of unique non-interchangeable token has gained extraordinary popularity in recent years. The uniqueness of such tokens is ensured by the use of various digital assets, often representing digitized works of art used as collectibles.
It turned out that smart contracts are a perfect tool for creating NFT as they can describe in detail the features of digital assets in the form of metadata, from information about the owner to determine the properties of the token.
DAO
This is another blockchain area where programmable smart contracts are actively used. Here, SCs play the role of a manager, managing the operation of decentralized autonomous organizations without the need to involve centralized management. All relevant rules concerning the work of such organizations are prescribed by SCs that are widely implemented by smart contract development companies.
DeFi Applications
It is already impossible to imagine the global financial market without the use of blockchain. The field of decentralized finance is constantly finding new ways to provide innovative services to customers using smart contracts. Pools dealing with liquidity mining are involved here, as well as applications used for exchanging crypto assets or such a popular service as quick loans.
Exchange of tokens from different networks
It is impossible to perform such operations directly. But a smart contract allows you to block tokens and their minting, therefore making such exchanges possible. The essence of the operation is simple:
- on the source network, the exchanged tokens are blocked with their withdrawal from the native chain;
- the corresponding number of “wrapped” tokens is minted on the target blockchain;
- after that, these tokens are credited to the recipient’s wallet.
This scheme, by the way, allows you to perform the reverse operation when wrapped tokens are also burned and direct ones are unblocked.
Trends in the smart contract evolution
Blockchain technology is constantly being improved, but even more, changes involve the ecosystem of smart contracts. The ecosystem that allows you to use ready-made Apps to automate business processes in a variety of areas.
Let’s note some of the most promising areas for the further expansion of smart contract functionality:
- Increasing the scope of SC applications in order to ensure the possibility of changing their conditions after being deployed on the blockchain. In general, the immutability of a smart contract is a blessing, but it often creates a whole range of problems and inconveniences. Such an opportunity in the Ethereum network is provided by using third-party solutions when writing code, for example, the OpenZappelin platform. But on the Flow protocol, the possibility of changing the contract after its deployment is built in initially;
- The Diamond standard allows you to integrate some external functions of other SCs, using them as your own. This makes the Diamond SC as flexible and customizable as possible, with the possibility of updating;
- further development of protocols used for processing smart contracts is considered a very promising direction used by any smart contract development company. An example is a BSC-Binance bundle. The first network is good for supporting SCs; the second one specializes in working with decentralized exchanges and is characterized by a high capacity of transactions. This technology of parallel blockchains is called dedicated SC chains.
Conclusion
From all of the above, we can confidently conclude that smart contracts are the most important components of decentralized networks and DLT, providing virtually unlimited opportunities for the evolution of the blockchain. Lately, smart contract development companies and platforms based on them have started to offer a lot of solutions making use of blockchain easier for newbies. This regards DecimalChain, the well-known smart contract development service that allows users to create their own tokens (including NFT) using the native Decimal token.
