Smart Contract Development: Building Trust in Blockchain Transactions
Smart contracts represent a complex and innovative aspect of blockchain technology. The discussion about smart contracts is intricate, covering technological advancements, practical applications across industries, efficiency enhancements, and the potential to reshape traditional paradigms. This diverse spectrum of factors has fueled an ongoing and robust conversation about the roles and impacts of smart contracts in different domains.
In this article we’re going to guide you through the key concept of smart contract development, tools, best-practices and real-world application to help your business make use of the full potential of decentralized apps and blockchain technology.
Blockchain technology guarantees that the data will not be changed during the transfer process. The parties sign a smart contract using methods similar to signing the sending of funds in existing cryptocurrency networks. Once signed by the parties, the contract comes into force. To ensure the automated execution of contract obligations, an environment of existence is required that allows for complete automation of the execution of contract clauses. This means that smart contracts can only exist within an environment that has unimpeded access by executable code to smart contract objects.
All terms of the contract must have a mathematical description and clear execution logic. Smart contracts, for example, can monitor compliance with the terms of long-term loans.
Having unhindered access to contract objects, the smart contract monitors the achievement or violation of points according to the specified conditions and makes independent decisions based on the programmed conditions.
Thus, the main principle of a smart contract is the complete automation and reliability of the execution of contractual relations between people.
How the blockchain ecosystem and smart contracts work
The concept behind the performance of smart contracts can probably be compared with the functioning of an automatic vending machine, which instead of the buyer’s dollars gives out the cup of coffee, skipping the seller and coffee shop owner. These are value units, which involve cup money and the prices deposited in a banknote i.e. the cost of a cup of coffee or any other drink that was stored in the machine’s storeroom. In this way, a person can insert two parties’ values vendor and buyer and the automated exchange takes place.
Upon verification and fulfillment of predetermined conditions, a network of computers initiates specific actions. These actions may encompass activities such as disbursing funds to relevant parties, registering a vehicle, dispatching notifications, or issuing a ticket. Following the completion of the transaction, the blockchain undergoes an update, ensuring the immutability of the transaction, with results visible solely to authorized parties.
A smart contract has the capability to encompass numerous conditions essential for instilling confidence in participants regarding the successful execution of a task. Participants collaboratively determine the representation of transactions and their data on the blockchain, establish rules akin to "if/when...then..." that regulate these transactions, delve into potential exceptions, and structure mechanisms for dispute resolution.
If a smart contract gets object A (for example, for one BTC) then gives object B (16 ether, for example). Upon receiving object B, function X will be activated (animation/audio/film/series). If object C is sent to the smart contract, whoever opens up these applications will be using object C as an argument.
Subsequently, the developer proceeds to encode the smart contract. Nevertheless, given the escalating integration of blockchain in business operations, organizations increasingly furnish templates, web interfaces, and other online tools to streamline the creation of well-structured smart contracts.
Essential conditions for smart contract operation
Smart contracts function as a particular type of account, endowed with equivalent privileges to user accounts. Unlike user-controlled accounts, smart contract accounts are governed by the code embedded within the contract itself.
This distinction is crucial because smart contracts essentially operate as accounts, allowing interaction with blockchain users or decentralized applications (DApps). For example, we can use smart contracts to swap tokens, such as trading cryptocurrencies with another individual, or instructing a smart contract to execute specific tasks or functions.
To ensure the effective operation of the system, it is essential to incorporate the following functionalities:
Open Databases: The system mandates open databases housing information about users involved in transactions. This transparency guarantees visibility and traceability of all transaction particulars.
Elimination of the Human Factor: A fundamental characteristic is the complete absence of the human factor. Automated processes within the system mitigate the likelihood of errors and enhance operational reliability.
Decentralized Platforms: Transactions must occur on decentralized platforms, fostering a distributed and secure environment. Decentralization contributes to the stability and integrity of the transactional process.
Moreover, for a smart contract to possess legal validity, it must adhere to the fundamental requirements of contract law:
Offer, Acceptance, Consideration: To be legally enforceable, a contract must encompass the key elements of offer, acceptance, and consideration.
Offer: One or both parties present the terms of the agreement.
Acceptance: Both parties agree to the terms.
Consideration: Something of value is exchanged.
Enforceable Terms: The conditions in a contract must meet legal standards of enforceability, ensuring clarity, specificity, and alignment with legal norms.
Legal Right to Use Electronic Signatures: Smart contracts must be legally eligible to employ electronic signatures in accordance with applicable laws. While smart contracts are not commonly employed in transactions requiring a written signature, it is valuable to be aware that specific types of agreements, like wills or court orders, are legally prohibited from being executed electronically.
Limitations of smart contracts
While embracing smart contracts comes with many advantages, it's crucial to acknowledge certain limitations. Before transitioning, take into account the following hurdles and limitations associated with smart contracts:
Subjectivity - the functionality of a smart contract is limited by what is written in its code. If the contract has some degree of subjectivity or should be flexible, it will be difficult to foresee this in its structure in advance.
Difficult to make changes - if there are bugs or vulnerabilities in the code, changing the contract will require a great deal of community effort and consensus among network nodes.
Ingesting real-world data - Smart contracts often require real-world data to execute, such as the value of the US dollar, the price of a stock, or the location of a product being transported across countries. While this information is often provided by third parties, oracle technology is used to enter it into the blockchain using off-chain data
Despite being a promising technology, significant skepticism still prevails. To begin with, not everyone favors the level of transparency involved. In smart contracts, any network member can access the contract terms and monitor their execution, extending beyond the contracting parties.
Our Smart Contracts Development Process
Here we reveal our 6-step roadmap for creating smart contracts with seamless precision and effectiveness.
Step 1: Smart contract concept
There’s no way to achieve a goal but to define the concept of the smart contract. Clearly articulate the objectives, terms, and actions that the contract will execute.
Understanding the fundamental goals and features of your intended smart contract will enhance clarity and precision during the coding process.
Step 2: Choosing the blockchain platform
Conducting thorough research on the available platforms for implementing your smart contract is essential.
Smart contracts can be created and deployed across various blockchain platforms, including Ethereum, Cardano, and Hyperledger Fabric. Each platform operates according to its unique features and practices for smart contract development. These smart contracts consist of two distinct components: a code segment and a data section. The code represents the contract's functionality, while the data encapsulates its state. These elements of the smart contract are situated at a specific address within the blockchain.
Step 3: Tools for Smart contracts selection
Numerous development tools are available for creating smart contracts. While certain tools are indispensable for a smart contract's functionality, others serve as optional resources for enhancing the contract.
The programming language plays an important role in the coding process and is typically dictated by the blockchain being utilized. Here’s the list of languages, which are commonly used:
Solidity. Ethereum employs this high-level, statically-typed, object-oriented language that supports features such as inheritance, libraries, and advanced user-defined types.
Vyper. An Ethereum-compatible language based on PYTHON, it follows a contract-oriented approach and prioritizes strong security, easy code readability, and compiler simplicity, rendering it particularly developer-friendly.
Rust. A language designed for performance, applicable both within and beyond smart contracts. With a robust type system and ownership model, it facilitates straightforward bug elimination. Rust is compatible with Ethereum and various other blockchain platforms.
The following tools are used for efficient coding, error detection, collaboration, and streamlined workflows, providing tools and features that enhance productivity throughout the software development process.
Here are just a few examples of those tools: Visual Studio Code, Remix, EthFiddle, Atom, etc.
Selecting an appropriate framework is crucial for efficient testing and deployment processes; your decision should align with your personal preferences, experience level, and the specific requirements of your project. The most well-known frameworks for smart contract development include:
In our current smart contract development practices, we primarily leverage the robust capabilities of the HardHat framework. It is distinguished by its impressive features, including rapid testing, clear tutorials, and seamless integration. Recognized for its swift testing speed and user-friendly workflow, HardHat significantly streamlines the development process, ensuring both efficiency and ease of use.
For a seamless interaction with the blockchain, we incorporate Alchemy and QuickNode. While this is our general approach, we maintain the flexibility to establish direct connections with blockchain nodes as needed.
A testnet allows you to evaluate your protocol in a controlled environment, ensuring that it functions as expected before deploying it to the live network. A few common examples are: Rinkeby, Kovan, Hyperledger Umbra, Ropsten.
To engage with web3 decentralized applications, it is necessary to possess a smart contract wallet for accessing and interacting with the functionalities they offer. We suggest using one of the following:
Step 4: Development
During this phase, the developer writes the code for the smart contract. While it's possible to start from scratch, it's not always necessary. Developers can use suitable templates or open-source libraries. Each blockchain platform has its own set of development tools. For instance, Ethereum commonly utilizes OpenZeppelin for its smart contracts, while Hyperledger has its toolset.
With a clear understanding of the contract's characteristics, the chosen platform, and tools, developers initiate the development process. Utilize programming languages and frameworks, and consider using templates or open-source libraries such as OpenZeppelin for Ethereum smart contract development.
Step 5: Testing
Given the increasing number of smart contract vulnerabilities and security breaches, testing is arguably the most critical step in smart contract development. Smart contracts are open-source software, making their code accessible for examination by potential hackers searching for vulnerabilities to exploit. Furthermore, once a smart contract is created and deployed, it becomes immutable, making testing the last opportunity for developers to identify and rectify any flaws or bugs.
To simplify the testing process, most blockchains provide testnets that allow developers to assess smart contracts without any risk of losing funds, data, or reputation. The choice of testnet varies according to the blockchain platform. For example, Ethereum uses Ropsten or Rinkeby, while Hyperledger Fabric, a permissioned blockchain, relies on Hyperledger Umbra.
Deploy the smart contract on testnets to assess its functionality, security, and compatibility. Testing on platforms like Rinkeby or Kovan provides a simulated environment for thorough evaluation.
Step 6: Deployment
The final stage of smart contract development involves deploying the contract within the blockchain environment. Once deployed, the smart contract becomes accessible to users and cannot be altered in any way. To make improvements or changes to the smart contract, developers must create and launch a new version, while the old version remains on the blockchain network and continues to function. This is why, for instance, there are currently three concurrent versions of Uniswap on the Ethereum network.
After successful testing, deploy the smart contract on your chosen blockchain platform. Deployment involves creating an active contract and making it available on the blockchain network for interaction with users.
This is a systematic approach to creating and deploying a smart contract, ensuring a well-planned and reliable development process. In the dynamic landscape of smart contract development, we acknowledge the potential for constant change. Therefore, adaptability and flexibility play a critical role in assimilating technology and driving innovation.
Why is smart contracts development important for companies?
Smart contracts development offers numerous advantages for businesses which are derived from their nature.
Smart contracts are self-executable. The transaction is carried out only when the agreed conditions are met or fulfilled. This makes the contract enforceable without any need for litigation or manual enforcement by the authorities.
To prevent transaction mismatches, all smart contracts must have specified terms and conditions. Smart contracts are very accurate as such.
The key principles underlying blockchain technology are decentralization and transparency. This ensures that all the terms of the contract are visible on the blockchain for everyone to see, which means that the terms can’t be refuted.
Smart contracts have to a high extent encrypted cryptographic security meaning that they are unchangeable. Additionally, there will be no data lost in these agreements given their distributed nature.
Smart Contracts differ from conventional business practices as they execute immediately, resulting in quick and efficient operations.
Smart contracts are trustworthy instruments that cannot be manipulated or made incorrect.
Third-party involvement is eliminated, as smart contract technology operates independently of such entities.
Given that these contracts are automated, they decrease the need for intermediaries and expenses related to errors that come with processing.
Our Blockchain Smart Contracts Focused Industries
FinTech & banking
At the very beginning, the developers intended to use the technology exclusively in the field of finance due to the following characteristics:
Decentralization. The blockchain shares data between independent nodes, so there is no need for a third party to process and store information. Protection against information leakage is being created, and intermediaries will not control financial flows.
Immutability. Data once entered into the blockchain cannot be corrected. Therefore, for financial transactions, distributed registries will be reliable sources of information.
Safety. The technology for transmitting and storing data in distributed networks is based on encryption. Only people who have access to the code will receive the information of interest. Encryption is carried out through private and public keys. The financial system becomes more transparent, and the confidential information of transaction participants is protected.
Reducing the cost of services. The centralized nature of the financial sector is the reason for the high costs associated with servicing transactions. Smart contracts that eliminate intermediaries will automate accounting and money transfers, reducing fixed costs.
Reducing audit costs. Reviewing financial statements is a long and expensive process due to the opacity of company accounting. Blockchain technology makes the audit process easier because immutable transaction records can be examined to identify violations of legal requirements. It is easier to track a suspicious transaction using a distributed ledger.
Managing the risks faced by the financial sector: failure of borrowers to meet their obligations and asymmetric information. Peer-to-peer transactions will free service providers from the negative factors associated with the participation of intermediaries. Smart contracts execute transactions quickly, and the immutability of the blockchain increases data reliability.
Gaming & NFTs
NFT smart contracts play a key role in the metaverse, in the sense that they are the basis for many important events occurring in the ecosystem.
NFT smart contracts enable decentralized ownership and transfer of virtual assets and properties. For example, in the real estate industry, virtual plots of land, buildings, and other assets can be sold as NFTs, so businesses require smart contracts to identify the owner of the property or land within the metaverse and perform certain actions such as transfer of ownership, division of land, etc.
Another example is GameFi or blockchain games; NFT smart contracts are the basis of many games that offer unique NFT assets, which can be characters, in-game collectibles, properties, etc. An NFT smart contract guarantees the player that they fully own their assets, and not the game publisher or developers.
Supply chain management
Smart contracts enable the recording and tracking of every transaction and movement of goods on a shared ledger that is accessible and verifiable by all participants. This enhanced visibility enhances trust, accountability, and traceability within the supply chain.
The origin or chronology of changes in information about the transfer of ownership, storage, or location of an object. It’s as if every item shipped has a digital “passport” confirming the authenticity of its origin and route of movement.
Bills and payments. These processes are often accompanied by manual work and paper documents, which each logistics company maintains differently. Using blockchain, you can store and share digitized records, and create smart contracts that automatically process invoices and payments.
Logistics marketplace. Blockchain enables seamless and integrated communication in complex supply chains. It can be used to create platforms on which logistics service providers offer the idle capacity of their trucks or ships in real-time.
Apartments, parking spaces, buildings - transactions with these objects have long been carried out on the blockchain. Realtors use smart contracts to conduct real estate transactions and investments transparently and efficiently. The use of blockchain technology speeds up contract processes and reduces costs.
Since the daily number of real estate transactions is large, a common database of rentals and purchases is necessary for every market participant. The transfer of traditional information storage to blockchain creates a transparent accounting system in which brokers and agents will see the history of transactions with objects.