How Ethereum Smart Contracts Work

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What do people have in mind when they talk about a blockchain smart contract? How do smart contracts work? What are the advantages of Ethereum smart contracts over the other platforms’ ones? This article will get all of these highly topical questions explained.

Ethereum Smart Contracts: Where They Come From

The notion “ smart contract” often puts an image of a pile of complicated documents in people’s minds, which is actually rather misleading. So, what is a smart contract?

This term is often used as a substitute for Ethereum scripts, as it is primarily associated with this platform. It is coded logics that changes digital assets when triggered by particular events. Accordingly, it is a sort of software that uses a series of “if this is so, then” statements, where the “ifs” are the essential requirements to launch the “thens”. When it is launched on the blockchain, it automatically starts when all the necessary conditions are fulfilled. The whole structure is based on and verified by a great number of connected computers. It ensures that the smart contracts are:

  • safe,
  • open,
  • trustworthy,
  • almost deprived of any possible mistakes.

However, this also means that when the process is triggered, all of the computers involved in this huge net have to perform the same operation, which explains the expensiveness of this process.

Ethereum blockchain platform

Until recently, blockchains were mostly associated only with Bitcoin, but the situation has changed. New currencies, depending on different applications, stir media and economic hype now. Probably the most promising of them is Ether, invented by Canadian programmer of Russian origin Vitalik Buterin. It is another type of cryptocurrency that the Ethereum network is based on.

Most of the blockchains are fundamentally limited. But Ethereum is different. Ethereum smart contracts allow their developers to create and launch whatever operations they wish, building thousands of versatile applications that present an image of the blockchain, that is absolutely different to what we are used to.

The development of Ethereum technology changed what was weak and vulnerable in Bitcoin by creating the Ethereum Virtual Machine, or EVM – a Turing complete software able to run any app. The brilliant innovation of Ethereum lies in the fact that any operation executed inside it is simultaneously performed by every single node in the whole network. These highly functional operational bases of Ethereum contracts explain its capability to create blockchains much quicker, easier and more productive than it was earlier.

Before You Start Ethereum Smart Contracts

So, how to get a typical Ethereum contract work? Each of the limitless operations it performs has a cost, which is usually expressed in so-called gas, that depends heavily on the currency itself and the exchange rate. Gas is used to measure the computational use of the unit. That is why, to start launching special Ethereum apps, which are also called Dapps (decentralized applications), or to build DAOs (Decentralized Autonomous Organizations) you ought to know everything about two major things:

  • gas price,
  • gas limit.

Ethereum smart contract

Gas price (measured in Wei or Szabo, which are “cents” for Ether) is the price of a single unit of gas, in which all the EVM operations are conducted. To imagine how Ether, Wei, and Szabo correlate with each other, see this chart:

Ethereum chart

Ethereum Smart Contracts At WorkA gas limit is a higher boundary of how much gas can be consumed. Developers use cases of ill-running Ethereum smart contracts to protect the users by employing it. Its function is simple: unless you have enough currency to complete your transaction, the processing is canceled and all changes get back to the previous state.

A special feature of how smart contracts work on this platform is that all of them have their own addresses in the blockchain. To put it simply, the corresponding code is not inserted into each contract. Instead, a node launches a particular transaction that creates and attaches a unique address to a contract. After this primary transaction, the contract evolves into an inseparable unit of the blockchain, which address never changes. Then, the smart contract will act non-stop up to the gas limit or successful end of the operation.

Now, when your smart contract is already running, the understanding of its state and functions may be crucial. Usually, two types of functions can appear in a contract:

  • Read-only, or constant functions. They don’t cause any massive changes. Their purpose is to read state, conduct all the necessary computations, and return values. These functions cost no gas as they are run by the single localized node.
  • Transactional functions. These, instead, perform a state change in the smart contract or move the money flow. Transactional function running needs sharing a transaction with the whole net and spending a certain amount of gas.

During the process, one can send various messages to it through the so-called function calls and read its particular state through the special transactional function. A typical for any Ethereum contract example of such functions is “notarize” or read-only function “proofFor”.

The last crucial point important to remember when working with Ethereum: when your smart contract is already earning some money, it would be helpful to install an Ethereum wallet. These interfaces are capable of moving Ether funds, deploying contracts, or making various calls to them.

smart contracts use


So, what this article was trying to render is that the Ethereum contracts are actually the future of cryptocurrency, being sufficiently based and carefully developed to perform all the functions of the blockchain platform seamlessly.
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