Smart contracts in Blockchain
Before, we discussed how blockchain is applied in eCommerce. In this part of our guide, we are going to focus on the use of blockchain in smart contracts.
To put it simply, a smart contract is a transaction-specific code that may be run by the blockchain. It does it with the help of its internal built-in virtual machine. For the ether, this is the Ethereum virtual machine, EVM. As Bitcoin lacks this virtual machine, it can only be used for monetary transactions.
The question then becomes where and how to keep this code. The developers of the Ethereum blockchain, led by Vitalik Buterin, thought why not store other information besides the balance in the blockchain address?
Apart from the account balance, the smart contract address may also save user-supplied information and even bytecode that can be run. Any function in this smart contract may be called by looking up its address and then sending the function’s name and any parameters it requires to that location.
When a virtual machine receives a function call, it knows it’s not just another transaction and instead runs the function and sends back the result.
It’s important to remember that the smart contract doesn’t have a private key, but the user’s address does.
Both the user’s and the smart contract’s addresses may be seen below. They’re built similarly.
There’s a slight difference in the structure of the addresses themselves. In other words, the hash for a user address and a smart contract address are calculated differently, but both utilize the same final function.
How smart contracts work: general overview
Today, digital assets are traded via smart contracts more frequently than their physical counterparts. Here is a conceptual sketch to help you organize your thoughts around things.
The overall concept is straightforward. A code, or smart contract, links a seller and a buyer in a legally binding transaction. It states that somebody can make a transaction by acquiring assets and then transferring them to others.
Both the seller and the buyer will require digital copies of their assets for this to work. Some aspects of the sale, including the seller’s claim to the property, may require digitization.
And from the side of the purchaser digital funds are needed. Both cryptocurrencies and digital dollars will be accepted.
A buy and sale agreement for real estate is included in the smart contract too.
Tokens, or tokenized assets, represent the digital assets of both the seller and the buyer. Tokenization refers to the process of encoding rights or values into a digital token. It’s important to note that tokens are digital representations of assets or actions that are not controlled by a central authority.
However, in the eyes of developers, tokens and tokenization are only smart contracts or the data represented by them.
The transaction is completed when the seller transfers ownership and the purchaser deposits funds into the smart contract. As a result, they are giving a smart contract the legal right to their property.
You can transfer any property, like a house or car, to a smart contract, and it will check to make sure that the transfer happened. And if it’s a house, is it the kind of house the buyer is looking for?
A smart contract also checks the buyer’s payment to make sure it’s the appropriate amount and that it matches what was agreed upon.
If the transaction goes as planned, it will forward the funds to the seller and the property to the buyer. If that’s the case, the seller and the buyer can simply return their assets.
Well, here you must be careful: if the smart contract’s creator isn’t trustworthy, they walk off with everything.
This means that it’s best to have a solid grasp of the purpose of a smart contract and some familiarity with its coding before putting it to use.
How to create and adopt smart contracts
Let’s move on to the practical details of working with smart contracts, such as how they’re built and how to interact with them.
- As a first step, you must create it, write the code, consider all the conditions involved, and test it thoroughly. Note that once a smart contract has been deployed, no more changes may be made.
- After that, you need to turn the source code into a bytecode. There is a range of approaches you may take to do this. One may develop, manually test, and put smart contracts into use with the help of Remix IDE.
- Truffle and Hardhat are two other frameworks that may be used to develop and deploy smart contracts. Thanks to the ability to construct unit tests here, they provide superior testing.
- The final step is to upload the bytecode to the blockchain. After deployment, you are provided with the address and may make the appropriate API calls.
Each node can serve as its own point of interaction. The Ether has a dedicated API for just such a purpose, and it responds to queries sent in JSON RPC format. Front-end JS libraries enable interaction from the users ’ perspective as well.
However, you cannot do this without the smart contract’s ABI in addition to its address. Similar to the API, but referred to as the Application Binary Interface (ABI).
ABI’s JS libraries produce and interact with their own JS objects, connect to a public node or wallet (like Metamask) and issue requests from within it, and so forth.
If the user is interacting with the blockchain via a wallet, the wallet will forward the user’s requests to a public node.
So here is how the lifecycle of a smart contract looks from start to finish.
Pros & cons of smart contracts
As a primary benefit, there is no need for middlemen. Blockchain is a distributed network in which no single entity has exclusive control over any of its nodes, including the smart contract. If one built the smart contract correctly, it can function independently of any third party, and there will be no need to rely on anyone’s authority but the contract’s own. The process will always be the same.
Moreover, it may keep track of any information related to the deal that you allow it to. And in so doing, the possibility of fraud is minimized.
After deploying a smart contract, you can no longer modify the code because of the contract’s data integrity. You can only redeploy the contract, at which point you will be given a new contract address and code; this will result in two copies of your contract being stored on the blockchain. However, this guarantees that the code cannot be secretly copied from the previous contract and altered.
Another advantage that comes with the use of a smart contract is increased transparency. Just like a user’s balance, the contract code is viewable in the blockchain via its address. You can even access the information stored in its private variables with enough expertise.
Costs associated with deployment and maintenance are major drawbacks. It’s not uncommon for them to expand to huge proportions. For instance, this may happen because of heavy traffic on the network or because of inefficient smart contract processes.
There is a fee associated with executing each blockchain action, and by extension, each smart contract. All actions are totaled, as well as their commissions. It is indeed expensive to deploy and utilize the contract, and the cost rises as more operations are executed inside of it.
Another major problem with smart contracts is that they are susceptible to bugs in the programming. Since nobody can alter the contract, you will not fix any blunders made. You will have to deploy smart contracts again.
Last but not least is how difficult it is to describe the conditions. Given the decentralized nature of the network and the associated transaction costs, it can be challenging to accurately express all of the conditions that must be fulfilled.
To learn more about Blockchain in eCommerce, read how it’s used for Magento-based stores in our next article.