A smart contract (also known as a crypto contract) is a computer program that automatically tracks and ensures the execution of contractual obligations.
The contract terms are cryptographically encrypted within the program code. The smart contract independently determines whether these terms have been fulfilled and makes a decision to either initiate a transaction and transfer assets to the parties involved or prohibit the transaction, impose penalties on participants, or freeze assets.
Features of Smart Contracts
Smart contracts were designed for secure and transparent exchange of assets (money, stocks, cryptocurrencies, property rights, etc.) without the need for intermediaries (brokers, courts, arbitrators). They operate within a decentralized network (blockchain) that stores and ensures their proper functioning.
The code of a smart contract is autonomous and resides within the blockchain. To make decisions, a smart contract needs to interact with the outside world and obtain necessary information. This is why there are so-called «oracles» — mechanisms that detect and confirm real-world events and relay data about them to the blockchain for use by the smart contract.
Oracles can be implemented by:
- Measurement devices such as thermometers or light sensors.
- Specific network participants (e.g., validators) providing services to the blockchain system.
- Additional blockchains built on top of the main one.
Advantages of Smart Contracts
- Transparency: Every agreement participant has access to tracking the progress of events through the blockchain.
- Security: All contract transactions are stored in the blockchain in chronological order and can be accessed along with a complete audit trail. However, involved parties can be cryptographically protected to ensure full confidentiality.
- Fraud Prevention: Tampering with the blockchain is extremely difficult as it requires significant computational effort. Additionally, violations of a smart contract can be detected by network nodes, and tampered data is marked as invalid and not stored in the blockchain.
- Resilience: Since the platform is decentralized and no single physical or legal entity controls digital assets, dominance by one party and the failure of one party are impossible. Even if one node disconnects from the network, the contract remains unchanged.
- Accuracy: The automated transaction execution system eliminates human error and ensures high contract execution accuracy.
- Independence: Smart contracts eliminate the need for intermediaries. Direct transactions are made between parties.
- Cost Savings: By eliminating intermediaries, smart contracts reduce intermediate costs and operational expenses.
- Speed: The nature of smart contracts eliminates the need for paper-based documentation, reducing the time spent on document processing.
How Smart Contracts Work in Blockchain
Smart contracts in blockchain have several mandatory attributes:
- Data about all parties involved in the transaction (which can be two or more) and their electronic keys.
- The environment in which the contract operates and through which it interacts with the outside world.
- The subject of the contract, i.e., the action to be performed.
- The conditions under which the execution takes place.
The smart contract algorithm is encoded using programming code and placed in a blockchain link. It remains there until it receives a signal to execute. After that, the predefined actions are unconditionally performed.
The simplest example of smart contract operation is decentralized exchanges (DEX). If you have 1 ETH and want to buy DEL coins using PancakeSwap, the transaction will be conducted through a smart contract:
- Your wallet address sends a transaction to the corresponding contract, which receives the sent amount.
- Based on the algorithm, the contract calculates the price depending on the available liquidity.
- You receive the corresponding amount of DEL.
Applications of Smart Contracts
Smart contracts have proven to be extremely useful in the field of loans and lending. Decentralized finance (DeFi) platforms allow borrowers and lenders to directly connect with each other and enter into financial agreements that are beneficial for both parties. Smart contracts record the interest rate, terms, and other details of the transaction. Additionally, they keep track of payments made at the beginning and during the loan repayment period.
Smart contracts enable the creation of decentralized autonomous organizations (DAO). The rules of a DAO are programmed into smart contracts. If a user attempts to do something that contradicts the rules of the DAO (and consequently, the logic of the code), the action will not be executed, and the offender may face sanctions, if specified in the smart contract.
NFT smart contracts utilize blockchain technology and program code to perform a specific set of actions. This can include storing, retrieving, and transferring NFT assets. Some of their most important features define the rules and conditions for creating and transferring NFTs: specific attributes of the NFT, ownership rights associated with it, and any licensing agreements or royalties. These attributes are encoded in the smart contract code and automatically enforced by the blockchain network. Smart contracts are most commonly found in the gaming industry, where players can buy, sell, and trade NFTs.
The most common use case for smart contracts is in exchanges. During the buying and selling process, smart contracts act as a guarantee for the completion of the transaction, allowing parties to have confidence in receiving their share and ensuring proper execution of obligations. In the case of loans, it is convenient to specify amounts, repayment periods, and other conditions in the smart contract.
Decentralized exchanges (DEX), such as Uniswap, dels.io, PancakeSwap, and others, also operate on smart contract systems.
DecimalChain specialists offer clients smart contract development services in a wide range of areas, including those unrelated to cryptocurrencies:
- Real Estate
- Gaming industry
Smart contracts can be easily developed and integrated to benefit from security, reliability, and cost savings.
Smart Contracts in Decimal
Interaction between participants in DecimalChain processes is programmed in the form of smart contracts based on the DPoS consensus algorithm, which is considered an enhanced version of the original PoS.
By utilizing the latest developments in DeFi, Decimal provides the ability for everyone to easily create their own tokens and NFTs. They are formed based on smart contracts, which are the most relevant systems in the crypto sphere.
Decimal Smart Chain is the second generation of Decimal. The current functionality is complemented by the EVM (Ethereum Virtual Machine) module — a software platform that developers can use to create decentralized applications (dApps) based on Decimal. With the use of EVM, smart contracts can be created and executed easier than ever before, as complex transactions can be encoded in the system.
Decimal DAO (Decentralized Autonomous Organization) is software built on Decimal smart contracts. The purpose of the organization is for the Decimal user community to own the entire issuance of DEL coins generated during the project’s operation and owned by early investors, and to participate in project management and organization of processes.