Smart smart contract are transforming numerous industries by automating processes directly on the blockchain . These smart contracts enable the automatic execution of transactions without human intermediaries, thus guaranteeing transparency, security, and speed. But how do they work, and why have they become essential for the evolution of blockchains?
Table of contents
What is a blockchain and what is its link with smart contract?
A blockchain is a decentralized and secure technology for storing and transmitting information. It functions as a large, immutable public ledger where all transactions and information are recorded. Each new transaction is validated by a network of decentralized computers and then added as blocks to the existing chain, creating a "blockchain".
Smart smart contract are autonomous programs recorded on the blockchain that automatically execute actions when specific conditions are met. For example, a smart contract can transfer funds or perform a task as soon as certain predefined conditions are met, without requiring human intervention.
However, to function effectively, these smart contract often require external data. This is where oracles , allowing information to be brought in from outside the blockchain, such as asset prices, event results, or weather data.
Thanks to oracles, smart contractcan interact with the real world and trigger actions based on this external information. This significantly expands their use cases, whether in finance, insurance, gaming, or other sectors.
For example, a parametric insurance contract can automatically pay compensation to a farmer if an oracle reports that rainfall has been below a certain threshold over a given period.
The origins and evolution of smart contract
The concept of smart contract was first proposed by Nick Szabo in 1994. However, it wasn't until the creation of Ethereum in 2015 that this idea truly took shape in the blockchain world. Ethereum provided an environment where developers could create and execute smart contract in a decentralized manner.
Bitcoin network did not directly support the hosting of smart contract . However, solutions like Stacks smart contract functionality , and this project is attracting a growing number of developers and users looking to combine Bitcoin's security with more sophisticated features.
Why are smart contractessential in blockchain?
Transaction automation
smart contractreplace certain trusted third parties such as notaries in complex legal and administrative processes, notably by automating and securing transactions.
Let's take the example of a real estate purchase . Usually, the notary plays a crucial role in:
- Checking title deeds : He makes sure that the seller is indeed the legal owner and that the property is not encumbered by mortgages or disputes.
- Ensuring the legality of the transaction : He drafts and authenticates the deed of sale, making it legally indisputable.
- Securing payment : The notary acts as an intermediary to hold the funds in an escrow account until the transaction is finalized.
- Transferring ownership : He officially registers the transfer of ownership in the land registry and ensures that taxes and duties are properly collected.
How can smart contractand blockchain automate this process?
With smart contractand blockchain, some of these steps can be automated:
- Digital title of ownership : If ownership certificates are tokenized and recorded on a public blockchain, verification of ownership becomes instantaneous and immutable.
- Automation of conditions : A smart contract can be programmed to verify that the conditions of the transaction (payment, mortgage release, etc.) are met. Once these conditions are met, it automatically triggers the transfer of the digital title to the buyer.
- Secure payment : Funds can be transferred directly from the buyer's account to the seller via the smart contract , eliminating the need for an escrow account.
- Traceability and transparency : The entire transaction is recorded on the blockchain, guaranteeing total transparency and verifiability by all parties.
Current limitations of automation :
- Legal recognition : Digital property titles are not yet recognized as legal equivalents in most countries.
- Legal complexity : Situations involving disputes or complex clauses still require human interpretation.
- Oracle dependency : smart contract need oracles to obtain reliable external information (such as mortgage release), which can introduce points of vulnerability.
While smart contractand blockchain cannot yet completely replace a notary, they offer an effective solution for simplifying and accelerating certain parts of the process, such as payment and property transfer. As legal recognition and the digitization of records progress, this technology could transform complex transactions into fast, transparent, and cost-effective processes.
Security and transparency
Once deployed, a smart contract is immutable and transparent, meaning it cannot be modified and its code is publicly accessible. This ensures that the contract's rules are always respected. In contrast, a traditional contract could be altered or subject to human error.
Blockchains that host smart contract
Ethereum : the pioneer
Ethereum was the first blockchain to popularize smart contract . In 2023, there were over 1.5 million active smart contract on Ethereum . However, with the increasing number of users, Ethereum faces challenges in terms of scalability and high gas fees, prompting some projects to seek alternatives.
Solana : a fast and economical alternative
Solana stands out for its scalability and very low transaction fees. In 2023, over 200,000 smart contract were deployed on Solana . Its ability to process thousands of transactions per second makes this blockchain an attractive option for many projects, such as Helium and Render migrated from Ethereum to Solana to take advantage of these benefits.
Examples of use
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Simplified travel insurance:
Imagine you take out insurance to be compensated if your flight is delayed. With a smart contract , everything is automated: if a reliable source (like the airport or airline) confirms a delay of more than two hours, the smart contract automatically processes the reimbursement and transfers the money to your account, without requiring any administrative steps on your part. -
Royalties management for artists using NFTs:
When an artist sells a work as an NFT (non- fungible ), a smart contract can be programmed to automatically pay them a percentage of each future resale of the artwork. For example, if an NFT is resold at a higher price, the smart contract immediately deducts a commission and transfers the royalties to the artist, thus guaranteeing their long-term rights without intermediaries.
The advantages of smart contract
Reliability and automation
Once programmed and deployed, smart contractexecute automatically, eliminating human error and intermediaries. This ensures that all parties comply with the terms of the contract without the need for constant monitoring.
Total transparency
All smart contractare publicly visible on blockchains.
For example, on Ethereum , you can view smart contracts via platforms like Etherscan or Solscan for the Solana . This transparency allows anyone interested to verify the integrity of smart contract .
The limitations and challenges of smart contract
Code bugs and their consequences
Like any software, a smart contract can contain bugs. These code errors can have significant consequences. A striking example is The DAO in 2016, where a vulnerability in a smart contract allowed a hacker to steal nearly $60 million worth of Ether. These incidents demonstrate the importance of rigorously auditing code before deploying it on a blockchain.
Legal recognition
Although smart contracts are highly effective at automating transactions, their legal recognition remains limited in many countries. This raises questions about how smart contract can be used in litigation or legal contexts.
Transformations in economics through smart contract
smart contractare transforming entire industries by offering automation, transparency, and security in complex processes. Here are some concrete examples:
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Health: Automated and secure management of medical data
smart contract enable efficient and secure management of medical data, but how does this work in practice? Let's take the example of MediBloc , a blockchain platform dedicated to healthcare. Patients' medical records are stored in a decentralized manner on the blockchain. Each patient has complete control over their data thanks to a private key .
- Access management : The patient can authorize access to their file to specific professionals (such as a doctor or hospital) by granting them permissions via a smart contract . Once authorization is granted, these professionals can only view the information necessary for their interventions.
- Action tracking : Every interaction with the data – such as a consultation or an update – is immutably recorded on the blockchain. This ensures a complete and transparent history of accesses.
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Logistics: Enhanced traceability thanks to blockchain
Smart smart contract play a key role in the transparency and traceability of supply chains. How does this work in practice? Let's take the example of Ever ledger , a solution that uses blockchain to track the origin of diamonds.
- Data recording : At each stage of the chain, specific actors – such as miners, transporters, or retailers – record information on the blockchain. This data can include the product's origin, its quality, its transfer from one entity to another, and its compliance with ethical standards.
- Validation and automation : smart contract automatically verify that each step has been completed before proceeding to the next. For example, a carrier can only be paid if the product is marked as "delivered" in the system.
- Usefulness of the information : These immutable records guarantee the authenticity of products for consumers and help companies meet regulatory or ethical requirements.
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Energy: Automation of exchanges in decentralized networks
In the energy sector, smart contract enable efficient and transparent transactions. For example, the Power Ledger uses this technology to manage electricity exchanges between individuals.
- Exchange mechanism : A solar energy producer, for example, can record on the blockchain the amount of electricity they generate and wish to sell. Neighbors who need this electricity can reserve it via a smart contract .
- Energy transfer and payment : Once electricity is transferred via a smart grid, the smart contract validates the transaction and transfers payment directly from the consumer to the producer, without intermediaries.
- Benefits for the community : This system allows the creation of decentralized microgrids where participants optimize their energy consumption, reduce costs, and encourage the use of renewable energy.
These examples illustrate how smart contractare transforming key sectors by making processes faster, more transparent and more secure, while reducing the costs and friction associated with traditional third parties.
Conclusion
Smart smart contract have become an essential tool in the blockchain world, enabling the automation of complex transactions and the creation of decentralized applications across numerous sectors. Their ability to operate without intermediaries, to be immutable and transparent, makes them a popular solution for the future of digital transactions. However, challenges remain, particularly regarding code bugs and legal recognition. With blockchains like Ethereum and Solana , the future of smart contract looks promising, especially as projects continue to innovate in this area.
Faq
What is a smart contract ? A smart contract is a self-contained program recorded on a blockchain that automatically executes actions when specific conditions are met.
On which blockchains can smart contract ? Smart smart contract are present on blockchains such as Ethereum , Solana , Near Protocol , and many others.
What is collateral in DeFi ? Collateral is a security in the form of cryptocurrency deposited by a borrower to obtain a loan. If the loan is not repaid, the collateral is liquidated to cover the losses.
Where can I see the deployed smart contract You can view the smart contract on block explorers like Etherscan for Ethereum or Solscan for Solana .
What are some examples of projects using smart contract contracts for royalties? Projects like Emanate allow artists to automatically receive royalties based on the use of their works, via smart contract .
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Yoann
Training engineer, I quickly became interested in the field of finance. Convinced that decentralized finance has a bright future ahead of it, I participate in its democratization by developing Crypternon.
