Smart Contracts and Decentralized Apps Explained

Smart contracts are self-executing programs that automate the enforcement of rules and agreements between parties. They're like digital vending machines where you insert your agreement, and the contract executes the rules automatically.

Imagine you're buying a house, and the contract is held in a digital escrow account. If the seller doesn't deliver the keys by a certain date, the contract automatically releases the buyer's funds.

Smart contracts work by using a decentralized network, such as blockchain, to record and execute the contract. This ensures that all parties have a single source of truth and can trust the contract's execution.

Smart contracts are self-executing contracts with the terms of the agreement written directly into lines of code. They automatically enforce the rules and conditions of the contract once specific criteria are met.

The idea of smart contracts was first proposed by computer scientist Nick Szabo in the 1990s, but it wasn't until the creation of blockchain technology that they became a reality. They use a decentralized network to ensure the integrity and transparency of the contract.

Smart contracts are stored on a blockchain, which is a public ledger that records all transactions and data. This makes it possible for multiple parties to access and verify the contract without the need for intermediaries.

The code for a smart contract is written in a programming language such as Solidity, which is specifically designed for creating smart contracts on the Ethereum blockchain. This code is then compiled and deployed to the blockchain, where it can be executed automatically.

Smart contracts are governed by code, which means that the terms and conditions of the contract are written in a programming language. This code is then executed automatically when the specified conditions are met.

To create a smart contract, you need to connect to a blockchain network, fund your collateral account, and write and initialize the contract on the blockchain. You can also use software programs to take the coding out of smart contract creation and deployment.

Smart contracts have a predetermined sequence of events that must occur in order to trigger the agreement of the terms mentioned in the contract. They can also include time constraints, such as deadlines, to ensure that the contract is executed on time.

Here are the basic steps to create a smart contract:

Smart contracts are governed by code, which is stored on a blockchain network. They work by executing a predetermined sequence of events based on the conditions set forth in the contract.

To create a smart contract, you need to connect to your chosen blockchain network, fund your collateral account, and write and initialize the contract on the blockchain. This process can be simplified using software programs that take the coding out of smart contract creation and deployment.

Smart contracts can include details and permissions written in code that require an exact sequence of events to take place to trigger the agreement of the terms mentioned in the contract. They can also include time constraints that introduce deadlines in the contract.

Smart contracts are executed on a basis of simple logic, such as IF-THEN statements, which can be used to set conditions for the contract agreement to be executed. For example, "IF you send object A, THEN the sum (of money, in cryptocurrency) will be transferred to you."

Here are some common types of conditions used in smart contracts:

Smart contracts can also be initiated by parties themselves or when certain conditions are met, such as financial market indices or events like GPS locations. The contract can be interacted with by using its address on the blockchain, assuming the contract has been broadcasted on the network.

In the Ethereum blockchain, smart contracts are generally written in a high-level programming language and then compiled down to a bytecode, which is stored on the blockchain in binary code. Interaction with a contract is made through a public ABI, which is similar to an API but on the binary level.

Contracts can call other contracts or send Ether to non-contract accounts by the means of message calls, which are similar to transactions. A contract can decide how much of its remaining gas to send with the inner message call and how much it wants to retain.

A contract can also call other smart contracts both within the same channel and across different channels, allowing them to read and write world state data to which they would not otherwise have access due to smart contract namespaces.

A blockchain is a globally shared, transactional database where everyone can read entries by participating in the network.

Transactions are changes made to the database, which have to be accepted by all others. If a change is requested, the transactional nature of the database ensures that either the change is not done at all or completely applied.

Transactions are cryptographically signed by the sender, making it straightforward to guard access to specific modifications of the database.

A transaction is always recorded on the blockchain, whether valid or invalid, but only valid transactions contribute to the world state.

A transaction proposal contains a read-write set with both the states that have been read, and the new states that are to be written if the transaction is valid.

Transactions have an identifier, a proposal, and a response signed by a set of organizations. All transactions are validated in two phases by each peer node in the network.

The first phase checks if the transaction has been signed by sufficient organizations according to the endorsement policy. The second phase checks if the current value of the world state matches the read set of the transaction when it was signed by the endorsing peer nodes.

If a transaction passes both these tests, it is marked as valid and results in an update to the world state.

Decentralized apps are built on top of smart contracts, using blockchain technology to support their core features and decentralize control. Decentralized apps can't be removed from a blockchain once they're added, just like smart contracts.

Decentralized apps are used in various industries, including finance with Aave, a decentralized liquidity platform that allows users to lend, borrow, and stake cryptocurrency. Melonport is another example of a decentralized app, a crypto asset management platform that uses smart contracts to automate operations.

Decentralized apps use a predetermined consensus mechanism, such as proof of stake or proof of work, to create a technologically automated process for decision making. This is how they can function with completely decentralized management.

Decentralized apps can be integrated with other blockchain platforms, like BitTorrent, which is integrated with the TRON (TRX) blockchain. Uniswap is another example of a decentralized app, a cryptocurrency exchange platform that is governed by holders of the digital utility token UNI.

Here are some examples of decentralized apps:

Decentralized apps can use different consensus mechanisms, including proof of stake and proof of work, to create a technologically automated process for decision making. This is how they can function with completely decentralized management.

Smart contracts are built with specific features and capabilities that make them reliable and efficient. They are distributed, meaning everyone on the network has a copy of the contract and it cannot be changed by one party.

Here are some key features of smart contracts:

These features enable smart contracts to automate tasks, reduce time and money spent on paperwork, and provide a secure and transparent way of conducting business. They are accurate, automated, and fast, making them an attractive option for businesses and individuals alike.

Smart contracts have revolutionized the way we conduct business and manage agreements. They are accurate to the limit a programmer has accurately coded them for execution.

One of the key benefits of smart contracts is their ability to automate tasks and processes that are typically done manually. This not only saves time but also reduces the likelihood of human error.

Smart contracts can execute tasks at a much faster pace than traditional methods, reducing the time it takes to maneuver through human interaction-related processes. This is because everything is coded, so the time taken to do all the work is the time taken for the code in the smart contract to execute.

Smart contracts also provide a secure way to manage assets, using cryptography to ensure that they are safe and sound. Even if someone were to break the encryption, the hacker would have to modify all the blocks that come after the block which has been modified, making it a highly difficult and computation-intensive task.

In addition to their security features, smart contracts also offer a cost-effective solution by eliminating the need for intermediaries in the process. This means that money spent on paperwork is minimal to zero.

Smart contracts can also be used to manage users' agreements and store information about applications, such as domain registration and membership records.

Here are some of the key capabilities of smart contracts:

Smart contracts are not just a single entity, but rather a category that encompasses various types of contracts. Each type has its unique characteristics and capabilities.

One type of smart contract is the Smart Legal Contract, which provides legal guarantees and is stored on a blockchain, making it tamper-proof. This type of contract is executed by parties using digital signatures.

Decentralized Autonomous Organizations, or DAOs, are another type of smart contract that allows for collective governance and decision-making. DAOs are governed by blockchain-based principles that are incorporated into the contract's code.

Application Logic Contracts, or ALCs, are designed for device-to-device interactions, such as blockchain integration and the Internet of Things. ALCs are signed between computers and other contracts.

Smart Legal Contracts have the ability to operate on their own if certain conditions are met, such as paying a debt when a predetermined date is reached. If stakeholders don't comply, there may be serious legal ramifications.

DAOs, like VitaDAO, use technology to power a community dedicated to scientific inquiry, demonstrating the potential of this type of smart contract.

In a smart contract transaction, the calldata region is where data is sent to the transaction. This data is always stored in an ABI-encoded form.

The parameters of external functions are initially stored in calldata, and are only decoded into the location specified in their declaration. If declared as memory, the compiler will eagerly decode them into memory at the beginning of the function.

Calldata is also where constructor code is stored when creating a new contract. Value types and storage pointers are decoded directly onto the stack.

A smart contract can return a value after a call using the returndata area. External Solidity functions use the return keyword to ABI-encode values into the returndata area.

The code region is where the EVM instructions of a smart contract are stored. This code is persistent as part of a contract account state field.

Immutable and constant variables are stored in the code region, and all references to immutables are replaced with the values assigned to them.

The instruction set of the EVM is kept minimal to avoid incorrect or inconsistent implementations that could cause consensus problems.

All instructions operate on the basic data type, 256-bit words or on slices of memory (or other byte arrays).

Arithmetic, bit, logical, and comparison operations are present in the instruction set.

Conditional and unconditional jumps are possible, allowing for more complex logic in contracts.

Contracts can access relevant properties of the current block, such as its number and timestamp.

Channels are a powerful feature in Hyperledger Fabric that allow organizations to participate in multiple blockchain networks simultaneously.

By joining multiple channels, an organization can participate in a network of networks, sharing infrastructure while maintaining data and communications privacy.

Channels provide a completely separate communication mechanism between a set of organizations, allowing them to separate their work traffic with different counterparties.

A chaincode definition is committed to a channel, making the smart contracts within the chaincode available to applications on that channel.

Each channel member agrees to the parameters of a chaincode by approving a chaincode definition for their organization.

The endorsement policy specified in the chaincode definition applies equally to all smart contracts defined within the same chaincode.

In the example of a car contract and an insurance contract, the chaincode definition of the car contract specifies an endorsement policy that requires both ORG1 and ORG2 to sign transactions before they can be considered valid.

This allows ORG1 to coordinate activity with ORG2 across multiple networks, such as the VEHICLE channel and the INSURANCE network.

The chaincode definition provides a way for channel members to agree on the governance of a chaincode before they start using the smart contract to transact on the channel.

Both ORG1 and ORG2 need to approve an endorsement policy of AND{ORG1,ORG2} to commit the chaincode definition to the channel, ensuring that a transaction from the car smart contract needs to be approved by both organizations.

Smart contracts are accurate to the limit a programmer has accurately coded them for execution. This accuracy is a result of the precise software code used to automate tasks.

Automation is a key feature of smart contracts, which can automate tasks and processes that were previously done manually. This saves time and reduces the need for human interaction.

A smart contract can execute quickly, reducing the time it takes to maneuver through human interaction-related processes. The execution speed is determined by the code in the smart contract.

Every node in the blockchain maintains the shared ledger, providing a reliable backup facility for smart contracts. This ensures that the data is safe and secure.

Smart contracts can be used to manage users' agreements and store information about applications, such as domain registration and membership records.

Here are some key features of a simple smart contract:

There are two kinds of accounts in Ethereum: External accounts controlled by public-private key pairs and contract accounts controlled by code stored together with the account.

External accounts have addresses determined from their public keys, while contract accounts have addresses determined at creation time, derived from the creator address and nonce.

Every account has a persistent key-value store mapping 256-bit words to 256-bit words called storage.

Every account also has a balance in Ether, measured in Wei, which can be modified by sending transactions that include Ether.

A transaction is a message sent from one account to another, which can include binary data and Ether.

If the target account contains code, that code is executed and the payload is provided as input data.

If the target account is not set, the transaction creates a new contract with an address derived from the sender and its number of transactions sent.

The payload of a contract creation transaction is taken to be EVM bytecode and executed, with the output data permanently stored as the code of the contract.

Smart contracts offer numerous advantages, including recordkeeping, where all contract transactions are stored in chronological order in the blockchain and can be accessed along with the complete audit trail. This ensures transparency and accountability.

One of the key benefits of smart contracts is autonomy. They remove the need for intermediaries, allowing for direct dealings between parties and transparent, direct relationships with customers. This not only saves time but also reduces the risk of miscommunication.

Smart contracts also reduce the risk of fraud by storing the contract in the blockchain, making it difficult to forcefully modify the blockchain due to its computation-intensive nature. If a violation of the smart contract is detected, it is marked invalid and not stored in the blockchain, preventing any potential misuse.

Here are the key advantages of smart contracts:

These advantages make smart contracts an attractive option for businesses and individuals looking to streamline their operations and reduce costs.

A trustless smart contract is a game-changer in the world of blockchain technology. This type of contract operates without the need for trust between parties, which is a major advantage.

One of the key features of a trustless smart contract is that the code that defines it is public, allowing anyone to examine it and determine that it will function properly. This transparency is a huge benefit, as it eliminates the need for intermediaries and reduces the risk of fraud.

In a traditional vending machine smart contract, trust is required for the transaction to take place. The user needs to trust that the machine is operating correctly, that it will provide the desired item, and that there will be a recourse if the transaction fails. But with a trustless smart contract, none of these factors are necessary.

The operation of the blockchain is decentralized, which means that there is no fear that the failure of a computer will stop the performance of the smart contract. This fault-tolerance is a major advantage, as it ensures that the contract will be executed according to its terms, even if one node detaches itself from the network.

Here are some of the key benefits of trustless smart contracts:

Overall, trustless smart contracts are a powerful tool for building trustless systems and eliminating the need for intermediaries. By leveraging the transparency and fault-tolerance of the blockchain, these contracts can provide a secure and reliable way to execute agreements.

Smart contracts are a revolutionary technology, but they're not without their challenges. One of the main issues is the lack of international regulations focusing on blockchain technology and related concepts like smart contracts, mining, and cryptocurrency.

This makes it difficult for governments and organizations to oversee and regulate these technologies. The absence of clear guidelines and standards can lead to confusion and uncertainty.

Smart contracts are also complicated to implement because they're still a relatively new concept. Research is still ongoing to fully understand the implications and potential of smart contracts.

One of the most significant challenges of smart contracts is that they're practically immutable. Once a smart contract is created and implemented on the blockchain, it's extremely difficult to make changes. If a change is needed, a new contract has to be created and implemented on the blockchain.

Here are some of the challenges of smart contracts in a concise list:

These challenges highlight the need for further research and development in the field of smart contracts. As the technology continues to evolve, it's essential to address these challenges and create a more robust and user-friendly system.

The Ethereum blockchain is the most commonly used platform for smart contracts, thanks to its ability to execute complex scripts and perform calculations.

Ethereum has its own digital currency, called Ether, which is used to make transactions on the network. Ether transactions look very similar to Bitcoin transactions.

Smart contracts on Ethereum are written in a high-level programming language and then compiled down to bytecode, which is stored on the blockchain in binary code.

Ethereum's Virtual Machine, or EVM, is used to run the bytecode and execute the smart contract's code. This allows smart contracts to initiate other transactions, such as transferring Ether from one account to another.

Smart contracts can have both short-term memory and long-term storage to hold data related to the contract. They can also hold their own cryptocurrencies.

Smart contracts are the focus of application development, and one or more smart contracts can be defined within a single chaincode. Deploying a chaincode to a network makes all its smart contracts available to the organizations in that network.

A smart contract can describe an almost infinite array of business use cases relating to immutability of data in multi-organizational decision making. The job of a smart contract developer is to take an existing business process and express it as a smart contract in a programming language like JavaScript, Go, or Java.

Storage is a key concept in smart contract development, and it's essential to understand how it works. Storage is a persistent data area that resides at a specific address on the Ethereum blockchain, and it's used to store contract state and data. A contract can declare state variables, like uint storedData;, which can be accessed and modified using functions like set and get.

Smart contracts are the focus of application development, and as we've seen, one or more smart contracts can be defined within a single chaincode. This means that only administrators need to worry about chaincode; everyone else can think in terms of smart contracts.

A smart contract can describe an almost infinite array of business use cases relating to immutability of data in multi-organizational decision making. The job of a smart contract developer is to take an existing business process and express it as a smart contract in a programming language such as JavaScript, Go, or Java.

At the heart of a smart contract is a set of transaction definitions, like the one we see in assetTransfer.js. This transaction creates a new asset, showing how a smart contract can be used to govern financial prices or delivery conditions.

Smart contract developers need to take centuries of legal language and convert it into programming language, a skill increasingly practiced by smart contract auditors. You can learn about how to design and develop a smart contract in the Developing applications topic.

Contracts can even create other contracts using a special opcode, allowing for new contracts to be created without simply calling the zero address as a transaction would.

Storage in Ethereum smart contracts is a key-value store that maps 256-bit words to 256-bit words, and it's a crucial area for storing data that persists between function calls and transactions.

You should minimize what you store in persistent storage to what the contract needs to run, as it's comparatively costly to read, and even more to initialize and modify storage.

Storage is not possible to enumerate from within a contract, and a contract can neither read nor write to any storage apart from its own.

Transient storage, on the other hand, is reset at the end of each transaction, and the values stored there persist only across function calls originating from the first call of the transaction.

The cost of reading and writing to transient storage is significantly lower than for storage, making it a more suitable option for temporary data.

Memory is a linear data area that a contract obtains for each message call, and it can be addressed at byte level, but reads are limited to a width of 256 bits.

Memory is expanded by a word (256-bit) when accessing a previously untouched memory word, and the cost in gas must be paid at the time of expansion.

The EVM is not a register machine but a stack machine, so all computations are performed on a data area called the stack, which has a maximum size of 1024 elements.

The stack contains words of 256 bits, and access to the stack is limited to the top end, making it possible to copy or swap elements, but not to access arbitrary elements deeper in the stack.

Delegatecall is a special variant of a message call that executes the code at the target address in the context of the calling contract, without changing the values of msg.sender and msg.value.

This means the calling contract's storage, address, and balance remain unchanged, but the code from the called address is executed. This feature is crucial for implementing reusable library code in Solidity.

Delegatecall makes it possible to dynamically load code from a different address at runtime, allowing for the creation of complex data structures that can be applied to a contract's storage.

The delegatecall feature is a key aspect of Solidity's library feature, enabling developers to write modular and reusable code that can be easily integrated into various contracts.

Delegatecall is a powerful tool for smart contract development, enabling developers to write more efficient and scalable code.

System chaincode is a crucial part of a Hyperledger Fabric network, handling low-level program code that interacts with the blockchain. It's essential to understand the different types of system chaincodes and their roles.

_Lifecycle_ system chaincode manages the installation of chaincode on peers, approval of chaincode definitions, and committing of chaincode definitions to channels. This process is implemented by the Fabric chaincode lifecycle process.

Lifecycle system chaincode (LSCC) manages chaincode lifecycle for 1.x releases of Fabric, requiring instantiation or upgrade on channels. However, it's still usable if you have the channel application capability set to V1_4_x or below.

Configuration system chaincode (CSCC) handles changes to a channel configuration, such as policy updates. This process is explained in more detail in the chaincode topic.

Query system chaincode (QSCC) provides ledger APIs, including block query and transaction query. These ledger APIs are further discussed in the transaction context topic.

Endorsement system chaincode (ESCC) cryptographically signs a transaction response on endorsing peers. This process is implemented by the ESCC.

Validation system chaincode (VSCC) validates a transaction, including checking endorsement policy and read-write set versioning. The VSCC implements this process.

Here are the different types of system chaincodes and their associated abbreviations:

Modifying system chaincodes is possible for low-level Fabric developers and administrators, but it requires extreme care as they are fundamental to the correct functioning of a Hyperledger Fabric network. Changes to system chaincodes can lead to a ledger fork, a very undesirable situation.

In Solidity, you can specify the version of the language you're writing for using pragmas, which are instructions for compilers about how to treat the source code.

A contract in Solidity is a collection of code and data that resides at a specific address on the Ethereum blockchain.

The line uint storedData; declares a state variable called storedData of type uint, which is an unsigned integer of 256 bits.

You can think of it as a single slot in a database that you can query and alter by calling functions of the code that manages the database.

To access a member of the current contract, you don't typically add the this. prefix, you just access it directly via its name.

All identifiers, such as contract names, function names, and variable names, are restricted to the ASCII character set.

It's possible to store UTF-8 encoded data in string variables.