Introduction to Smart Contracts

What Is a Smart Contract?

A smart contract is a self-executing program that operates on the Ethereum blockchain. It consists of code (functions) and data (state) stored at a unique address on the blockchain.

👉 Learn more about Ethereum blockchain technology

Key characteristics:

Autonomous: Runs as deployed, without human intervention.
Immutable: Cannot be deleted; transactions are irreversible.
Enforceable: Encodes rules like traditional contracts but executes them automatically.

Prerequisites

Before diving deeper, familiarize yourself with:

The Vending Machine Analogy

Smart contracts function like digital vending machines. Inputs (e.g., payment) trigger predetermined outputs (e.g., dispensing goods). Here’s a Solidity example:

pragma solidity 0.8.7;

contract VendingMachine {
    address public owner;
    mapping(address => uint) public cupcakeBalances;

    constructor() {
        owner = msg.sender;
        cupcakeBalances[address(this)] = 100;
    }

    function refill(uint amount) public {
        require(msg.sender == owner, "Only the owner can refill.");
        cupcakeBalances[address(this)] += amount;
    }

    function purchase(uint amount) public payable {
        require(msg.value >= amount * 1 ether, "Pay 1 ETH per cupcake");
        require(cupcakeBalances[address(this)] >= amount, "Insufficient stock");
        cupcakeBalances[address(this)] -= amount;
        cupcakeBalances[msg.sender] += amount;
    }
}

Key Features of Smart Contracts

Permissionless Deployment

Anyone can write and deploy a smart contract by:

Learning a smart contract language (e.g., Solidity or Vyper).
Paying ETH for gas fees (higher for deployment than simple transactions).

Composability

Smart contracts act as open APIs. They can:

Call other contracts.
Deploy new contracts.
Extend functionality through interoperability.

👉 Explore smart contract composability

Limitations and Solutions

Offchain Data Access

Smart contracts cannot fetch real-world data directly. Oracles bridge this gap by supplying offchain data to the blockchain.

Contract Size

Maximum size: 24KB (exceeding this causes out-of-gas errors). Workarounds include the Diamond Pattern.

Multisig Contracts

These require multiple signatures (e.g., 4/7 approvals) to execute transactions, enhancing security for:

High-value asset management.
Decentralized governance (e.g., DAOs).

Smart Contract Development Resources

OpenZeppelin Contracts: Secure library for smart contract development.

FAQ

1. Can smart contracts be modified after deployment?

No, they are immutable by design. Any changes require deploying a new contract.

2. How are smart contracts triggered?

Via transactions sent by user accounts or other contracts.

3. What happens if a smart contract runs out of gas?

Execution halts, and the transaction fails (no state changes occur).

4. Are smart contracts legally binding?

Not inherently, but they can mirror legal agreements if designed accordingly.

5. Which blockchains support smart contracts?

Ethereum is the most prominent, but others like Binance Smart Chain and Solana do too.