Introduction to Smart Contracts
Smart contracts are self-executing computer programs hosted and run on a blockchain. Despite their name, these "contracts" aren't necessarily intelligent or legally binding. A more accurate description might be "automated programs," but the term "smart contract" was coined by Nick Szabo in the late 1990s.
The Vending Machine Analogy
Szabo compared smart contracts to vending machines:
- Users insert coins
- If the correct amount is entered, the machine automatically delivers the requested item
- No third parties are involved
- The interaction requires minimal trust
This same principle applies to blockchain-based smart contracts, where predefined conditions trigger automatic execution.
How Smart Contracts Work on Ethereum
Ethereum serves as a smart contract platform - a computing environment where these programs execute.
Key Characteristics:
- Written in code that represents agreement terms
- Stored on the blockchain for security and transparency
- Deterministic: Outcomes are predictable when executed
- Operate without intermediaries
Technically, a smart contract is a collection of code and data residing at a specific Ethereum blockchain address.
The Ethereum Virtual Machine (EVM)
What is the EVM?
The Ethereum Virtual Machine is the runtime environment that executes smart contracts on Ethereum. It functions like:
- A software-based "computer within a computer"
- A universal execution environment compatible with any device/OS
- The foundation enabling Ethereum's "write once, run anywhere" capability
Why the EVM Matters:
- Hardware Abstraction: Eliminates compatibility issues across different node configurations
- Turing Completeness: Can theoretically compute anything given sufficient resources
- dApp Enablement: Supports development of decentralized applications beyond simple contracts
Smart contracts are typically written in high-level languages like:
- Solidity
- Vyper
- Serpent
The EVM compiles this code into bytecode for blockchain deployment.
Applications of Smart Contracts
👉 Discover real-world smart contract use cases
Smart contracts enable:
- Automated financial agreements
- Supply chain tracking
- Decentralized organizations (DAOs)
- Tokenized assets
- And countless other blockchain applications
Frequently Asked Questions
What programming languages are used for smart contracts?
The most common languages are Solidity (similar to JavaScript) and Vyper (Python-like), though others exist. The EVM ultimately runs compiled bytecode.
Are smart contracts legally binding?
Not inherently. While they automate agreement terms, their legal status depends on jurisdiction and how they're implemented alongside traditional contracts.
Can smart contracts be modified after deployment?
Generally no - they're immutable by design. However, developers can build upgradeability patterns using proxy contracts or other architectural solutions.
What's the difference between a smart contract and a dApp?
A dApp (decentralized application) typically comprises multiple smart contracts with a user interface. All dApps use smart contracts, but not all smart contracts are complete dApps.
How secure are smart contracts?
While blockchain execution is secure, smart contracts are only as reliable as their code. High-profile exploits have occurred due to coding errors, making thorough auditing essential.
The Future of Smart Contracts
As blockchain technology evolves, smart contracts are becoming:
- More efficient with scaling solutions
- More accessible through improved developer tools
- More powerful with advanced cryptographic techniques
This innovation continues to expand the boundaries of what's possible with automated, trustless agreements on the blockchain.