Smart contracts are tokens containing computer code that automatically executes all or parts of an agreement and is stored on a blockchain-based platform. The terms of the agreement between the two parties are written into lines of code that controls the execution of the contract, and all resulting transactions are trackable and irreversible. Smart contracts permit trusted transactions and agreements to be carried out among disparate, anonymous parties without the need for a central authority, legal system, nor external enforcement mechanism.
Introduction
We’ve heard a lot about tokens – both fungible and non-fungible. BitCoin is a fungible token that can be used to buy things. And, non-fungible tokens – more commonly known as NFTs – are used to represent assets of value, like rare art or digital works. But, did you know any token can also be a smart contract?
Implementation
Since smart contracts are tokens, the code itself is replicated across multiple nodes of a blockchain and, therefore, benefits from the security, permanence and immutability that a blockchain offers. Smart contracts are best suited for certain types of transactions; like paying funds when certain events are triggered and impose financial penalties if certain conditions are not satisfied. Once the smart contract has been deployed and is operational, human intervention is not required; thereby, reducing execution and enforcement costs of the contracting process.
Uses
An NFT, like any token, can be smart contract. For example, an NFT can execute code that pays the creator of a song or artwork a royalty each time the NFT changes owners — something that is difficult to do in the physical world. NFTs can also be programmed to expire or closed once the owner has redeemed for access to an event or a newly released game or asset. Imagine using NFTs with smart contract coding — where the NFT expires as soon as the vote is cast — as a way to secure and build trust in our voting process.
Coding
Most smart contracts are written in one of the programming languages suited for such computer programs, like Solidity. But, before a smart contract can be executed on a blockchain, a transaction fee — known as the gas fee — must be paid. Each time the code is executed, the gas fee is paid. And, the more complex the code, the more gas that must be paid to execute it. This fee acts as an important gate to prevent overly complex or numerous smart contracts from overwhelming the system.
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