Enterprise Smart Contracts
Smart contracts are pieces of code compiled into a program and stored on the blockchain. The program code contains rules and terms for the upcoming transaction. A smart contract program will execute (run) when certain conditions defined in the contract are met. Smart contracts automatically run when two parties are connected to each other, for example, when buying and selling Bitcoin. A smart contract will ensure that the funds will not move to another party until the exchange rules have been met and the originator’s account has been debited. The smart contract works to ensure that all the rules contained in the contract have been fulfilled and the conditions have been satisfied. Once all conditions have been met, the blockchain will be updated with the new transaction.
The contract is verified by the blockchain, and terms agreed by the two parties involved in the contract. There is no need to have a third-party intermediary involved to check that all parts of the contract are in order. Whilst smart contracts are seen as an advantage in many scenarios. A smart contract must not contain any code errors that could be exploited at some time in the future.
- As smart contracts are stored on the blockchain, they run automatically without human intervention. This means that the contract itself can be verified and resolved quickly. Normal contracts require human intervention and checking by a lawyer or legal specialist who can verify that the terms in the contract are correct and valid, and the transaction exchange can go ahead.
- Removal of the human team to check the contract also means that the contract fees are significantly reduced.
- As the contracts are stored on copies of the blockchain on servers around the world, these smart contracts can be accessed by anyone who fulfils the predetermined conditions. The smart contract can instantly be invoked, processed, and the transaction validated almost instantly.
Use cases for Smart Contracts
There are many potential use cases for smart contracts, from the simplest financial transaction to complex ones:
- Voting systems. Code can be written for electronic voting to ensure that one person can register only one vote. Online voting would increase the percentage of voters casting their vote and provide a secure method to eliminate fraud.
- Counterfeiting systems. Smart contracts could confirm the digital authenticity of an object—for example, a piece of art. Every time the piece of art changes hands, its authenticity will only be guaranteed if it is accompanied by the transfer of the digital token to the new owner.
- Clinical records. Only the nominated medical personnel who have been given explicit permission by you to see your blockchain-based medical records will be able to do so. The smart contract will ensure that the terms of the smart contract will accept only the people you want to have access to.
- Human resources. Confidential records about your employment can be securely stored by the employer and accessed by the employee. The system can be trusted as the data cannot be modified after it has been placed on-chain. If the employer breaks the terms of the contract, the smart contract will still exist.
- Banking. Your money will never disappear if the bank makes an error. As the blockchain is copied to every node in the network, your information remains safe.
- NFTs. Non-fungible tokens are digital entities stored on the blockchain. They use smart contracts between the seller and the buyer to exchange these items of digital value and pass them on to the new owner. Digital receipts can also accompany items of value—such as luxury branded fashion goods, to show their authenticity to the purchaser.
Smart contracts enable users to write executable code that encodes business logic and runs on a blockchain or other type of decentralized ledger. Depending on your goals, there are many ways to use smart contract platforms to push these powerful apps into production.
There are four main kinds of smart contract platforms: large blockchain platforms; smaller ones optimized for improving smart contract execution speed or cost; private smart contract frameworks; and specialized tools for crafting and managing smart contracts across trusted partners.
What are smart contract platforms and how do they work?
A blockchain is not in and of itself a smart contract platform. Developers must extend it with tools to store smart contract code in a secure and tamper-proof form. They also add tools that enable decentralized and autonomous execution of smart contract code correctly, securely, transparently, and deterministically. It’s also important for the state transition from smart contract code execution to be verified by consensus of the nodes in the blockchain network before recording the state change in the blockchain ledger. The blockchain-based cryptocurrency Bitcoin supported the first digital, permissionless and tamper-proof smart contract, but it was of limited scope.
Several blockchain technology platforms have been used for executing smart contracts. They’re usually characterized as level 1 (L1) or level 2 (L2) platforms.
- L1 platforms are blockchains where smart contracts are executed directly on the main core platform. Prominent examples are Ethereum, Solana, Cardano, and BNB Smart Chain.
- L2 platforms execute the smart contracts on a parallel space so they can run more efficiently and quickly, then roll up changes to the core platform. Examples of L2 platforms include Ethereum ZK-Rollups, Ethereum Optimistic Rollups and Polygon. Many of the newer offerings support both L1 and L2 capabilities.
How does Smart Contract work?
Following are the steps to run an Ethereum smart contract:
- Contract deal between buyer (party A) and the seller (party B).
- A developer writes the smart contract in the solidity programming language.
- Solidity code (converted into) → Opcodes (compiles into) → Byte code.
- Byte code (low-level machine language) saved by Ethereum Virtual Machine (EVM).
- Miners convert the smart contract into a new block to add to the Ethereum blockchain network.
- When the conditions meet, the contract automatically executes. Hence, payment release to the seller (party B).
- Verification of payment transaction.
Smart Contract Platforms
Top Tier
- Ethereum
Ethereum pioneered flexible smart contracts when it was launched in 2013. It supports Solidity, a variant of the JavaScript programming language that was immediately accessible to front-end developers and quickly grew a massive base of developers and financial supporters. Ethereum also pioneered the EVM, which has become a standard for other smart contract platforms. Ethereum’s stock market capitalization is far and wide above competitors. In mid-2023, it was $223 billion — several times more than all the other smart contract platforms combined. The main benefit of a large market cap is that successful smart contract apps have the potential to grow faster in a much larger virtual economy. Ethereum is the top choice for developers who want to game the largest smart contract ecosystem with a bright new idea.
Second generation
The success of Ethereum smart contracts revealed some fundamental disadvantages of the platform. For one thing, it’s not particularly fast compared to modern transaction processing infrastructure — a few dozen transactions per second compared to 24,000 for the Visa payment network. Hackers also discovered new security bugs in Ethereum smart contracts that were difficult to unwind. For example, a hack of the first Ethereum distributed autonomous organization (DAO), a type of management structure built on a smart contract, resulted in the DAO losing a third of its value. Eventually, Ethereum was hard forked — permanently split in two — to undo some of the damage. A second generation of open blockchain networks has sprung up to address such shortcomings.
- Cardano
Cardano was introduced as a more energy-efficient alternative to Ethereum in 2015 by Charles Hoskinson, who also helped start Ethereum. In 2021, it introduced its Plutus feature for building smart contracts. Cardano is a newer platform with less functionality and fewer developers than others on this list. However, it has the second-largest market cap at about $13 billion, making it an interesting option for developers who want to take advantage of a large token economy outside of Ethereum.
- Solana
The Solana blockchain ecosystem is even smaller at about $8 billion as of mid-2023, but it is more efficient than Ethereum and many other public blockchains, according to some experts. Solana is currently processing 5,000 to 10,000 transactions per second and could increase to hundreds of thousands in the future. Factors contributing to the speed include support for a low-level virtual machine for deploying smart contracts as well as the C and Rust programming languages for writing them. That makes it a good bet for developers looking to combine high transaction rates with the economic opportunities available on a public blockchain.
Private blockchains
Private blockchains are like open-source cloud development platforms, such as Cloud Foundry, OpenShift and Cloudify, but for smart contracts. The code itself is open sourced, and then a variety of expert service firms help provision it on private hardware in data centres or on top of cloud services. Private blockchains are a good fit for businesses and government organizations that want to streamline transactions between trusted partners. They’re a good choice for improving the efficiency of things enterprises already do, with mechanisms to update contracts or roll back transactions when problems are discovered. The most common use of private blockchains is scaling trust across enterprise boundaries.
- Hyperledger Fabric
IBM developed Hyperledger Fabric and then handed it off to the Linux Foundation to create an enterprise-grade blockchain platform with modular architecture and various consensus mechanisms. It enables fine-grained control of data visibility and confidentiality so only authorized people can access data. It also supports multiple programming languages, including JavaScript, Go and Java, and is designed to handle high transaction volumes. Hyperledger Fabric is a permissioned blockchain network. That means only authorized individuals or devices can participate in transactions, which is important from a trust, compliance, and regulatory perspective.
- Corda
Corda was created to model and automate real-world transactions in a legally enforceable way. Private channels let participants transact directly to improve the confidentiality of transactions. Numerous integrations have been built for the finance, healthcare, and supply chain industries.
Smart contract management platforms
Smart contract development and management platforms have emerged to help manage smart contract infrastructure across various platforms. These tools are a good choice for enterprises that want flexibility and adaptability in scaling trust across enterprise boundaries.
- Casper Labs
The Casper platform helps developers write smart contracts using their programming language of choice and deploy them on the Casper blockchain, which enables them to execute in a decentralized and secure manner. The platform includes software development kits, documentation, code samples and libraries to assist developers in creating and testing their smart contracts. One of the biggest benefits of the Casper platform is its flexibility. It can support hybrid applications that connect private blockchains such as Hyperledger Fabric with Casper’s public blockchain to provide the benefits of both types. It is incompatible with the EVM, which the vendor said makes it more interoperable with existing enterprise technology stacks and IT infrastructure.
- Kaleido
Kaleido provides tools and services to simplify the process of building, testing, and deploying smart contracts on various blockchains. The platform offers pre-built smart contract templates that cover common use cases and industries. The templates serve as starting points for developers, enabling them to more quickly create smart contracts tailored to their specific needs and later customize and extend them. Kaleido also provides tools for testing smart contract functionality that integrate with a variety of smart contract testing frameworks. The platform can also help automate the smart contract deployment process and then monitor to ensure smart contracts perform as intended. The platform also allows for creation of contracts from templates, code uploads and imports from other blockchains. It also gives developers tools to manage contracts after deployment, such as upgrades in one place that take effect across all contract deployments.
Benefits of Smart contracts
- Smart contracts are automatically executable programs.
- It removes the need for middle parties or intermediaries. Hence, it eliminates the risk of manipulation and cost-cutting.
- No fear of data loss as the contract has multiple copies shared across the blockchain network.
- Impressions of digital signing and cryptography ensure the safety and authenticity of the contract.
- Saves time and effort in producing real business contracts.
- Eliminate manual human errors while filling out forms.
Limitations of Smart contracts
- Once the smart contract code is deployed, it’s impossible to alter it.
- There are possibilities of loopholes in the contract.
- Not a complete elimination of intermediaries as developers require them to establish rules for smart contact.
- Not legally binded yet. No approval by any jurisdiction.
The newer blockchain platforms almost uniformly have support for smart contracts, and many are EVM compatible, so a decentralized application (dApp) that runs on Ethereum can also run on them. Other prominent platforms include Avalanche, Tezos, Algorand, Polygon, Cosmos, Polkadot, Tron, Near and Cardano. In addition, some blockchain platforms, such as Avalanche, Cosmos and Polkadot, are being adapted for private, permissioned smart contract implementations. And several smart contract platforms, such as Hyperledger Fabric, R3 Corda and Hyperledger Besu have supported enterprise blockchain implementations for over five years.
