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Ethereum and Its Smart Contracts

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By , Updated On December 09, 2021

Almost all of what we do on the internet requires us to be registered in a database, and most of the time, a middleman is required as well. On transacting with merchants, it is almost impossible not to have a system or financial institution that would handle businesses’ money. Almost everything now is centralized and is being controlled by a regulated authority. Bitcoin was developed way back in 2008, and together with it was the blockchain system that makes it possible to make cryptocurrency exchanges, like sending, receiving, and trading decentralized and non-reversible. The blockchain system also makes transactions transparent to anyone, but at the same time, it is secured and has not been hacked ever since. This kind of system is another innovation in finance and technology. 

Although the blockchain system existed before cryptocurrency was developed, cryptocurrency exchanges and transactions highlighted its notable features like direct and transparent transactions. As of now, a lot of blockchain systems have been developed and are being used by certain cryptocurrency tokens. Some of them are Kucoin, Binance, and Bitcoin Evolution. Blockchain plays a big role in the cryptocurrency industry since one would not be able to do transactions outside of a blockchain system also to ensure transparency and security. 

Ethereum and Its Smart Contracts

Ethereum

Ethereum was developed by a group of blockchain enthusiasts, Joe Lubin, also the founder of ConsenSys, is a blockchain platform developer who also uses the Ethereum network. Also, one of the co-founders who were given credit for the Ethereum blockchain system, Vitalik Buterin, is also described as the world’s youngest crypto billionaire. Originally Ethereum was developed to be utilized within the Ethereum network, yet just like another cryptocurrency, it is now being used as a mode of payment by some merchants or any individual service vendor. Despite having its own unique blockchain system, it still has strong competitors who are also businesses investing in blockchain software development like Bitcoin, Ripple, and Blockstream, and there are also other businesses not focused on cryptos like Microsoft and JP Morgan.

As of now, it is second to the list of top cryptocurrencies based on value after Bitcoin; Ethereum now has a market capacity of almost $500 billion.

Ethereum is also now developing Ethereum 2.0, which is expected to be fully launched next year. Once it is launched, it is also expected to have 99% less energy on its transactions as well as notably faster transactions. 

 

Ethereum Smart Contracts

Ethereum smart contract is a program that can be utilized and run on a blockchain system; it can also be used for transactions that it received by generating a code. It can also be utilized to hold state tokens or funds on its ledger. Basically, it is a data machine that is also running in the blockchain system; it is on a public address in which one can push or pull the data stored. Smart contracts’ purpose can be to hold funds and states, which are secured in the blockchain system, which should also be under the contract’s address. The smart contract can also run a logic or code which can perform actions with those funds, and it can also update the contract’s state. 

Whenever one is creating a new contract on the blockchain, it implies sending a program representation in byte code to be part of the transaction data payload. 

This means transactions are not controlled by a user; transactions are sent to a blockchain system and run as programmed. Investors or validators can interact with a smart contract by sending transactions that execute a function based on the smart contract

 

Three important aspects of Smart Contract

  • Gas

Since every transaction requires a complex computing resource, it cannot be free; storage and scarce come with a price as well. Gas is known as the unit cost for the services on every transaction made; gas represents a unit and not a price. Gas is consumed by making lines of code or making space on the storage. Whenever a transaction runs out of gas, it is then canceled, but still, the tokens or funds will be spent still. 

On transactions, those with higher prices are prioritized since validators want to work on those who pay more. There are also options where you can set a gas limit on your transaction, but if it happens that the transaction costs more than your limit, it will be canceled, and the funds will be returned. 

 

  • Execution Context

Smart contracts run in an isolated way; they can only see data available on the blockchain system or on other smart contracts; they cannot make interactions on other services or query data outside its system. Validators feed smart contracts with external data so other validators can approve the transactions. 

 

  • Immutability

Smart contracts on transactions are immutable, meaning they cannot be changed or updated once it is sent to the blockchain system. But in case you need to change an existing smart contract, you need to send a new version of a smart contract to a new address, with that one must pay full attention to code quality and testing to make sure you won’t put the address in the blockchain system which cannot be fixed. 

Different kinds of cryptocurrencies were created for different reasons, some serving as a decentralized currency that you can use as payment, some were developed to be circulated in a certain blockchain system, while others were created as a joke that unexpectedly gained value. With that, cryptocurrencies were also developed to be in a blockchain system to generate a transaction; developers are still innovating their platforms and systems to have the full utilization and have the most secure transaction. 

With innovations like smart contracts, it provides more security on the investment that you have; nevertheless, with it comes a complex way of transacting, which requires at least a basic knowledge of how it works on the system. However, no matter how secure your investment can be, the cryptocurrency itself is highly volatile, and blockchain could not control its value.