What is a smart contract?

What is a smart contract?

Smart contracts are pieces of code where someone can use their business logic on top of the security, immutability and transparency of blockchains. It is a way to extend the use of blockchains in a customized way.

Before the implementation of smart contracts, which were pioneered by the Ethereum network in 2015, anyone who wanted to use their own algorithm needed to also have their own blockchain, or their own distributed ledger. This is not very practical as blockchain security requires a large and active community. With the introduction of smart contracts, this is no longer necessary. It is enough for the developer to worry about the business logic, and no longer with the structure and security of the network.

Anyone can create a smart contract on top of modern blockchains such as Ethereum, Solana, EOS and Neo. All one needs to know is the programming language used by each blockchain. Ethereum has its own language called Solidity, while other blockchains use well-established languages. One of the advantages of Neo is being able to write smart contracts in several languages: C#, Go, Python and Java.

Submitting smart contracts to be used on top of blockchains is neither complicated nor costly. In general, it is necessary to pay a small fee, called a gas fee, both for the implementation of the contract and for its use. This fee can vary from a few cents to a few dollars, generally not going beyond this amount. On Ethereum, the gas fee is paid in Ether, its native token. Neo has a specific token for paying the gas fee, called GAS.

The possibility of implementing smart contracts in already established networks marked the first major revolution in the blockchain environment, and led to the emergence of decentralized applications, named DApps. Such applications are built with smart contracts, and facilitate people’s access to the blockchain through a user-friendly interface.

Today we see an explosion of decentralized applications, in many areas, especially in finance and governance. Decentralized finance, initial coin offerings, decentralized autonomous organizations, the metaverse itself, these were all made possible by the introduction of smart contracts.