What are Smart Contracts and How to Develop Smart Contracts?

Sandeep Baghel

Jun 8, 2023

A smart contract is a type of agreement between participants on the blockchain. The main distinction between smart contracts and traditional contracts is that in a smart contract, the terms of the agreement are determined and self-executed directly as a code on the blockchain.

The smart contract code and the agreement terms exist at a specified address on a distributed, decentralized blockchain network, ensuring immutability, security, and permanence.

Smart contracts were first proposed and described by computer scientist Nick Szabo in the early 1990s, long before the use as a fundamental element of blockchain technology.

How do Smart Contracts Work?

Smart contracts execute transactions if any predefined rule or event has occurred. Smart contracts are designed to execute terms automatically when certain predefined conditions and parameters are met, eliminating the need for intermediaries.

For instance, let's consider the example of a simple rental agreement. In a traditional scenario, a tenant pays a security deposit to the landlord. The landlord holds the deposit and returns it when the tenant moves out, provided there's no damage to the property. In a smart contract scenario, the tenant would send the security deposit to the smart contract. When the tenancy ends, the smart contract would automatically return the deposit to the tenant if no claims for damages were made.

The Storage and Language of Smart Contracts

Programming Languages for Smart Contracts

Smart contracts are written in blockchain-specific programming languages. The most popular language is Solidity, used for writing smart contracts on Ethereum and other EVM-compatible or EVM-equivalent blockchains.

Other languages include Vyper (also used on Ethereum), Rust which is used on blockchains like Polkadot and Solana, Scilla, which was developed for the Zilliqa blockchain, and other traditional computer programming languages such as C++, Java, and Python, etc.

Where are Smart Contracts Stored?

Smart contracts are stored on the blockchain, making them transparent and immutable. Each smart contract has a specific address on the blockchain, just like a regular account. This address is used to interact with the contract, and all interactions with a smart contract are stored on the blockchain through an open ledger system.

Interacting with a Deployed Smart Contract

To interact with a deployed smart contract, users need to send a transaction to the contract's address using a blockchain-compatible wallet. The transaction must include a function call, which tells the contract what action to perform. The function call includes any necessary parameters and is encoded into the transaction's data field.

Smart Contract Exploits and Hacks

Despite the security advantages of smart contracts, they are not immune to exploits and hacks.

Reentrancy Attacks: This is where an attacker repeatedly calls a function before the first function call is finished, draining funds from the contract.

Integer Overflow and Underflow: This occurs when a number exceeds the maximum or minimum limit for the data type, causing the number to wrap around to the opposite limit.

These are some common examples of smart contract attack types, while there could be more ways in which a hacker could exploit smart contracts.

Managing Smart Contracts

Effective smart contract management involves monitoring contract performance, ensuring security, and making necessary updates or upgrades. Tools like blockchain explorers can help monitor contract activity, while regular audits ensure ongoing security.

The Cost and Importance of Smart Contract Audits

Smart contract audits are an essential component of the development process. They involve reviewing the code of a smart contract to detect any security flaws, errors, and vulnerabilities.

The Average Cost of a Smart Contract Audit

The smart contract audit costs can vary massively, depending on the contract's complexity and the auditing firm's reputation. According to the latest industry trends, an exhaustive smart contract audit can cost anywhere from $2,000 to $10,000, with some companies charging as high as $20,000.

The Role of Smart Contract Audit Companies

Smart contract audit companies play a vital role in ensuring the security and functionality of a smart contract. These companies employ their blockchain technology and cybersecurity expertise to thoroughly review smart contract code, identify potential issues, and suggest fixes.

Auroblocks' Smart Contract Development Services

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