A smart contract is an innovative technology that allows you to optimize various processes and methods of interaction between computers and people. It first appeared in the depths of the cryptocurrency industry and became the basis for the launch of a large number of decentralized systems of various types. Also, thanks to the spread of this technology, many existing projects have received new opportunities for development.

The history of smart contracts

The idea of ​​smart contracts appeared in the early 1990s. It was proposed by Nick Szabo, a programmer and scientist in the field of cryptography, as well as a legal specialist. He described the concept of “self-executing contracts” that can be concluded using electronic ledgers. At the same time, there is no need for human control - it is enough for each counterparty to automatically fulfill its obligations.

As an example, Szabo cited the operation of a vending machine:

  1. The owner sets up the terminal and writes down the terms of the transaction.

  2. The seller provides the goods and fulfills his obligations under the contract.

  3. The buyer deposits money and also fulfills his obligations.

  4. The machine gives the buyer the desired product.

Thus, the transaction between the seller and the buyer was carried out automatically immediately after they fulfilled their obligations. As a result, the seller received the money, and the buyer received the goods. In this case, no additional control was required.

In the mid and late 90s, various specialists created algorithms to implement this concept. But these algorithms had one drawback - a centralized payment system that worked under external control. That is, there was an intermediary in the transaction who could interfere with the execution of the contract.

The real opportunity to realize Nick Szabo's idea appeared in 2009. Then the first decentralized currency, Bitcoin, was launched. Its basic protocol contains some functions of smart contracts, which, however, were limited by the developers’ intentions and were not widely used.

The emergence of the first cryptocurrency was a step towards financial transactions without intermediaries. A little later, protocols of higher levels (add-ons) began to appear, which perform the functions of full-fledged smart contracts.

Smart contracts became widespread with the advent of the Ethereum platform, the concept of which was described by Vitalik Buterin in 2013. He argued that blockchain technology can be used in many areas, not just for financial transactions.

Buterin was the first to describe the concept of a universal decentralized platform that allows anyone to launch systems for storing and processing information. Based on this platform, you can create smart contracts, which should be described as mathematical rules.

Ethereum was co-founded by Gavin Wood, Charles Hoskinson, Anthony Di Lorio and Joseph Lubin. In 2014, they conducted a crowdfunding campaign to raise funding for the development of the project. The first Ethereum block was generated on July 20, 2015, and on July 30 a full-fledged blockchain was launched. This platform almost immediately attracted the attention of banks, which began to explore the possibilities of using smart contracts.

How smart contracts work

Ethereum smart contracts are part of its software code and operate within a decentralized network. To develop them, one of the following programming languages ​​can be used:

  • Solidity

  • Vyper

  • Serpent

  • LL

  • The people

Users who transact with each other sign a contract as a normal cryptocurrency transaction. In this case, all conditions, as well as the logic for their execution, must be programmed in advance.

After signing, the contract comes into force, and information about it is stored in a distributed registry. Next, the blockchain checks the fulfillment or violation of the terms of the contract and makes decisions based on the conditions of the prescribed algorithm. This means that a smart contract can only exist within a system that provides it with constant communication with the executing code.

In addition, this system must implement the mandatory conditions for the operation of smart contracts:

  • user tools (for example, secure accounts);

  • reliable (usually decentralized) sources of information;

  • automated databases for conducting transactions. Transactions here need to be understood not only as financial transfers, but also as any other actions that can be performed in the system;

  • the possibility and necessity of using asymmetric encryption based on public and private keys;

  • Turing completeness is a characteristic of a system that means the possibility of implementing any computable function if it does not contradict the logic of this system.

Today it is possible to integrate smart contracts into external systems. This requires special oracle programs. They convert information from external sources into a suitable format for a smart contract.

Types of smart contracts

The first smart contracts could perform simple actions with a minimal set of conditions. But this technology is gradually developing and becoming more universal. As a result, different types of contracts emerged, which can be divided into several categories.

By runtime:

  • centralized;

  • decentralized.

By degrees of anonymity:

  • confidential;

  • partially confidential;

  • open.

According to the initiation or execution mechanism:

  • automated – if the terms of the contract are met, it is executed automatically;

  • manual – the user must manually confirm the transaction at each step of the contract execution.

Contract developers can set any of these characteristics at their discretion. It depends on the characteristics and goals of the project.

BNB Chain Smart Contracts

In 2020, Binance launched the Binance Smart Chain (BSC), which subsequently became the foundation for the emergence of the independent BNB Chain ecosystem. Its underlying blockchain has many useful features, including the ability to create and use smart contracts.

There are many decentralized applications (DApps) running on this blockchain. Among them are DEX exchanges, financial services, games and other systems for using digital assets.

BNB Chain is designed for mass use and has ample opportunities for integrating the blockchain into external systems.

Applications from different segments run on BNB Chain:

  • Web2

  • Web3

  • Metaverses

  • DeFi

  • SocialFi

  • NFT

  • GameFi

At the heart of this entire ecosystem is smart contract technology.

To use BNB Chain, just follow a few simple steps:

  • Create a wallet that supports BNB tokens, such as Binance Wallet or Trust Wallet.

  • Top up your account with BNB tokens.

  • Connect to any application that runs on BNB Chain.

At the same time, anyone can use existing smart contracts, as well as create their own applications based on this ecosystem.

Possibility of using smart contracts

Smart contracts are gaining popularity, and there are more and more ways to use them. This is due to the capabilities they provide:

  • optimization and acceleration of routine tasks;

  • reducing or completely eliminating the participation of intermediaries in transactions;

  • reducing costs when concluding and executing contracts;

  • eliminating errors due to the human factor.

Thanks to such opportunities, smart contracts are being introduced into many areas of public activity.

Crowdfunding

By analogy with IPO (Initial Public Offering), in the cryptocurrency market there are ICO (Initial Coin Offering), as well as their variations - ITO, IDO, IEO and others.

This is the process of the initial sale of digital assets before they are listed on exchanges. Investors - crowdfunding participants send funds to the smart contract address, and in return receive startup tokens.

DeFi

Decentralized finance is an analogue of traditional financial services in the cryptocurrency market. These include DEX exchanges, lending platforms, distributed storage, synthetic asset issuance protocols, and other projects.

They operate under the control of smart contracts, which replace the work of specialists in various professions. An important advantage of such a system is that it allows you to synchronize different services and thereby simplifies the solution of many problems.

KNIFE

A decentralized autonomous organization is a community that can be considered analogous to a traditional enterprise. The activities of such an organization, as well as the management of its resources, are carried out according to pre-established rules.

A DAO does not have a centralized leadership - a person or a group of people, and its functions are performed by smart contracts. Moreover, the community can have a hierarchical structure in which each participant has their own rights and responsibilities. Such a system can automatically allow or prohibit users from performing certain actions. Records of all transactions are stored in a distributed ledger.

GameFi and FitnessFi

Play-to-Earn games are video games in which you can earn money by performing various actions in the virtual space. As a rule, NFTs are issued as rewards in the form of in-game items - weapons, resources, clothing, real estate and other objects. Then the resulting assets can be sold on special trading platforms or exchanged with other players.

Move-To-Earn games work in a similar way, only in them rewards are awarded for performing actions not in the virtual world, but in the real world. For example, you need to walk a distance, run or drive at speed, or find an augmented reality object.

In both cases, the operation of the application and compliance with all rules is controlled by a smart contract.

Metaverses

The Metaverse is a virtual space in which people can create their own avatars, or characters, to interact with other users or digital objects. People from the outside may get the impression that this is a type of computer game. This view, however, does not take into account many fundamental differences between the new generation of the Internet, Web3, and the “old” forms of digital reality that are familiar to many.

Each metaverse is a separate digital world that exists in real time. It has its own society, economy, currency, various organizations, forms of ownership and other components of the traditional world. All processes are controlled by smart contracts, artificial intelligence and other software algorithms.

Now metaverses are at the very beginning of their development. But it is obvious that this concept has enormous prospects. Many experts are confident that over time the metauniverse economy will surpass the real world economy in volume. These huge virtual worlds will be controlled by smart contracts.

Other uses of smart contracts

In addition to the digital space, smart contracts have found their application in the physical world:

  • Elections. Counting every vote and preventing the results from being changed can ensure maximum objectivity in electoral processes and protection against fraud.

  • Medicine and healthcare. The creation of a distributed registry that contains medical records, treatment information, and other patient materials can provide healthcare workers with convenient access to this necessary data, while reliably protecting it from unauthorized access.

  • Property rental. Optimization of the process of selection, booking, payment and return of any rented objects.

  • Art and media. Copyright protection for any content or work, as well as automation of payments for viewing, copying, editing and distribution of materials.

  • Internet of things. Creation of a unified system that synchronizes electronic devices connected to the global network with each other and with the external environment.

  • Deliveries and logistics. Creation of infrastructure for processing information about suppliers, recipients, carriers, routes, storage locations and other parts of the supply chain.

  • Gambling. The introduction of an algorithm that guarantees the transparency and fairness of the game, the randomness of its results, as well as the automation of bets and payouts.

  • Education. Creation of a unified database of students and teachers, which stores information about all stages of the educational process, including tests, exams, research, diplomas, academic degrees, etc.

  • Decentralized Science (DeSci). Creation of an automated system for collaboration between scientists without borders and intermediaries, as well as for financing scientific developments and research.

All of these options for using smart contracts are already being tested or fully implemented in certain regions. There are quite a lot of similar examples, and their number is constantly increasing.