Bitcoin gave the world an independent financial system free from centralized banks, creating a decentralized autonomous financial system. However, the functionalities of the Bitcoin protocol are limited: you can send someone your BTC coins and receive them in your wallet, but exchanging one type of coin for another without an intermediary is not possible. Everything changed with the advent of smart contract technology.
What is a smart contract in simple terms?
A smart contract is a self-executing program that operates on the blockchain, enabling transactions between two parties without an intermediary. For example, it could involve exchanging one cryptocurrency for another through a decentralized exchange (DEX) or purchasing NFTs using tokens on a marketplace.
To put it even more simply, think of a smart contract like a vending machine. Suppose you want to buy a soda. You select the item, insert the required amount into the coin slot, and the machine dispenses the desired product—all without the involvement of a seller. Smart contracts operate on a similar principle. This concept was initially introduced by Nick Szabo in 1996, drawing inspiration from vending machines.
Smart contracts were first implemented on the Ethereum blockchain, which remains the leading platform in the realm of decentralized finance (DeFi) to this day. More precisely, Ethereum’s advent marked the beginning of the DeFi sector.
Smart contract technology enabled the creation of autonomous decentralized applications, also known as dApps or Web3 applications. Some notable examples include DEXs like Uniswap and PancakeSwap, the aggregator 1inch, credit protocols Aave and Compound, bridges like Stargate and Orbiter, as well as popular NFT marketplaces like OpenSea and Rarible.
For instance, when you trade digital assets on a decentralized exchange (DEX), the company itself doesn’t participate in the transaction process. Traders interact directly with liquidity providers. The DEX merely provides a software interface and a smart contract for autonomous transactions.
Why are smart contracts reliable and secure?
Smart contracts facilitate simple bilateral transactions between parties, but why do they need blockchain? Decentralized networks provide the unprecedented security that sets smart contracts apart.
Decentralization
A network of computer nodes ensures the security of blockchain smart contracts, referred to as validators or miners, depending on the decentralized network’s operational principle. No single validator can control a smart contract independently; this can only be achieved through consensus among most validators.
After the network is launched, developers cannot easily alter the mechanics of a smart contract without the approval of the majority of network participants (validators or miners). Collective governance is one of the blockchain system’s strongest features.
Autonomy
Smart contracts precisely execute their instructions according to the algorithm embedded in them from the outset. If you send your funds from point A to point B, you can be confident they will reach their destination. Even if 99% of validators are offline, smart contracts will continue to operate.
In contrast, traditional banking transfers may be unavailable for various reasons, such as system errors, app unavailability, or maintenance. Blockchain operates 24/7 and is independent of the availability of individual validators.
However, there is a downside: completed transactions cannot be rolled back, and your funds will be irreversibly lost if sent to the wrong address. While errors in the banking system may be reversible, the bureaucratic process can significantly delay the resolution.
Trustlessness
When you transfer funds through a bank or make a purchase with a credit card, you must trust the financial institution. The bank can suspend or even block the transaction for various reasons, including errors. In other words, the bank, not you, controls your funds.
Smart contracts do not require trust. Developers publish the source code, which anyone can verify to ensure that the team has no malicious intentions. Independent companies often conduct security audits of smart contracts, and the results are also publicly available.
Security
Smart contracts on networks like Ethereum, Tron, BNB Chain, Solana and Cardano have no single point of failure. No hacker in the world can delete or tamper with data in the blockchain and deceive the smart contract in any way. There has not been a single such incident throughout the history of cryptocurrencies.
To gain control of the network, a malicious actor would have to compromise the majority of validator nodes, which, depending on the network, can number in the hundreds, thousands, or over 200,000 in the case of Ethereum. This not only complicates the hacking process but also requires colossal resources.
Smart Blockchain’s consensus mechanism uses the innovative DPoS system, where 27 SRs (Super Representatives or validators) produce blocks for the network. Every 6 hours, Smart Blockchain account owners, who freeze their accounts, can vote for SR candidates, and the top 27 candidates are considered Super Representatives.
Smart Contracts: The Foundation of Ultima
Smart contracts form the cornerstone of Ultima’s technology. They power the liquidity pools of the main product: DeFi-U. The pool is filled when a smart contract is executed, programming the transaction conditions through which the pool will later distribute rewards among users. All these transactions are recorded on the blockchain and cannot be canceled or rewritten. You can view all transactions on the explorer: You can view all transactions on the explorer:
Smart contracts enable users to interact directly with the blockchain, eliminating intermediaries. The entire process is decentralized and automated; the smart contract ensures the enforcement of reward rules. Thanks to this, users can be confident that they and their children will smoothly receive rewards from the blockchain. No one can “turn off” the smart contract—its immutability is programmed into its rules.
How can you use smart contracts?
In the 21st century, there is the possibility of transforming various paper agreements into digital smart contracts, thus opening up a wide range of potential applications.
Automation of payments: Smart contracts can independently make payments to specific individuals or organizations within set deadlines, ensuring the accuracy and timeliness of transactions.
Property rights management and transfer: Blockchain allows the registration of documents confirming property rights, and these rights can be transferred using smart contracts, ensuring the reliability and transparency of the process.
Exchange of energy resources: A digital platform is created to exchange energy resources, where transactions are conducted through smart contracts. This allows for a direct connection between energy producers and end consumers, allowing each user to fine-tune supplies.
Management of intellectual property: A smart contract can be embedded in any object controlled by digital means. This approach creates the concept of Smart Property, covering various elements from household appliances to vehicles. The rental process can be fully automated through the Internet of Things (IoT) connectivity.
Conclusion
Smart contracts in blockchain networks provide unparalleled security due to the absence of a single point of failure in the system, decentralized control, the ability to conduct comprehensive code audits, and data immutability.
This ensures the execution of transactions when contract conditions are met and eliminates the possibility of any third party interfering. Moreover, the transactions can take a few seconds to several minutes, depending on the user-set commission and network congestion.