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Smart Contract Basics

Smart contracts were originally conceived of as programs that could automatically execute according to the terms of a contract. Nick Szabo proposed the idea of smart contracts in 1997. Unlike legal contracts, smart contracts are trustless. A key objective of smart contracts is to remove the need for intermediaries to enforce the conditions of the contract. The code (functions) and data (its state) are stored on a blockchain and run as programmed. A network of validating nodes run the smart contract to ensure the resulting data is correct. When they agree or come into consensus, the code is said to have performed correctly and the state of the blockchain is updated accordingly.

The term smart contract has expanded to mean any deterministic (the outputs are always as expected) bytecode enforced by network consensus including queries.

How they work

A smart contract is uploaded or deployed to a blockchain where it exists as an object whose internal state persists on the blockchain.

Be aware!

The upload of a contract's code to a blockchain and the instantiation of a contract are regarded as separate events, unlike on Ethereum.

The instantiation of the contract then occurs and provides it with an initial state. For example a wallet with a balance of 0.

When a transaction is performed, the state of the smart contract is changed. A transaction is performed by sending the contract a JSON formatted execute function call. For example, a deposit transaction of 10 tokens is performed to add funds to the balance.

To read a current balance, a query message can be sent to access the current-state data from the contract. For example, to read the updated balance of 10.

Three key functions

Developing a smart contract mainly involves three key functions.

These constitute the interface or entry points of a smart contract:

  1. instantiate(): serves as the constructor during contract instantiation and provides the initial state.

  2. execute(): gets called when a user wants to invoke a method on the smart contract.

  3. query(): gets called when a user wants to request current-state related data from the smart contract.

Smart contract structure

  • - This file contains the definition of the smart contracts data storage.

  • - This file contains structures that define messages for mutating actions that can modify the state of the blockchain and query actions run on a single node with read-only access to the data.

  • - This file contains entry points. These are functions that handle the messages in a smart contract.