Nick Szabo first described smart contracts in the 1990s. At that time, he defined smart contracts as tools that formalize and protect computer networks by combining protocols with user interfaces.

Szabo discussed the potential uses of smart contracts in various fields involving contractual agreements, such as credit systems, payment processing, and content copyright management.

In the world of cryptocurrencies, we can define smart contracts as applications or programs running on a blockchain. Typically, they function as digital protocols enforced by a specific set of rules. These rules are pre-defined by computer code, replicated, and executed by all network nodes.

Blockchain smart contracts enable the creation of trustless agreements. This means two parties can make commitments through the blockchain without needing to know or trust each other. They can specify that the contract will not execute unless certain conditions are met. Additionally, the use of smart contracts can eliminate the need for intermediaries, significantly reducing operational costs.

While the Bitcoin protocol has supported smart contracts for many years, they gained popularity mainly through Ethereum, created by its founder and co-founder, Vitalik Buterin. It's worth noting that each blockchain may offer different methods of implementing smart contracts.

This article will focus on smart contracts running on the Ethereum Virtual Machine (EVM), a crucial component of the Ethereum blockchain.

How do they work? In simple terms, smart contracts act as deterministic programs. When certain conditions are met, they execute specific tasks. Therefore, smart contract systems typically follow "if...then..." statements. Despite the popular terminology, smart contracts are not legal contracts nor inherently intelligent. They are just pieces of code running on a distributed system (blockchain).

On the Ethereum network, smart contracts are responsible for executing and managing blockchain operations that occur when users (addresses) interact with each other. Any non-smart contract address is called an External Owned Account (EOA). Thus, smart contracts are controlled by computer code, while EOAs are controlled by users.

Essentially, Ethereum smart contracts consist of contract code and two public keys. The first public key is provided by the contract creator, while the other key represents the contract itself, serving as a unique identifier for each smart contract.

Deployment of any smart contract is done through a blockchain transaction and is only activated when called by an EOA (or other smart contract). However, the first trigger is always initiated by an EOA (user).

Main features Ethereum smart contracts typically possess the following characteristics:

1. Decentralized: Smart contracts are replicated and distributed among all nodes of the Ethereum network. This is one of the main distinctions from other centralized server-based solutions.

2. Deterministic: Smart contracts execute only the operations they are designed for when specific requirements are met. Regardless of who executes them, the results are always the same.

3. Autonomous: Smart contracts can perform various tasks automatically, akin to self-executing programs. However, in most cases, if a smart contract is not triggered, it remains in a "dormant" state and does not execute any operations.

4. Immutable: Smart contracts cannot be changed after deployment. They can only be "deleted" when certain functionality has been previously implemented. Thus, smart contracts can provide tamper-resistant code.

5. Customizable: Before deployment, smart contracts can be encoded in various ways. Therefore, they can be used to create a wide range of decentralized applications (DApps), which is due to Ethereum being a Turing-complete blockchain.

6. Trustless: Two or more parties can interact through smart contracts without needing to know or trust each other. Additionally, blockchain technology ensures data accuracy.

7. Transparent: Since smart contracts are based on a public blockchain, their source code is not only immutable but visible to anyone.

Can I change or delete a smart contract? It is not possible to add new functionality to an Ethereum smart contract after deployment. However, if its creator included a function called "SELFDESTRUCT" in the code, they can "delete" the smart contract in the future and replace it with a new one. But, on the contrary, if that function was not included in the code beforehand, they will be unable to delete it.

It is worth noting that so-called upgradable smart contracts provide developers with greater flexibility than the immutability of contracts. There are various ways to create upgradable smart contracts, each with varying degrees of complexity.

As a simple example, let's assume a smart contract is split into multiple smaller contracts. Some of these are designed to be immutable, while others enable the "deletion" function. This means parts of the code (smart contracts) can be deleted and replaced, while other functionalities remain unchanged.

Advantages and use cases As programmable code, smart contracts offer high customizability, allowing them to be designed in multiple ways, offering a variety of services and solutions.

As decentralized and self-executing programs, smart contracts can increase transparency and reduce operational costs. Depending on the implementation, they can also improve efficiency and reduce bureaucratic overhead.

Smart contracts are particularly useful in situations involving fund transfers or exchanges between two or more parties.

In other words, smart contracts can be designed for various use cases. Some examples include creating tokenized assets, voting systems, crypto wallets, decentralized exchanges, games, and mobile applications. They can also be deployed alongside other blockchain solutions involving healthcare, charities, supply chain, governance, and decentralized finance (DeFi).

ERC-20 Tokens issued on the Ethereum blockchain follow a standard called ERC-20. This standard describes the core functionalities of all Ethereum-based tokens. Hence, these digital assets are commonly referred to as ERC-20 tokens, representing a significant portion of existing cryptocurrencies.

Many blockchain companies and startups deploy smart contracts to issue digital tokens on the Ethereum network. After issuance, most companies distribute ERC-20 tokens through Initial Coin Offering (ICO) events. In most cases, the use of smart contracts enables fund exchanges and token distribution in a trustless and efficient manner.

Limitations Smart contracts consist of computer code written by humans, which brings many risks as code can be vulnerable to bugs and errors. Ideally, they should be written and deployed by experienced programmers, especially when involving sensitive information or substantial funds.

Moreover, some argue that centralized systems can provide most of the solutions and functionalities that smart contracts offer. The main distinction lies in smart contracts running on a distributed P2P network rather than centralized servers. Due to their reliance on blockchain systems, they tend to be immutable or difficult to change.

In some cases, immutability is beneficial, but in others, it can be detrimental. For instance, when a decentralized autonomous organization (DAO) called "The DAO" was hacked in 2016 due to flaws in its smart contract code, millions of Ether (ETH) were stolen.

Since their smart contracts were immutable, developers couldn't fix the code. This eventually led to a hard fork, creating a second Ethereum chain. In short, one chain "recovered" from the hack and returned the funds to rightful owners (which is the current Ethereum blockchain). The other chain decided not to intervene in the hack, declaring that what happens on the blockchain should never be altered (this chain is now known as Ethereum Classic).

It's essential to note that the issue wasn't with the Ethereum blockchain itself. Instead, it arose due to execution errors in the smart contract.

Another limitation of smart contracts is related to their uncertain legal status. Not only because they exist in a gray area in most countries, but also because smart contracts may not fit well into the current legal frameworks.

For example, many contracts require both parties to have proper identification and be of legal age (18 years or older). The anonymity provided by blockchain technology, coupled with the lack of intermediaries, could challenge these requirements. While potential solutions exist, the legal enforceability of smart contracts is a genuine challenge—especially when dealing with borderless distributed networks.

Criticism Some blockchain enthusiasts view smart contracts as a solution that will soon replace and automate much of our business and bureaucratic systems. While this is a possible reality, it may be far from the norm.

Smart contracts are undoubtedly intriguing technology. However, their decentralization, determinism, transparency, and to some extent, immutability, may decrease their appeal in certain cases.

Critiques essentially stem from the fact that smart contracts may not be the appropriate solution for many real-world problems. In fact, some organizations may be better off using traditional server-based alternatives.

In comparison to smart contracts, maintaining centralized servers is easier, cheaper, and often performs better in terms of speed and cross-network communication (interoperability).

Conclusion There's no denying that smart contracts have had a tremendous impact on the world of cryptocurrencies and undoubtedly have revolutionized the blockchain space. While end-users might not directly interact with smart contracts, they could provide support for a wide range of applications in the future, from financial services to supply chain management and beyond.

Together with blockchain, smart contracts have the potential to disrupt nearly every aspect of our society. However, only time will tell if these groundbreaking technologies can overcome the numerous obstacles to widespread adoption.

Nick Szabo first described smart contracts in the 1990s. At that time, he defined smart contracts as tools that formalize and protect computer networks by combining protocols with user interfaces.

Szabo discussed the potential uses of smart contracts in various fields involving contractual agreements, such as credit systems, payment processing, and content copyright management.

In the world of cryptocurrencies, we can define smart contracts as applications or programs running on a blockchain. Typically, they function as digital protocols enforced by a specific set of rules. These rules are pre-defined by computer code, replicated, and executed by all network nodes.

Blockchain smart contracts enable the creation of trustless agreements. This means two parties can make commitments through the blockchain without needing to know or trust each other. They can specify that the contract will not execute unless certain conditions are met. Additionally, the use of smart contracts can eliminate the need for intermediaries, significantly reducing operational costs.

While the Bitcoin protocol has supported smart contracts for many years, they gained popularity mainly through Ethereum, created by its founder and co-founder, Vitalik Buterin. It's worth noting that each blockchain may offer different methods of implementing smart contracts.

This article will focus on smart contracts running on the Ethereum Virtual Machine (EVM), a crucial component of the Ethereum blockchain.

How do they work? In simple terms, smart contracts act as deterministic programs. When certain conditions are met, they execute specific tasks. Therefore, smart contract systems typically follow "if...then..." statements. Despite the popular terminology, smart contracts are not legal contracts nor inherently intelligent. They are just pieces of code running on a distributed system (blockchain).

On the Ethereum network, smart contracts are responsible for executing and managing blockchain operations that occur when users (addresses) interact with each other. Any non-smart contract address is called an External Owned Account (EOA). Thus, smart contracts are controlled by computer code, while EOAs are controlled by users.

Essentially, Ethereum smart contracts consist of contract code and two public keys. The first public key is provided by the contract creator, while the other key represents the contract itself, serving as a unique identifier for each smart contract.

Deployment of any smart contract is done through a blockchain transaction and is only activated when called by an EOA (or other smart contract). However, the first trigger is always initiated by an EOA (user).

Main features Ethereum smart contracts typically possess the following characteristics:

1. Decentralized: Smart contracts are replicated and distributed among all nodes of the Ethereum network. This is one of the main distinctions from other centralized server-based solutions.

2. Deterministic: Smart contracts execute only the operations they are designed for when specific requirements are met. Regardless of who executes them, the results are always the same.

3. Autonomous: Smart contracts can perform various tasks automatically, akin to self-executing programs. However, in most cases, if a smart contract is not triggered, it remains in a "dormant" state and does not execute any operations.

4. Immutable: Smart contracts cannot be changed after deployment. They can only be "deleted" when certain functionality has been previously implemented. Thus, smart contracts can provide tamper-resistant code.

5. Customizable: Before deployment, smart contracts can be encoded in various ways. Therefore, they can be used to create a wide range of decentralized applications (DApps), which is due to Ethereum being a Turing-complete blockchain.

6. Trustless: Two or more parties can interact through smart contracts without needing to know or trust each other. Additionally, blockchain technology ensures data accuracy.

7. Transparent: Since smart contracts are based on a public blockchain, their source code is not only immutable but visible to anyone.

Can I change or delete a smart contract? It is not possible to add new functionality to an Ethereum smart contract after deployment. However, if its creator included a function called "SELFDESTRUCT" in the code, they can "delete" the smart contract in the future and replace it with a new one. But, on the contrary, if that function was not included in the code beforehand, they will be unable to delete it.

It is worth noting that so-called upgradable smart contracts provide developers with greater flexibility than the immutability of contracts. There are various ways to create upgradable smart contracts, each with varying degrees of complexity.

As a simple example, let's assume a smart contract is split into multiple smaller contracts. Some of these are designed to be immutable, while others enable the "deletion" function. This means parts of the code (smart contracts) can be deleted and replaced, while other functionalities remain unchanged.

Advantages and use cases As programmable code, smart contracts offer high customizability, allowing them to be designed in multiple ways, offering a variety of services and solutions.

As decentralized and self-executing programs, smart contracts can increase transparency and reduce operational costs. Depending on the implementation, they can also improve efficiency and reduce bureaucratic overhead.

Smart contracts are particularly useful in situations involving fund transfers or exchanges between two or more parties.

In other words, smart contracts can be designed for various use cases. Some examples include creating tokenized assets, voting systems, crypto wallets, decentralized exchanges, games, and mobile applications. They can also be deployed alongside other blockchain solutions involving healthcare, charities, supply chain, governance, and decentralized finance (DeFi).

ERC-20 Tokens issued on the Ethereum blockchain follow a standard called ERC-20. This standard describes the core functionalities of all Ethereum-based tokens. Hence, these digital assets are commonly referred to as ERC-20 tokens, representing a significant portion of existing cryptocurrencies.

Many blockchain companies and startups deploy smart contracts to issue digital tokens on the Ethereum network. After issuance, most companies distribute ERC-20 tokens through Initial Coin Offering (ICO) events. In most cases, the use of smart contracts enables fund exchanges and token distribution in a trustless and efficient manner.

Limitations Smart contracts consist of computer code written by humans, which brings many risks as code can be vulnerable to bugs and errors. Ideally, they should be written and deployed by experienced programmers, especially when involving sensitive information or substantial funds.

Moreover, some argue that centralized systems can provide most of the solutions and functionalities that smart contracts offer. The main distinction lies in smart contracts running on a distributed P2P network rather than centralized servers. Due to their reliance on blockchain systems, they tend to be immutable or difficult to change.

In some cases, immutability is beneficial, but in others, it can be detrimental. For instance, when a decentralized autonomous organization (DAO) called "The DAO" was hacked in 2016 due to flaws in its smart contract code, millions of Ether (ETH) were stolen.

Since their smart contracts were immutable, developers couldn't fix the code. This eventually led to a hard fork, creating a second Ethereum chain. In short, one chain "recovered" from the hack and returned the funds to rightful owners (which is the current Ethereum blockchain). The other chain decided not to intervene in the hack, declaring that what happens on the blockchain should never be altered (this chain is now known as Ethereum Classic).

It's essential to note that the issue wasn't with the Ethereum blockchain itself. Instead, it arose due to execution errors in the smart contract.

Another limitation of smart contracts is related to their uncertain legal status. Not only because they exist in a gray area in most countries, but also because smart contracts may not fit well into the current legal frameworks.

For example, many contracts require both parties to have proper identification and be of legal age (18 years or older). The anonymity provided by blockchain technology, coupled with the lack of intermediaries, could challenge these requirements. While potential solutions exist, the legal enforceability of smart contracts is a genuine challenge—especially when dealing with borderless distributed networks.

Criticism Some blockchain enthusiasts view smart contracts as a solution that will soon replace and automate much of our business and bureaucratic systems. While this is a possible reality, it may be far from the norm.

Smart contracts are undoubtedly intriguing technology. However, their decentralization, determinism, transparency, and to some extent, immutability, may decrease their appeal in certain cases.

Critiques essentially stem from the fact that smart contracts may not be the appropriate solution for many real-world problems. In fact, some organizations may be better off using traditional server-based alternatives.

In comparison to smart contracts, maintaining centralized servers is easier, cheaper, and often performs better in terms of speed and cross-network communication (interoperability).

Conclusion There's no denying that smart contracts have had a tremendous impact on the world of cryptocurrencies and undoubtedly have revolutionized the blockchain space. While end-users might not directly interact with smart contracts, they could provide support for a wide range of applications in the future, from financial services to supply chain management and beyond.

Together with blockchain, smart contracts have the potential to disrupt nearly every aspect of our society. However, only time will tell if these groundbreaking technologies can overcome the numerous obstacles to widespread adoption.