Given that they carry out preset rules, smart contracts are essential to developing cryptocurrencies and NFT assets. NFT developers do away with the need for direct physical intervention with smart contracts. Instead, the contracts confirm the uniqueness and authenticity of their NFTs. They also create smart contracts to guard against tampering with or forging their NFTs.

Since they ensure that all parties will fulfill a contract without the use of intermediaries or guarantors, smart contracts are a treasure in the digital realm.

This article will look at how to develop a smart contract. Before we do that, let us look at what they are and the types of smart contracts that companies can create.

What is a Smart Contract? 

In a smart contract, the conditions of the agreement between the buyer and seller are directly encoded into lines of code, making it a self-executing contract. Furthermore, the agreements and underlying code are spread throughout a decentralized blockchain network. As a result, transactions are traceable and irreversible, and the code regulates their execution.

Smart contracts enable trusted transactions and agreements between dispersed, anonymous parties without the need for a centralized authority, a legal system, or an external enforcement mechanism.

Although blockchain technology is known as the basis for Bitcoin, it has developed well beyond supporting the digital currency.

Smart Contracts & Blockchain 

Blockchain technology serves as the foundation for the operation of smart contracts.

A blockchain is a decentralized network comprised of a continuously expanding list of records (blocks) connected by encryption. Unlike a traditional database, a blockchain network does not have a single central location. Instead, all the computers that make up the network share the data stored in the blockchain. As a result, the network is less vulnerable to errors or assaults.

A record in one computer cannot be changed in a blockchain without updating the identical record on other computers in the network. In a blockchain, transactions are organized into blocks that are connected by a chain. Only after the preceding block is finished is a new block formed. Each block comprises a cryptographic hash of the previous block and is presented in a linear, chronological order.

How do Smart Contracts Work?

Smart contracts are required for automatic value exchange, even without considering technical operations. For instance, they can be used to trade money for gold, video games, bitcoins, or website access. Additionally, they operate on a similar basis as a coffee vendor, who receives a customer’s money in exchange for a cup of coffee without a middleman. In this situation, the valuables are money and coffee, and the requirement is to provide an amount of cash equal to the cost of the coffee or other beverage. With a smart contract, the vendor accepts these conditions and links the value of their products before performing the automatic exchange.

Smart contracts operate on an analog concept, but their mechanism is made of computer code that initiates specific actions (functions, operations, transactions, algorithms) when certain criteria are satisfied.

Developers can build and deploy these smart contracts on different blockchain platforms (for example, Ethereum, Cardano, and Hyperledger Fabric). Each platform has its own advantages and features for developing smart contracts. Smart contracts, however, consist of two components: a code set and data. Data are the conditions, and code performs the contract function. These two smart contract elements use a specific blockchain address.

It’s important to note that smart contracts frequently function as account variations with permissions equivalent to those of user accounts. However, in the case of smart contracts, users do not have control over their accounts because the code for the contract itself controls the account.

Smart contracts power accounts. On the other hand, we – the users of blockchain technology or DApps – may communicate with smart contracts, to access these accounts. As an illustration, we can transfer tokens to smart contracts and then trade them for other tokens (much like trading with a human). Alternatively, we can give the smart contract instructions to perform a task.

Advantages of Smart Contracts 

Individuals, companies, and governments can enjoy a wide range of benefits if they embrace blockchain and smart contract technology-based solutions. Here are a few examples:

  • Transparency 

100% transparency is one of the main benefits of decentralized blockchains. The blockchain’s transactions are all transparent and easy to verify. Furthermore, no one is permitted to make changes to the network’s information once a transaction is complete. As a result, both an individual and a business owner can write or utilize a smart contract without being concerned that a malefactor could change it to steal money or data.

  • Economic Savings

Numerous manual business operations connected to processing agreements can be automated using smart contracts. Smart contracts also do not rely on intermediaries (lawyers, banks, brokers). Both factors enable substantial financial savings.

  • Autonomy & Time Savings 

Writing a standard contract requires significant time and work, as does tracking and overseeing its execution. With smart contracts, everything is easier and faster because the contract code is only written once and used as needed (for example, to create an NFT or automatically fill out a bill and make transactions on it).

  • Enhancing Trust Between Parties 

There is no human intervention while carrying out a smart contract. As a result, counteragents can form a strong, long-lasting bond and can trust one another more. In the event that something goes wrong, the parties can work together to identify the root of the issue rather than find reasons to blame one another for the contract’s breach.

  • Secure Storage & Backup

Everybody copies and backs up important data since losing it poses a significant danger to governmental and economic systems. However, even the most secure backup solutions cannot guarantee that all data will be saved. They could simply fail, or hackers could steal data. However, the situation with blockchain and smart contracts is quite different because data within a blockchain is saved on a considerable number of different computers (called nodes). Therefore, this data will always be present as long as the blockchain is operational.

  • Fraud Prevention 

Smart contracts ensure that there is no potential for unauthorized access to the system that guards against fraud if the blockchain code is correct. Unfortunately, phishing is still a possibility, although it will be more challenging with time.

  • Reliability & Security 

The highest levels of encryption and data protection are employed by smart contracts. This is a well-known advantage in the IT industry. This makes contracts based on blockchain technology and smart contracts one of the most secure options available right now.

Disadvantages of Smart Contracts 

  • Security 

Smart contracts protect certain essential components of multiparty business processes. However, because the technology is so new, hackers may be able to exploit a weakness to launch an assault and steal data and money. Therefore, the development team and independent audits must fully test smart contracts to prevent hacking attempts.

  • Leveling

Smart contracts can greatly improve business processes with a lot of counteragents. This is undoubtedly to their advantage. However, when things go wrong, or the system starts to malfunction, this feature can also make errors more damaging.

  • Managing 

Smart contract management and implementation are challenging. After all, smart contracts are unchangeable. Many people will still see it as a benefit, but if companies need to add some features to the code, this alteration can be very difficult.

Types of Smart Contracts 

1) Smart Legal Contract 

Since these smart contracts are based on a fully completed legal agreement, their counterparties are legally liable for the contract’s implementation. Additionally, it might be a smart contract for registering an apartment or a smart contract for converting cryptocurrency to money.

Smart Legal Contracts are prevalent in smart contracts. They are essential for bitcoin exchange, DeFi, and Game-Fi initiatives, as well as numerous blockchain platforms, such as NFT marketplaces, metaverses, tokenization tools, and real estate transactions.

2) Decentralized Autonomous Organizations (DAO) 

Decentralized autonomous organizations, or DAOs, are social groups governed by rules that smart contracts accept and codify. The role of a DAO smart contract when these regulations are implemented will be to uphold them, offer defense mechanisms, and penalize transgressors. DAO smart contracts are, therefore, digital laws and bureaucracies.

The management protocols used by Decentraland, Uniswap, Polkadot, and MakerDAO are examples of DAOs. These projects are governed by the holders of their native tokens, who can propose various changes (such as how commissions are structured, how the blockchain code is changed, and how parachains are added and removed) and then vote on them. Here, voting and vote counting is handled via DAO smart contracts.

3) Application Logic Contracts (ALC) 

The way these smart contracts work depends on the application. Their responsibility is to facilitate communication between programs and the blockchain. For instance, ALC is in charge of IoT blockchain connections and the ability to use an NFT as a playable character in the Spider Tanks video game. Additionally, ALC can process the link between blockchain and oracles.

How To Develop a Smart Contract 

Now that we have a better understanding of the benefits of smart contracts, let’s look at how businesses can create smart contracts.

Step 1: Select the Blockchain Platform 

Choosing which blockchain platform to use while creating a smart contract is a crucial step. Earlier, the options were Ethereum and a few other obscure platforms. Right now, there is a clear and wide range of options. Despite this, Polygon, Polkadot, Cardano, Solana, BSC, Tezos, Hyperledger, and other blockchains are becoming increasingly popular among companies. Even so, Ethereum is still the market leader in the development of smart contracts and DApps.

Step 2: Select Development Instruments 

A developer can design a smart contract using several different tools. Each of them has features that are based on its intended audience. While some tools are required (for example, programmers cannot create a smart contract without specific tools), others are optional.

Step 3: Smart Contract Development Process 

The code for the smart contract is written at this stage. Although a developer could start from scratch, using a template or an open-source library would be more efficient. A selection of development tools is available for each blockchain. For instance, OpenZeppelin frequently assists with introducing smart contracts on Ethereum. Additionally, Hyperledger provides a toolbox for developing smart contracts.

Step 4: Testing The Smart Contract 

Testing is likely the most crucial phase of smart contract development, given the volume of smart contract hacks we observe. Given that smart contracts are open-source software, a hacker can examine their code and look for weaknesses they can exploit to take control of a smart contract. Additionally, after a smart contract has been created and deployed, a company cannot edit it. Therefore, testing is the developer’s only opportunity to address any faults or weaknesses.

Blockchains typically contain test networks that let companies test a smart contract without worrying about losing money, data, or reputation. This makes testing easier. The blockchain affects the test network selection. For instance, Ropsten or Rinkeby support Ethereum, whereas Hyperledger Fabric requires Hyperledger Umbra support.

Step 5: Contract Deployment 

Deploying a smart contract in a blockchain environment is the last stage in the development process. After that, users can access a company’s smart contract, which cannot be altered. The old version of their smart contract will stay on the blockchain network for as long as it functions, and they will then need to design and deploy a new version to upgrade it. As a result, there are currently three concurrently running versions of Uniswap on the Ethereum network.


Developers can produce distinctive NFTs with authenticated ownership using smart contracts. In addition, the digital agreements underlying smart contracts can also facilitate transactions, which also eliminate third parties and increase transparency between the parties to a transaction. In this guide, we looked at a few procedures for creating smart contracts. Smart contracts are open-source and easy to create and use. However, one needs the right skills and know-how to develop an effective smart contract.

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