Blockchain-based technologies may have started off in risky cryptocurrency investments, but they've generated a buzz in many other industries as well. Though most commonly associated with distributed applications, companies are increasingly using permissioned blockchains to tap into the benefits of blockchain for private organizations.
Business leaders who want to embrace this evolving technology should understand the best use cases for different types of blockchains and the best programming languages for writing smart contracts. This article will cover which technologies and languages are best for smart contracts and why.
What Is a Smart Contract in Blockchain?
A smart contract is a program that runs when certain pre-established conditions are met and is stored on a blockchain. When the predetermined conditions are met, the program automatically runs. This eliminates the need for an intermediary, which reduces costs and time loss associated with executing the contracts. Smart contracts can be used independently or within a workflow by triggering the next event when conditions are met.
Why Is Blockchain the Future?
Many people have speculated on the future of the internet and the rise of Web 3.0. While it's too early to know how it will play out, blockchain could have a major role in the next iteration of the internet. With the rise of social media and the tech giants gatekeeping the internet and profiting off of individuals' data, there's been a backlash against this consolidation of power.
Web 3.0 advocates propose putting power back in the hands of individuals through democratizing data with the use of blockchain technology. In this model, data isn't stored by web applications. Instead, it's stored in the blockchain and is available to anyone who needs it and is authorized to access it. Data is distributed, uncensored, uncurated, and authoritative.
Benefits of Smart Contracts
Smart contracts represent a fundamental shift in application architecture. They have some significant advantages over other types of technology, including:
Smart contracts record all terms, conditions, and transactions in detail. There is no paperwork to fill out manually that could result in errors. The process is completely automated, and the conditions have to be met before the contract is executed.
There are no third parties involved in smart contracts, and the records are shared with all participants. The transparent nature of the transactions ensures they haven't been altered or hidden. Once a contract is executed, there's no way to alter or dispute it.
All blockchain transactions are encrypted using the highest level of data encryption, which makes them difficult to hack. Additionally, each transaction is connected to the ones before and after it, so a hacker would have to change the entire record in order to change one transaction. However, there are security vulnerabilities in blockchain, and they've fallen far short of being unhackable.
Smart contracts can be executed much faster than traditional transactions because there's no time lost to manually processing transactions or going through an intermediary. There's no need to wait for validation or access from a gatekeeper, since the data is stored in the blockchain.
Because of the blockchain's accuracy and transparency, blockchain smart contracts don't rely on trust. You never have to wonder if the data is accurate or the transactions have been manipulated, so everyone who participates can verify the process.
Blockchain smart contracts eliminate the need for middlemen and other intermediaries. There's no need for banks, lawyers, or other web applications to facilitate transactions. This significantly reduces the costs associated with executing the contracts.
Smart contracts are automatically updated each time a transaction is added to the blockchain. There's no need for manual updates that can be expensive, slow, and inaccurate.
Limitations of Smart Contracts
Although blockchain smart contracts offer a lot in the way of innovation and security, there are some drawbacks to using them, such as:
Traditional contracts are drafted and examined by lawyers who have years of experience interpreting legal language. While smart contracts can fulfill many of the same functions that traditional contracts do, they do it in programming language. Since code isn't accessible to most people, they may not fully understand the terms of the contract before they commit.
Blockchain is also a relatively new technology, so courts don't have a lot of experience in settling disputes about them. If conflicts arise, it may be nearly impossible to seek a legal remedy.
Reliance on third-party data
Smart contracts, particularly in the financial sector, often use third-party data feeds, called oracles, to initiate some functions. If this data is compromised, it can open up a surface of attack for bad actors.
Value DeFi lost $6 million in this type of attack after hackers were able to manipulate the price of its tokens by exploiting a vulnerability in a centralized price oracle.
Difficulty amending or correcting contracts
Due to their nature, it's almost impossible to amend a smart contract. If a vendor wants to overlook a late payment to maintain a relationship but the smart contract doesn't allow for that, it can't be done. Even if multiple parties want to change the contract, it may not be possible. Similarly, it's extremely difficult to change the code of a smart contract if errors are found after it's been executed.
Once dubbed unhackable, blockchain smart contracts have proven to be as vulnerable to bad actors as any other technology. By the middle of 2022, hackers had already stolen over $1 billion in assets from blockchains. Many of these vulnerabilities come from adjacent technology rather than from the blockchain itself. However, errors in blockchain code can also be exploited and can't be fixed with a patch the way other programs can.
Applications of Blockchain Smart Contracts
A single smart contract works on an if/then conditional: If X happens, then Y happens. For most applications, this isn't enough complexity to be functional. Sophisticated dApps (decentralized applications) bundle many smart contracts together to increase their functionality. Some ways smart contracts are being used currently include:
Cryptocurrency is probably the most well-known use of blockchain technology, but it's not the only use of blockchain in finance. DeFi (decentralized finance) is offering an alternative to traditional financial services such as lending, borrowing, and trading.
Blockchain technology in gaming revolves largely around NFTs (non-fungible tokens). These digital assets represent in-game content. NFTs use smart contracts to allow players to purchase and save their in-game purchases, sell them to others, or even move them to another game.
Smart contracts are an emerging technology in the legal field. They have the potential to replace many types of legal contacts used to conduct business. Several states have started accepting smart contracts in place of more traditional contracts such as marriage licenses.
Blockchain smart contracts are being used to fractionalize real estate ownership, thus lowering the barrier to investment. The Republic of Georgia has already implemented blockchain-based title registry for land, and other countries are following suit.
Supply-chain disruptions have become a serious issue across industries. Block-chain technology can be used to increase supply-chain transparency by sharing data among supply-chain stakeholders and keeping everyone up to date in real time.
Technologies Used in Blockchain
All blockchain protocols consist of three types of technologies, including cryptographic keys, a peer-to-peer network with a shared ledger, and a means of computing to store the transactions of the network. The cryptographic keys consist of a public and private key that produce a secure digital identity reference.
The peer-to-peer network acts as the authority to reach a consensus on transactions that use the digital identity. When a transaction is authorized, it results in a successful, secured transaction between the two parties connected on the network.
There are four types of blockchain network:
Private Blockchain Networks
One authority manages a private blockchain network. A private network is closed and primarily used by private businesses and organizations. Security considerations, such as accessibility and authorization preferences, can be customized on private blockchain networks.
Public Blockchain Networks
Public blockchains are available to anyone. Bitcoins and other cryptocurrencies operate on public blockchains. They use DLT (distributed ledger technology), which distributes data across the peer-to-peer network. Public blockchains use consensus to validate transactions. Two of the most common types of consensus algorithms are proof of work and proof of stake.
Permissioned Blockchain Networks
Permissioned blockchain networks are often referred to as hybrid networks. They're private blockchain networks that allow special access for authorized individuals. Permissioned blockchains are frequently used by organizations that need to control who can participate in the network and in which transactions. They are also used when identities need to be verified, such as when complying with data protection regulations.
Consortium Blockchain Networks
Consortium blockchain networks are similar to permissioned blockchain networks except that they're used by multiple organizations. They offer better security than permissioned blockchains, and they're ideal when multiple organizations are collaborating.
Best Blockchain Technology and Language for Smart Contracts
Blockchain smart contracts can be written on different platforms and with different languages. Not all platforms work with all languages, so your choice of one will influence your choice of the other.
Best Programming Languages for Writing Smart Contracts
Many programming languages allow you to write smart contracts. Some of the best languages for smart contracts are:
The biggest downside to programming blockchain smart contracts with Solidity is its newness. While it has a large community that is constantly contributing to its library and tools, it simply hasn't been around long enough to have a complete resource. You're likely to have to develop your own solutions for some issues.
Rust is a low-level language that's fast and efficient, making it particularly well suited for blockchain smart contracts. It has no garbage collector and compiles a detailed error report to help you track down bugs. As a low-level language, Rust is optimal for building decentralized apps with a high throughput. Rust's predictability means your program won't surprise you, a critical factor when writing smart contracts.
Some disadvantages to using Rust include its verbosity and its newness. You'll have to write more code when you're using Rust than you would with more efficient languages such as Python. You may also struggle with learning it since it contains new concepts. As a new language, Rust doesn't have the extensive collection of resources that more established languages do.
Vyper was created specifically to mitigate the security issues in Solidity, although it was built to complement Solidity, not replace it. Vyper's syntax is very similar to Python, so if you know Python, you'll easily be able to pick up Vyper. Because it was written to make smart contracts more secure, it lacks many features of Python. However, it supports contract-specific features like event notifiers, custom global variables, and global constants.
Best Blockchain Platforms for Writing Smart Contracts
While Ethereum is the most popular platform for blockchain smart contracts, a different one may be better for your specific needs. The top five blockchain platforms are:
Launched in 2015, Ethereum is the most widely used blockchain platform for smart contracts. The biggest advantages of using Ethereum are its level of support and standardization. Ethereum's clearly defined rules for developers make writing smart contracts easier and more secure, although there have been some significant security issues with the platform.
In addition to security issues, another concern with using Ethereum is its popularity. It frequently runs at 100% capacity, which could interfere with your contract's performance. It's also one of the more expensive platforms to use. Despite its shortcomings, Ethereum is usually the best choice for general-use smart contracts. It can be used for almost any type of decentralized application.
Hyperledger Fabric was developed in 2015 by The Linux Foundation and over 30 corporate co-founders. Because it is a permissioned blockchain, participants' identities are known and authentication is required. Hyperledger Fabric is a good choice for organizations that deal with sensitive data and need to comply with data protection regulations.
Hyperledger Fabric allows you to use modules to compose smart contracts in almost any programming language, which gives you more versatility. With its modular architecture, Hyperledger Fabric lets you develop solutions for a wide variety of use cases. It was designed to ensure the highest level of enterprise security, making it a good choice if you don't need anonymity and security is a top concern.
Polkadot was created by Gavin Wood, one of Ethereum's co-founders. Polkadot can run multiple chains inside of its blockchain, a process called sharding. This allows it to run more transactions than usual. Polkadot was designed to connect blockchains securely. Polkadot is a high-performance blockchain that can handle over 1,000 transactions per second. This is far more than the 13 to 30 transactions per second that Ethereum can handle. It's also much cheaper to use than Ethereum. If you need to combine multiple blockchains, Polkadot is an ideal platform to use.
Blockchains and Smart Contracts for the Internet of Things (IoT)
The IoT connects people, products, and places. The IoT is one of the major components of the Fourth Industrial Revolution. Unfortunately, security concerns have hindered adoption of the IoT in some cases. IoT devices are often prone to security vulnerabilities. Another problem with the widespread adoption of IoT devices is the strain they put on centralized systems.
Using blockchain smart contracts with the IoT can help alleviate the issues associated with widespread adoption of the IoT. Blockchain technology can accelerate the use of the IoT by alleviating security concerns and decentralizing the massive amounts of data generated by IoT devices.
Next Steps in Smart Contracts
The best language and platform for developing smart contracts will depend on your specific use case. Understanding the ideal use cases for different types of blockchain will help you make a decision.
No matter which type of blockchain you want to implement, the right developers can help you do it. If you need to hire blockchain developers, Revelo can match you up with developers skilled in coding smart contracts. Reach out today to find out how we can help you find the tech talent you need.