Just a decade ago, blockchain was associated exclusively with Bitcoin. But Ethereum’s Solidity smart contracts changed the picture cardinally. Now we finally can see the potential of blockchain and the true power of Web 3, namely because developers started using Solidity to create smart contracts for numerous blockchain use cases. Vastly improved logistics, decentralized finance, and digital collectibles like NFTs are all based on Web3 contracts like Ethereum smart contracts. But what are Solidity smart contracts? In this article, we will cover the basics in general, as well as take a closer look at the Solidity language and blockchain technology.
It is obvious that our life is increasingly shifting online. Possibly, it is because we are unhappy with our material world that we are looking for ways to join networks that centralized entities cannot control. And now, we are leaving our centralized era behind and are heading toward a new decentralized world. Here, users have the ability to create, share, buy and trade anything in a digital peer-to-peer (p2p) environment. Web3 opens up the horizons of decentralized finance, digital art, censorship-resistant social networks, virtual real estate, and much more.
The Internet is changing at a tremendous pace thanks to Web3’s promise of a new version of the Internet. It promises to put the power back in the hands of users. Though, this is only possible through blockchain technology. Let’s take a look at the blockchain technology and Solidity smart contracts that lie at the root of Ethereum.
Why Blockchain Technology?
You may wonder, what makes blockchain technology so exceptional? First of all, it allows anyone to make transactions without an intermediary. This means that various actions and transactions can be completed easily and promptly. For instance, to transfer cryptocurrency between users, you don’t need a bank or a broker to certify or authenticate the transaction. Secondly, the blockchain stores the data on transactions inside the blocks that are nearly impossible to corrupt, forge or delete. Thirdly, blockchain is an open source decentralized technology that is verified by peer-to-peer interactions – this fact adds another layer of trust.
Transactions on the blockchain are based on smart contracts, which are basically lines of code that provide all the data needed for a safe, secure, and trustworthy transaction. But what precisely are smart contracts, and why are they crucial in the Web3 world?
What is Solidity?
Blockchain technology has long been mostly limited to cryptocurrencies. But everything changed when programmers developed a new coding language – Solidity. It was developed specifically to make the creation of modifiable smart contracts for different use cases possible and easy. Nevertheless, their creation and addition to the blockchain would be impossible without the Ethereum network running on the Ethereum Virtual Machine (EVM).
What are Solidity Smart Contracts?
Solidity smart contracts are lines of code created using the Solidity language. This code establishes the terms and conditions the parties participating in a transaction must fulfill for the contract implementation.
Like a work contract, a smart contract defines the conditions for participation. But the verification of the contract validity does not require a bank or any other middlemen. A smart contract will only be executed and authenticated if both parties comply with all conditions. Upon the completion of the transaction, the smart contract is stored in a new block that already contains other implemented smart contracts. The block is then added to the end of a chain of blocks known as a blockchain. The new block contains data on all previously implemented smart contracts stored in previous blocks. In addition, it contains a stack of newly executed smart contracts.
Each implemented smart contract is given a public key that is represented by a string of randomly generated numbers. This key serves as the contract address. This is done to make anyone verify the contract’s existence. However, although the smart contract is permanently stored on the blockchain and everyone can check that it exists, not everyone can view the contract’s content.
Access to the unencrypted version of the smart contract is available only to the parties involved in the contract with private keys.
Blockchain and Solidity Smart Contracts
Once the blockchain stores a smart contract in a block added to the chain, the transaction is irreversible and permanent. It means no one can cancel or change it. The information corruption or altering is nearly impossible due to encryption and block confirmation – the backbones of blockchain technology. If a hacker wants to modify the contract, he would need to make amendments to every block in the blockchain. And it is as it seems – next to impossible. Since there are no intermediaries involved in the transaction process, smart contracts can be executed automatically at any time. Therefore, smart contract transactions represent a revolutionary way to conclude and perform agreements.
If you want to create and implement a smart contract, first, you need to create your Web3 wallet. The wallet can be used to store cryptocurrency, other assets, public and private keys for the contracts, and information on each transaction you are involved in.
To be implemented, every smart contract needs a certain amount of “gas.” Every user interacting with a dapp on the Ethereum blockchain has to pay for a gas used for particular smart contract execution.
While each user can independently set the amount of gas they wish to spend on each smart contract, the higher reward a user reserves for a transaction, the faster the transaction will be executed and verified by the miners. And it’s natural since miners prioritize the verification of higher rewarding smart contracts. This is how miners and node owners can earn money by helping the blockchain grow. However, this is not always as profitable as it seems for a regular user, as it requires certain knowledge and special equipment.
Examples of Using Solidity Smart Contracts
Since Solidity is easy to apply to various transactions, Solidity smart contracts are not only suitable for cryptocurrency transactions. They can be used to develop financial dapps, art, real estate, gaming, social media, and crowdfunding dapps. Each sector can use smart contracts through tokens in its unique way. These tokens can have a set value, as it is with cryptocurrencies, or an arbitrary price determined, for instance, by the rarity and popularity of a non-fungible token, NFTs.
Decentralized Finance (DeFi)
DeFi makes it possible to trade, invest, borrow, lend, send money and buy anything, at anytime, anywhere in the world. Decentralized finance (DeFi) is the future of global finance, with cryptocurrencies and blockchain technology being the most important components.
Today it is possible to sell or exchange virtually any tokenized creation using blockchain technology. The most famous tokens to date are NFTs. These tokens can be in the form of any form of art, music, video, or even a web address. The value of a token is based on its popularity, rarity, demand, collectability, market value, etc. Interestingly, the buyer of NFT does not necessarily own the actual artwork. Basically, when buying art NFT, the buyer acquires the right to show off as the sole owner of the original work of art.
Selling their art as NFTs through platforms like OpenSea enables thousands of artists to reach an audience they never dreamed of reaching before. Besides, it allows them to receive royalties from the resale of their art in the form of NFTs. Plus, NFTs can help promote physical art pieces as a broader audience sees them. Now there are artists who are certain that NFT is the future of the physical artwork market. They believe it can help prevent counterfeits and track royalties from the resale.
Crowdfunding is one of the niches in the crypto realm that gets the least attention, while it is one of the most budding aspects of blockchain technology. It is so because decentralized crowdfunding platforms give the donors a possibility actually to own a particular share of the project they support. This partial ownership enables individuals to feel that they participate in the project they are funding. Decentralized crowdfunding is easy, while traditional crowdfunding can be burdensome as it involves multiple fees of intermediaries and strict donor regulations. Decentralized crowdfunding based on smart contracts can also be a tool for investment as participants can earn profit from the funded projects.
Smart contracts occupy a strong niche in the real estate market. There are companies that enable individuals to invest in a piece of tangible real estate. This is done through tokenizing property assets that can be then purchased as investment instruments. Usually, real estate investment is associated with a lot of paperwork, intermediary fees, and huge time investment in finding the right property. The investment in blockchain-tokenized real estate, on the other hand, allows individuals to promptly, easily, and safely begin investing and creating a stable source of passive income.
The gaming industry is one of the most fascinating, popular, and profitable ways to use smart contracts. Entire universes (metaverses) have already been created on blockchains, where interaction between users is often the game itself. Some NFT games, for example, Axie Infinity, are play-to-earn games in which players are rewarded for participating in various activities in the game. There is a wide variety of gaming themes on the blockchain. They range from card games and exploring distant universes to sports games.
Recently, censorship and “de-platforming” have become a hot topic in regard to the most popular social media platforms such as Facebook, Twitter, and YouTube. Users believe that the major issue of these platforms is a policy of a centralized power that hires people to monitor, study and remove any content that is deemed inappropriate. While some rules are justified in the case of illegal activity, many people feel that such surveillance breaks the right to free speech. If conflicting opinions are banned, the possibility of a free and open society that considers opposing ideas and finds the best solutions is threatened. This is where Solidity smart contracts come into play.
Blockchain technology is already being used to create open, self-regulating peer-to-peer (p2p) social media platforms.
What are Solidity Smart Contracts – Summary
The Internet is embracing Web3, and new decentralized horizons require exploring decentralized applications – dapps. Dapps are based on smart contracts operating on the blockchain. They carry out various types of transactions between parties while ensuring they are quick, safe, irrevocable, incorruptible, and uncensored. They go through peer-to-peer (p2p) authentication, excluding third parties such as banks, notaries, and brokers, greatly reducing costs and time.