What is a smart contract? Smart contracts are self-executing agreements with the terms of the agreement between the buyer and the seller directly written into lines of code. Today, smart contract formations incorporate Web3 technologies, and the contracts are stored on a blockchain implementation making it decentralized, transparent, and secure. Read more in our article “What is a Smart Contract?”
Smart contracts have the potential to revolutionize the way we do business by enabling trusted transactions without the need for intermediaries such as banks or lawyers. However, smart contract formation (creating a smart contract) is not as simple as writing a traditional contract. In this article, we will guide you through the steps of forming effective smart contracts.
How are Smart Contracts Formed?
Smart contracts are formed by converting the terms and conditions of an agreement into an electronically executable form. There are all manners of current paper transaction types that can be converted into a smart agreement. Just a few examples include: contracts to buy products and services, real estate transactions, crowdfunding, insurance, and online gaming can be converted as can many others. The terms and conditions as well as the transactions and progress monitoring are converted into electronic actions that a computer program can execute and/or monitor.
Smart contract formation begins with the formation of the computer program version (smart contract) of your traditional paper agreement. This is done by converting the steps and obligations of the contract into an electronic equivalent. The various blockchain platforms offering smart contract services have lots of information about smart contract formation. Smart contract formation help is available in many ways when making the conversion from the paper processes and deliverables to an electronic equal.
To create a smart contract, you will need to write its code and deploy it on a blockchain platform. Each of the blockchain implementations has its own programming language; therefore, picking a blockchain platform also picks the programming language you will use for your smart contract formation. All of the blockchain implementations have smart contract examples that you can review and leverage for your contracting needs.
First, select the place where you want to store and run the smart contract.
There are more blockchain implementations all the time, so picking one for your smart contract formation can be difficult. The IBM Blockchain and Ethereum are among the most popular blockchain implementations and neither is known for being easy to use yet. Knowing what services can be automated within a given blockchain implementation is critical to good smart contract formation. For example, some blockchain services cannot integrate with banking services and instead can only process payments using cryptocurrency.
After you select the blockchain place that you want to deploy (store and run) your agreement, smart contract formation is usually accomplished using the available code libraries and examples offered by your service provider.
Second, write the smart contract code and test it.
You will need to write the code for your smart contract in the programming language supported by the chosen platform. The code defines the rules and conditions of the agreement and is stored on a blockchain network. It is important to keep in mind that smart contracts are immutable, meaning that their code cannot be changed once deployed. Consequently, this means that any bugs or errors in the code will be permanent, so it is crucial to test the contract thoroughly before deploying it.
Testing new smart contracts before deployment is important because once deployed, it will continue to run the code that you have written. Prevent mistakes by reviewing and testing the completed code thoroughly to ensure that it will function properly once deployed. Read more about getting help with smart contract formation.
Third, deploy the contract and interact with it.
You will need to deploy the contract to the blockchain network. This will make it live and accessible to anyone who has access or permission and wants to interact with it. The accessibility of the contract is part of the benefit of the transparency offered by smart contracts. To deploy a smart contract on Ethereum, you can send an Ethereum transaction containing the smart contract’s compiled code.
Note: Each transaction on Ethereum requires gas (ETH) fees because each transaction requires computational effort to keep the network secure. Refer to Ethereum’s website for details.
After the contract is deployed, you can interact with it using its public functions. These kinds of contracts are computer programs with functions that you interact with which can also check and do things. For example, this could involve sending transactions to the contract or calling its functions from other contracts.
Note: The details of implementing and interacting with each step of the contracted services will vary depending on the blockchain platform you are using and its programming language.
8 Tips for Creating Successful Smart Contracts
Creating and using a smart contract can seem daunting because the technology is new. These tips are for those who want to try implementing their own smart version of their agreement. Our tips are based on our experience and incorporate good contracting, software programing, and project management practices. You can follow these 8 tips if you are creating any type of smart agreement.
- Start with a clear definition of the problem: Define what you want to achieve with your contract, and ensure that your contract is designed to solve that specific problem. This problem could be anything from exchanging goods or services, to creating a decentralized exchange, to managing a shared economy platform.
- Keep the code simple: Avoid complex code and stick to simple, well-documented code. This makes it easier to understand, debugs the contract, and reduces the risk of vulnerabilities.
- Use established libraries and tools: Relying on established libraries and tools can help reduce the amount of custom code you need to write and improve the security of your contract. For most types of smart contracts, the established code libraries will be useful to help code the terms and conditions of the agreement. There are also developer tools available to help execute specific actions needed for your agreement.
- Test extensively: Test your contract thoroughly before deploying it to the main network. This helps to catch bugs and other issues early on and ensures that the contract will behave as intended. Contracts cannot be changed after deployment, so be sure to test.
- Consider contract operation costs: As mentioned above, users pay gas fees to run smart contracts on the Ethereum network. The various blockchain implementations provide many features without additional costs by only charging for the computer operating costs. Design your contract to be cost (gas) efficient to reduce operational costs for users.
- Follow established best practices: Familiarize yourself with established best practices for smart contract development, and follow them as much as possible. You can learn about best practices from developer groups, attending classes, and searching various trusted internet sources.
- Use formal verification methods: Formal verification methods can help you prove the correctness of your contract and ensure that it will behave as intended.
- Seek outside review: Have other developers review your code to identify any potential vulnerabilities or issues.
By following these tips, you can create smart contracts that are secure, efficient, and well-designed. However, it is important to keep in mind that creating smart contracts is a complex process and that professional help may be necessary to ensure success. Also note that with smart contracts, legal issues may exist, and you should consider speaking with an attorney to answer any questions of validity under the law.
Can Anyone Create a Smart Contract and Send an Offer Written Entirely in Code?
In theory, anyone can create a smart contract. However, the process of creating a secure and effective smart contract requires a certain level of technical expertise and understanding of contracts, blockchain technology, and smart contract development languages. So in reality, only anyone who can learn the necessary skills can create a smart contract.
5 Key Skills Required for Smart Contract Formation:
- Knowledge of the contract terms and conditions: The purpose of creating a contract in the first place is to detail the terms and conditions of an agreement. Therefore, details of the scope of work, the deliverables, and the steps/milestones/markers/event points need to be determined and detailed in the smart contract. Additionally, the creator of the contract needs to know how each of these terms and conditions of the agreement will operate electronically within the smart contract.
- Knowledge of blockchain technology implementation: A good understanding how blockchains work and how smart contracts fit into them is essential to successful smart contract formation.
- Knowledge of a smart contract programming language: The most commonly used languages for smart contract formation on Ethereum is Solidity and Vyper. Read more about smart contract languages on Ethereum. Note that there are other programming languages for writing smart contracts depending on the blockchain platform.
- Understanding of smart contract transaction security: Smart contract security is a complex issue. For successful smart contact formation, it is important to understand how to design contracts that are secure from vulnerabilities and exploits. Transactions occurring automatically should and can be secure.
- Experience with computer programming: Creating a smart contract is a complex process, so it is helpful to have experience with computer programming, compiling, testing, and deployment. There are many sources of help available, see below.
While anyone can theoretically create a smart contract, the learning time and effort may make it impractical. Therefore, it is advisable to seek professional help for smart contract formation if you do not have the necessary technical expertise. Working with an experienced developer or development team can help you create a secure and effective contract that meets your needs. Working with the right expert can likely help you learn how to create and use smart contracts as well.
Getting Help with Smart Contract Formation
If you do not have the technical expertise to create a smart contract yet, there are several ways you can get help to do it yourself or get a professional to do it for you:
- Use a development platform: There are several platforms, such as IBM Blockchain, OpenZeppelin, and Truffle, that provide tools and resources for developing and deploying smart contracts. These platforms can help simplify the process and make it easier to get started with smart contract formation.
- Join a developer community: There are several online communities focused on smart contract formation and how to create and implement them. Communities such as Reddit and Stack Exchange are good places for asking questions and getting help from experienced developers. These communities can be a great resource for learning about smart contract formation and getting advice on how to create them.
- Attend a workshop or course: There are workshops and courses available both online and in person that can teach you the basics of smart contract formation.
- Hire a professional developer: You can hire a freelance developer or a development team with experience in smart contract formation to consult and review your work or write and deploy a contract for you. These professionals will be able to guide you through the process and help you create a secure and effective contract that meets your needs or write one for you that meets your needs.
- Hire an experienced attorney: Considering the incomplete nature of the law regarding smart contracts, if there are any unanswered questions, consulting an attorney may be the best advice. Consulting an attorney may also be a wise decision for initial implementations of smart contracts even when using a contract developer to ensure that the contract is legal in the jurisdictions in which it will provide services. Seeking help from an attorney experienced in smart contracts is the best way to ensure that your smart contract is a smart and legal contract.