How Does A Smart Contract Work On A Blockchain Network

How Does A Smart Contract Work On A Blockchain Network


Blockchain technology is a crowning achievement of computer and cryptographic advances, quickly gaining popularity due to its ability to upend existing institutions and industries. One of the most exciting evolutions of blockchain is the advancements in Smart Contract technology after Bitcoin and Digital Currency. A self-executing technology in which the contents of the buyer-seller agreement are written directly into lines of code. Smart Contracts are the same as traditional contracts, but the difference is that they are in digital form and stored on a blockchain. As a result, there will be a predictable output for any given set of inputs.

Smart contract use-cases include financial applications like trading, investing, lending, and borrowing. They can also be used in a range of industries, such as healthcare, gaming, and real estate, and build new businesses.


Evolution Of Smart Contracts

Nick Szabo coined "Smart Contract." even before the establishment of bitcoin. His work created the groundwork for Smart Contract technology. This software program uses the blockchain to add layers of information to digital transactions.

Ethereum is one of the first and most widely used blockchain projects, focusing on smart contract capabilities. Ethereum is currently a Proof of Work blockchain network that houses the Ethereum Virtual Machine (EVM) to handle complex and customizable Smart contracts. Developers create applications on the EVM via Solidity, a programming language for writing smart contracts. Since then, there has been a wide variety of projects that focus on implementing Smart Contract technology, such as Polkadot, Solana, EOS, and Binance Smart Chain.

Life Cycle Of Smart Contracts

The four significant steps of a smart contract's lifecycle are the creation, deployment, execution, and completion of the smart contract.

Creation Of Smart Contracts

During the creation phase, the parties involved in the contract will identify the contract's purpose, goals, and key terms and frame an agreement after several rounds of discussions and negotiations. Lawyers or counselors assist the counterparties involved in the smart contracts in drafting a first contractual agreement. Software developers will convert the agreement made into a smart contract written in solidity. This contract is published to the distributed ledger when the parties have agreed on its codified form. Nodes in the distributed ledger receive the contract as part of a transaction block during this phase. Once most nodes have validated the block, the contract is ready to be executed. Since smart contracts are immutable, we cannot change them once deployed on the blockchain, and any changes will demand the creation of a new one. That is why the developers need to check their code before deployment. Some of the best practices a developer should follow after the development of smart contracts are as follows:

Manual Testing

During this phase, the smart contract will undergo testing on the testnet, with all transactions and state changes documented to ensure that the smart contract behaves as intended. Manual Testing is one of the most fundamental testing processes. It can find both visible and hidden defects of smart contracts. Any difference in the contract execution is a defect, and the developer needs to fix it.

Unit Testing

One of the most crucial aspects of any smart contract-based protocol is unit testing. It is an automated method that verifies that each Smart Contract function performs appropriately. The best tools that aid developers in unit testing are OpenZeppelin test helpers, Chai framework, and Truffle test helpers.

Security Audit And Penetration Testing

Even though the business logic of smart contracts has been tested numerous times on the test net, it cannot be deemed as a safe contract as hackers can always find a way to exploit potential security loopholes and vulnerabilities. They can either corrupt a smart contract or a blockchain platform, allowing them to steal thousands or millions of dollars.

Security audits and penetration testing aid in discovering potential vulnerabilities in smart contracts. Here are some tips for performing a Security Assessment and penetration testing.

  • Conduct a static analysis of your code to find inconsistencies in style and code.
  • Conduct a security study on your smart contract using trusted security tools.
  • Examine all vulnerabilities listed on the SWC Registry.
  • Make a detailed report on the discovered vulnerabilities in your system and recommendations for how to remedy them.

We at BlockChainSentry have developed a Smart Contract Vulnerability Management System that is user-friendly and provides a centralized management dashboard for security and management teams to ensure that no vulnerability or security flaw goes undiscovered.

Deployment Of Smart Contracts

The smart contracts, after validation, will be deployed on platforms built on top of blockchain- furthermore, the digital wallets of both parties are frozen. Any transfers to the smart contract's wallet address are prevented during this phase. The nodes act as a governance board, ensuring that the contract's execution preconditions are fulfilled.

Execution Of Smart Contracts

The contractual clauses have been reviewed and analyzed following the deployment of smart contracts. The contractual procedures will be automatically implemented once the contractual requirements are met (for example, transfer of value). It's worth mentioning that a smart contract is a series of declarative statements linked by logic. When a condition triggers, the appropriate message is automatically performed, resulting in transaction execution that blockchain miners validate.

Completion Of Smart Contracts

After executing a smart contract, all nodes involved are updated with new states. As a result, blockchains contain the transactions that occur during the execution of smart contracts and the changed conditions. The digital assets are transferred from one party to another. As a result, the frozen digital assets in the deployment phase are unlocked. After which, the smart contract finishes its whole life cycle.

Significance Of Smart Contract Security Assessment

Smart contracts technology is taking a fresh lease on life through applications including non-fungible tokens, the DeFi system, record-breaking investment, and market capitalization.

However, many systems that run on smart contracts are being compromised due to poor smart contract implementation throughout the Software Development Life Cycle (SDLC), inadequate security mechanisms, and vulnerability exploitation.

Smart contract security efforts begin before the first line of code is written – during the planning, design, and development phases and conclude with protecting smart contracts from cyberattacks and potential vulnerabilities.

Smart Contract Vulnerability Management Tool - BlockChainSentry

BlockChainSentry is a safe platform for managing smart contract security. It's a stand-alone application that does Smart Contract vulnerability evaluations by identifying vulnerabilities at various stages, reporting the severity of vulnerabilities, and providing remedies to patch them immediately. Moreover, the BlockChainSentry assessment process includes scanning smart contracts with Smart Contract Addresses and Bytecode and many other scanning options for Ethereum solidity smart contracts.

BlockChainSentry vulnerability management scan gives a complete analysis of detected vulnerability

  • Vulnerability details
  • Vulnerability impact, severity, common vulnerability and exposure (CVE), and potential Loss
  • Steps to reproduce
  • Steps to fix and remediate

The next-generation blockchain opportunity is not about only empowering people through distributed governance and technology; it's also about better security.