How to Create a Smart Contract on Ethereum?

Bitcoin is the king of cryptocurrencies and successfully copes with the task of daily currency transactions. But what if we use the same decentralized networks not only for payment transactions but also for the distributed operation of software?

For this, a special program object is created – a smart contract. Such programs are recorded in the blockchain and are remembered forever. All network members have a copy of it. At the same time, the work of the contract can be combined with the management of monetary transactions: the creation of an auction, a bet, a lottery, a game with a financial reward, etc.

In addition, smart contracts are great for automating startup accounting: the contract itself can remember who and how much money came from and determine further actions for investors. At the same time, all network participants see the total number of shares and the distribution among the participants – the blockchain protects against hidden speculation.

Writing Smart Contracts built on Ethereum

Ethereum launched quite recently, on July 30, 2015. One of its creators was Vitaliy Buterin, who is now well-known in the blockchain community. He was born in Russia but has lived in Canada since six. When he laid out his ideas, which eventually formed the basis of the Ethereum network, he was 19 years old.

So, what’s the idea of a smart contract? In the Bitcoin network, everything is arranged quite simply from the user’s point of view. There are wallets, and you can transfer money from one wallet to another or several at once. The network is built on ingenious principles that make it possible to do without a single center, but the tasks are solved quite classically. 

But you can create a payment network that allows you to write programs that would work with wallets, accept money from wallets themselves, decide who to send how much, and so on. With an important condition: for all users, each such program will work according to known principles, predictably, equally, transparently, and so that no one can change it.

The creators of Ethereum just added the ability to create such programs to the basic functionality of cryptocurrencies. All wallets in Ethereum are divided into two types: those managed by people and those operated autonomously by programs.

Programs – they are called smart contracts – are recorded on the blockchain development environment. Thus, this program is remembered forever, all network participants have a copy of it (after all, the blockchain is the same for every smart contract), respectively, and the smart contract is also executed identically for everyone. And this innovation has significantly expanded the scope of blockchain currencies.

Benefits and Applications of Smart Contract Code

Digital contracts greatly save time in business processes. The operations take a few minutes to complete. No need to visit various organizations and get help; make a couple of mouse clicks. Other benefits of smart programs include:

  • Safety. The transaction record is stored on the blockchain. It cannot be changed or deleted.
  • The absence of intermediaries. No need to involve a specialist who will act as a guarantor of fulfilling the terms of the agreement.
  • Reliability. Unlike a paper document, a digital contract cannot be lost or damaged.

Experts say: you can automate anything, but it will be expensive and pointless. Using the Ethereum smart contract for typical operations is reasonable and is easy to track (logistics, guarantees, royalties, and others). There are many more applications for blockchain programs: investments, voting, notaries, lotteries, ticket sales, aircraft refueling, and others.

Limitations of Smart Contracts and Ethereum Development

But there are significant limitations. Here are some of them:

  • Getting random numbers and other uncertainties in a program is very difficult. In some lotteries, smart participants manage to “guess” the jackpot.
  • It is not so easy to “hide” some information—for example, a list of bidders or their bids.
  • If the contract requires information, not in the blockchain (for example, the current exchange rate of some currency), then someone trusted must add this information to the blockchain.
  • To interact with contracts, users need Ethereum – this is the internal currency of Ethereum. You can not arrange a vote among those who do not yet have wallets with money.
  • Smart contracts work quite slow. You can perform 3-5 transactions per second for the whole world.
  • Smart contracts usually perform few actions because, in the blockchain, each miner will have to repeat these actions and verify the result. Suddenly he will have a slow computer.
  • If there are errors in the smart contract, then this is forever. The only way to correct the error is to switch to another smart contract, but only if the possibility of withdrawing money and such a transition was provided for in the program from the beginning. As a rule, very few people give this.
  • Smart contracts can freeze or not work as everyone expected because they did not understand the program code to deploy Ethereum smart contracts.

In other words, as in other areas, much depends on the professionalism of the authors of the contracts.

Ethereum Smart Contract – Principle of Operation

The action of a smart contract can be compared to the function of a vending machine: deposit money, press a button, and get your can of Coca-Cola. This is faster and more reliable than if a person were involved in the sale of drinks. The digital contract execution scheme can be divided into several stages:

  1. The user creates a transaction in which the terms of the transaction are specified according to the principle “if … then …”. For example, if the buyer sends ten coins to the seller, they will receive a box of chocolates.
  2. The transaction is sent to the blockchain, which is served by nodes (nodes). Once confirmed by both parties, it cannot be changed or deleted.
  3. When the buyer fulfills the contract terms (the money is transferred), the seller sends him a conditional box of chocolates. The system blocks the payment until the recipient confirms the delivery of the goods.
  4. The conditional box of chocolates will not reach the buyer if the nodes do not record the money transfer. The guilty party will be fined in the amount determined by the terms of the smart contract. The same sanctions may apply to the seller if he sends a different product than the agreement.
  5. The result of the operation (execution or cancellation) is recorded in the blockchain.

Ethereum Smart Contract Development

Usually, smart contracts are created based on Ethereum because it is a reliable crypto platform. A feature of the Ethereum platform is already ready-made templates. The main purpose of creating smart contract templates is that there is no need to write the entire program code. Instead, enter the transaction’s parameters in the specially designated fields and confirm its deploying smart contracts. Some of the tools from the Ethereum website client application are suitable for creating and deploying Ethereum smart contracts.

Smart contracts are mandatory when organizing an ICO. Trained people write contracts – they obviously can’t do it independently on any suitable programming language.

Oracles and Smart Contract

After performing the specified actions, they are written to the block and become part of the distribution chain. The peculiarity is that the attached blocks cannot be changed and deleted.

Therefore, a smart contract needs to perform the sequence of actions correctly. The blockchain is isolated from the outside world.

And for executing a smart contract, receiving data from the outside, that is, the input of initial information is necessary. They can be user identifiers, the rate of the crypt, and the fact of confirming the operation.

Therefore, an important element of a smart contract is an oracle. This role can be played by:

  • hardware that sends digitized data to the blockchain, such as measuring instruments, sensors, buttons, sensors;
  • validators or miners, i.e., participants of the blockchain that support the operation of the distributed ledger; software add-ons on the blockchain;
  • They may have a consensus algorithm of programming language that differs from the basic one to create all the smart contracts. 

Varieties of Smart Contracts

Distributed information systems use different smart contracts. They depend on the platform and the criteria by which the classification takes place:

  • centralized or decentralized script execution environment;
  • completely anonymous, partially or completely open execution of the contract;
  • Limited or pre-installed script initiation mechanism.
  • Thanks to smart contract methods, Ethereum has become not just another cryptocurrency in a series of many but one of the most promising projects.

In the case of a simple smart contract, there is only a buyer, a seller, and a computer algorithm.

Smart Contract Vulnerabilities

Smart contracts and developing smart contracts are still in their experimental stage of development. Therefore, it is almost impossible to foresee all possible bugs when creating them. At least for now. And critical mistakes can often lead to irreparable consequences.

  1. The legal regulation of this sphere still leaves much to be desired.
  2. Much work remains to be done in improving oracle programs and owning smart contracts.
  3. Blockchain technology itself also needs to be improved. In particular, the issues of transaction processing speed and scalability are more relevant than ever.
  4. Lack of flexibility – all conditions are pre-programmed. In some cases, the previously declared advantage in immutability can turn into a disadvantage. For example, if an error is made when entering data, it is impossible to correct it.
  5. It is also possible that the data can be spoofed on an external source of information.

The fact that it is still possible to pay only with cryptocurrency prevents their wide distribution. And for many reasons, this is inconvenient for serious business logic.

Smart contracts and Ethereum in Simple Words

Many have heard about Bitcoin, which is unsurprising – this cryptocurrency was the first and remained the most popular and largest. Bitcoin’s success inspired many people to exploit it, so over the past couple of years, different cryptocurrencies – the so-called altcoins – have created horror, how much more than 1000.

So, Bitcoin is number one at the moment. Do you know which cryptocurrency is in second place? Ethereum smart contract. When we talk about places, we mean capitalization, the total value of all currency coins.


The prospects for smart contracts are truly enormous. They can radically change many areas of life: from real estate to gambling, insurance, gas cost, supply of goods, and voting. However, only when their work is repeatedly tested and predictable. So far, everything is at the experimental stage.

In addition, the introduction of smart contracts should be smooth because their massive and abrupt use will leave many people without work: registrars, notaries, and bank employees.

However, just as machines once drove workers out of production, in the foreseeable future, new technologies will replace living people in many professions. It’s just a matter of time.

Experts are sure that already in 2021, both large corporations and entire states will recognize blockchain technology and its huge potential.


We have considered what smart contracts are in simple terms, and it is worth noting that despite the problems listed, the overall situation with the development of this technology is actively positive. Over the past 2-3 years, several global technology and software updates have increased the network’s speed and the level of security for executing transactions.

Writing smart contracts is one of the newest trends in the IT field. Such a contract is an electronic type protocol that was created using computer code. Its essence is to transfer data and develop smart contracts as a guarantor of the fulfillment of the conditions by the parties.


What is an Ethereum Virtual Machine?

The Ethereum Virtual Machine (EVM) is a complex, dedicated software virtual stack that executes contract bytecode and is integrated into each entire Ethereum node.

What object-oriented programming language are smart contracts written in?

To create programs on the Ethereum network, the universal language Solidity programming language is most often used. However, smart contracts can also be written in C++ (EOS, XRP) and JavaScript (Ethereum javascript API).

How is the security of digital contracts ensured?

Personal blockchains have all the characteristics of the main Ethereum network. Ethereum smart contracts are transparent, predictable, and immutable.

What do I need to deploy smart contracts?

To deploy your smart contract onto the Ethereum Mainnet, you will need to spend real Ether, hence you need to create an account first. There are two kinds of Ethereum accounts, namely ‘EOA’ and ‘Smart contract accounts’.

What wallets can be used to create a personal blockchain?

The official Ethereum wallets are MetaMask and MyEtherWallet.