Ethereum is a decentralized blockchain platform, ranking second in popularity and market capitalization after Bitcoin. Thanks to blockchain technology, users have gained access to new financial opportunities — from secure storage of funds to instant transfers. However, cryptocurrency is not only about investments. Ethereum enables the deployment of smart contracts, which form the foundation of a new decentralized economy. These contracts automate escrow, lending, and other operations, eliminating intermediaries. In this article, we will explore in detail how Ethereum smart contracts work, their features, benefits, and prospects.
How do Ethereum smart contracts work?
Vitalik Buterin initially created Ethereum as a platform where developers could build decentralized applications with predictable and immutable behavior. Each smart contract is a piece of code that implements the terms of an agreement. The process resembles a vending machine: the user performs an action, and the systеm responds automatically.
Key stages of a smart contract operation:
- Forming a transaction with terms (“if…, then…”).
- Sending the terms to the blockchain, confirmation by nodes.
- Execution: funds are locked until conditions are met.
- Sanctions applied for non-compliance.
- Recording the result in the blockchain.
To create a smart contract, you need to register a wallet, sеlect the Ethereum network, write code (e.g., in Solidity), test, and deploy it. Basic programming knowledge is recommended.
Where are Ethereum smart contracts used?
Smart contracts accelerate business processes and eliminate the need for personal presence during transactions. They are used in logistics, finance, leasing, voting, and even aviation. For example, in logistics, smart contracts reduce errors through automated processing of large supply data volumes.
Key features of Ethereum smart contracts
- Using Solidity language for contract and application development.
- Multipurpose platform structure — Ethereum is not limited to cryptocurrency.
- Transparency: participant data is verifiable.
- Requires ETH gas fees.
- Speed: around 3-5 transactions per second.
Solidity allows developing smart contracts compatible with other dApps, making Ethereum a flexible platform for decentralized solutions.
Applications and examples
Since 2020, smart contracts have been widely integrated into corporate systems. Examples inсlude:
- Commerzbank automated supply payments.
- Sberbank used smart contracts for stock transactions.
- BASF uses Ethereum for instant partner payments.
- Russian Railways automates freight transport.
Ethereum is also used by major companies like Mercedes, Walmart, and Nestle.
Ethereum ERC-20 protocol
ERC-20 is a standard for creating tokens on Ethereum. Its advantages:
- No separate blockchain needed for tokens.
- High transaction security.
- Full compatibility of all ERC-20 tokens.
- Flexible management — freezing, unfreezing, gas auto-refill.
- Liquidity — widely used in projects like USDT and USDC.
Advantages of smart contracts
- No intermediaries and lower fees.
- Security through blockchain data storage.
- Reliability — contracts cannot be lost.
- Transparency of actions and terms.
- Saving time and resources.
Gas fees are paid in ETH, depending on network load.
Issues and limitations of smart contracts
- Code errors are permanent — new contracts must be deployed.
- ETH is required to participate.
- Cannot hide participant data.
- Off-chain information needs trusted sources.
- Contract actions are limited by miner verification.
- Terms cannot be changed after deployment.
The future of Ethereum smart contracts
Ethereum smart contracts can integrate with digital assets and IoT devices. They are widely used to automate startups, record investor contributions, distribute tokens, and simplify asset management. Decentralization and automation are the key benefits shaping the future of this technology.