Smart contracts in Ethereum are a new step in the development of the global crypto-economy. No papers and notarization, only a digital description of the process of moving funds from investors to startup initiators.

 

Compared to other electronic payment systems, the process of cryptocurrency circulation in the Bitcoin network is extremely simple. Users transfer coins to each other and the coin does not perform any other functions. The Ethereum payment network is fundamentally different. For example, on this platform, you can use a program that automatically collects money to solve a particular task.

What are smart contracts in Ethereum?

In fact, we are talking about a special category of programs. They work on the principles of blockchain on a decentralized platform. After launch, such a program is immediately available to all Ethereum users and remains forever. As a result, each smart contract has no reverse motion, it cannot be changed.

What the program can do:

  • accept money from other wallets without the participation of the developer;
  • decide where to send the collected coins;
  • create auctions, etc.

Since the program is executed identically for each network member, the level of trust in Ethereum is very high.

Examples of using smart contracts

In the past, there were known cases of using Ethereum to build financial pyramids. In addition, casinos and lotteries were opened on the basis of Ethereum. Recently (early 2022), it has become popular to organize fundraising for various startups.

A smart contract automates accounting operations, for example:

  • remembers all receipts of funds from investors;
  • charges each payer a predetermined number of “shares”;
  • delegates to investors the right to transfer and sell shares.

The benefits of such a scheme are easy to appreciate if you remember how difficult it is to get funding for a startup with a loan from any commercial bank. Moreover, each investor is 100% protected from additional issuance of “shares”, as well as from fraudulent resales of the same “share” to several buyers.

Restrictions

Main restrictions:

  • it is difficult to make the lottery 100% unpredictable, as a result, sometimes the jackpot is calculated mathematically;
  • it is difficult to hide the list of participants in the auction and the size of their bids;
  • due to the fact that the program error cannot be corrected after its launch, the smart contract may freeze or not work as planned;
  • interaction is carried out only through ETH, so participants cannot do without wallets on the Ethereum platform;
  • the speed of the programs is limited, on average up to 5 transactions per second