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How Ethereum Smart Contracts Work: For Beginners Guide in 2024

Smart contract programs are instruments that, when specific criteria are satisfied, can automatically carry out transactions without the assistance of a middleman business or institution. Even though the idea isn’t specific to any one platform or network, smart contracts are frequently connected with Ethereum, a blockchain that was created to support them.

In our digital lives, intermediaries are everywhere, whether it is visible or not. Even the simplest online sharing of a cat picture with pals needs the assistance of a middleman like Facebook or Twitter a centralized authority that not only controls the network but also establishes the rules and penalizes those who break them. Smart contracts enable the automation of these digital procedures and do away with the need for a central authority to monitor and approve the transaction.

Smart contracts are made possible by blockchains, which are networks of computers that collaborate to implement standards on a decentralized basis without the help of a mediator. Conventional contracts are written agreements between two parties that define their relationship and are legally binding. If Party A violates the terms of the agreement, Party B may sue Party A in court for breach of contract. A smart contract is used to enhance such agreements in code so that the rules are automatically followed without the need for courts (or any other external authority) to get involved.


The second-largest cryptocurrency in the world by market capitalization, Ethereum, was developed expressly for the creation of smart contracts in 2013. It is the most widely used platform for doing so as of right now. Outside of Ethereum, smart contracts aren’t commonly utilized, and some people doubt they’ll ever become a popular way to handle transactions. But Ethereum proponents think they might someday take over as the standard for establishing and protecting online relationships.

Existing smart contract-using apps number in the hundreds. MakerDAO and Compound, two well-known Ethereum applications, leverage smart contracts as the foundation of their lending and interest-earning features. Computation researcher and cryptographer Nick Szabo first proposed the concept of a “smart contract” in 1993 and compared it to a type of digital vending machine. He gave the classic example of how customers might input $1 and then obtain a snack or soft drink from a machine.

Smart contracts are similar in that the user should be able to anticipate a specific result (the selected drink) with a specific input (the $1). In a straightforward illustration of an Ethereum smart contract, a user gives a friend 10 ether (the cryptocurrency’s native token) but stipulates that it must wait until after a specific date before being distributed.

A Smart Contract Is What?

Simply said, a “smart contract” is a piece of code that executes on the Ethereum blockchain. It is a set of functions and state-related data that are stored at a specific location on the Ethereum distributed ledger.

A particular class of Ethereum account is smart contracts. They can now be the subject of transactions because they have a balance. However, they are not user-operated; rather, they have been placed on the internet and run according to programming. Then, user accounts can communicate with an intelligent contract by making transactions that carry out a smart contract function. Like a standard contract, smart contracts can establish rules and have the system automatically enforce those rules. It is not possible to erase smart contracts by default, and relationships with them

An executed contract Is what, then? In terms of smart contracts, an executed contract is an agreement that has been successfully implemented into the smart contract. The contract is deemed to have been executed after all of the requirements outlined in the smart contract’s code have been satisfied. Smart contracts, made popular by the Ethereum blockchain, have given rise to a variety of decentralized apps (DApps) and other use cases on the network.

The automation of processes that previously required a third-party mediator is one of the main advantages of blockchain networks. A smart contract, for instance, enables automatic financial transfers from clients to freelancers without the requirement for a bank’s approval. Time and money are saved as a result.

Why use Smart Contracts on Ethereum?

Even though they are rather limited in compared to Ethereum, basic smart contracts were originally supported by Bitcoin, the first cryptocurrency in the world. Each purchase made is a smart contract since the network of computers will only accept it if certain requirements are met, such as the user submitting a digital signature demonstrating that they own the Bitcoin they claim to. Such a digital signature can only be created by the owner of a Bitcoin private key.

On the contrary, Ethereum substitutes the more constrictive language of Bitcoin with language that enables developers to perform transactions other than financial transactions on the blockchain. The programming language is “Turing-complete,” which means that a wider range of computational instructions are supported. There are no restrictions on the types of smart contracts that programmers can create.

This has clear benefits, but it also means that weaknesses are more likely because novel smart contracts haven’t been as well evaluated. Millions of dollars have already been lost by Ethereum due to smart contract flaws that were exploited.

In what ways are Smart Contracts Employed?

When a smart contract is deployed, it is first compiled and then translated into bytecode. The blockchain is then used to store this bytecode, and an address is given to it. The person whose address created the contract (the “sender”) and how numerous transactions that individual has sent (“nonce”) are used to calculate the contract address. The keccak-256 technique is used to RLP encrypt and hash the address of the recipient and nonce.

Utilizing the Ethereum Remix IDE, smart contracts—the majority of which are written in Solidity—are frequently tested and deployed. A free and open-source web-based IDE for smart contracts built on Ethereum is called Remix IDE. Let’s get started and look into utilizing the Remix integrated development environment to deploy a contract. On the Sepolia Testnet, we’ll release our contract. We’ll need some test ETH for that. To start, you’ll need to construct an ETH wallet using the MetaMask browser plugin and some practice ETH.

Visit the QuickNode Faucet to obtain test ETH. Choose the Sepolia Testing Networks on your MetaMask digital wallet after connecting your wallet. The “Wallet Address” section needs to be prefilled with your wallet address. If you share your test ETH on Twitter, Nex, click “Continue” and you can double it in the following stage. In a few minutes (longer if the network is busy) you ought to have your test ETH in your wallet.

How Do Smart Contracts Perform?

• From the Remix IDE, we can interface with the smart contracts. Click on Get Count after expanding the agreement within the “Deployed Contracts” column. The beginning value of the count will be displayed as zero.

• Tap on increments to raise the count’s value by one. We must pay the gas price because this is a writing task (we will be writing to a blockchain rather than merely reading from it). In MetaMask, confirm the transaction.

• When the transaction is finished, click Get Count once more to see the count value has grown by 1. We are changing the chain’s count value and then querying the new value.

• Several Ethereum tools can be used to communicate with the contracts; here is an example in Ruby. You’ll require the smart contract address and the ABI (Application Binary Interface) for that. The types and functions utilized in the agreement are defined by the ABI.

Background of Smart Contracts Through Time:

Unbelievably, smart contracts existed long before blockchain technology. Although the most well-known use of the protocol, Ethereum, was launched in 2014, cryptographer Nick Szabo first proposed the concept back in the 1990s. The idea for Bit Gold, a digital money, came from Szabo at the time. Despite never having been released, Predecessor emphasized the application case for smart contracts: secure online transactions.

However, it wasn’t until the late 2000s, with the introduction of blockchain technology, that smart contracts began to receive significant attention. Building trustworthy, decentralized networks without a centralized authority is now possible thanks to blockchain technology. The first blockchain network to support smart contracts was Ethereum.

The Ethereum website and many others liken smart contracts to a vending device. Without a real human to receive the payment and deliver the goods, vending machines fulfill the function of a vendor giving the customer a product. The same function is served by smart contracts, but they offer far more flexibility. Eventually, smart contracts have made significant advancements.

They began as straightforward if-then statements that a programmer could build and use. These days, they are employed in a wide range of applications, such as voting systems, real estate transactions, and supply chain management. The creation of smart contracts is a fascinating area of innovation in the blockchain industry because of how much they have the potential to revolutionize how people do business and interact with one another.

Smart Contract Advantages:

As explained in the sections below, smart contract blockchains offer several advantages, including speed, efficiency, accuracy, trust, transparency, security, and savings. Smart contracts use technological protocols to regulate processes, streamlining many business operations and reducing time-consuming labor. The possibility of third-party fraud is greatly decreased by doing away with the requirement for intermediaries like brokers to confirm signed legal contracts.

In addition to reducing risk, smart contracts’ lack of middlemen also results in cost reductions. Once the contract is signed, all pertinent parties are held responsible and have total visibility as well as exposure to its terms and conditions. By doing this, the transaction is guaranteed to be open and non-negotiable, fostering confidence as well as responsibility among all parties involved. Furthermore, every document stored on the blockchain is duplicated numerous times, making it possible to recover the initials in a situation of data loss. Smart agreements have been secured, and encryption prevents tampering with all papers. Last but not least, smart contracts also get rid of mistakes brought on by manually filling out various forms.


Hey there on finishing the race! You are now aware of how the Ethereum Virtual Machine operates. You are aware of how to set up the Ethereum Remix IDE for developing and testing smart contracts. You learned how to obtain test ETH, created a smart contract, and deployed it on a test network. Additionally, you learned how to write to blockchain and use Remix IDE to interface with smart contracts.


How do you make Money From the Ethereum Smart Contract?

One way to maximize your earnings using smart contracts is by participating in DeFi protocols. These are blockchain-based financial applications that allow users to earn passive income through lending and borrowing, staking, trading crypto or tokens, and other activities.

How Does Ethereum Run Smart Contracts?

The way smart contract development works under Ethereum is that developers write smart contract code in Solidity as a text file. Then, they use a tool called the Solidity compiler (solc) to transform the Solidity text into a bytecode that the EVM can understand.

How many Smart Contracts are on Ethereum?

44 million smart contracts

Ethereum and smart contracts are the most important terms in the blockchain and web3 landscape. The Ethereum blockchain has over 44 million smart contracts deployed on the platform, with the potential for addressing many other new use cases.

What are the 4 Major Parts of a Smart Contract?

These basic components are the properties (static and variable), the logic, and the ledger. Each of these components can be mapped directly into technical concepts. Properties represent a data schema, logic represents code, and the ledger corresponds to a database.

Can I Earn with the Smart Contract?

Smart contracts allow you to automate payments and revenue sharing, which can help you earn revenue from your dApp without manually managing transactions. Another unique opportunity is using decentralized finance (DeFi) protocols.

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