The Role Of Smart Contracts In Cryptocurrency Creation

Crypto smart contracts are a type of digital agreement, which are executed automatically when a task assigned to it is completed. These agreements are built on blockchain technology, therefore they don’t need any intervention from an intermediary. 

When it was first introduced, many people used to view smart contracts as a form of convenience in crypto-based project executions. However, gradually, due to how much they have evolved, these digital contracts are improving the crypto ecosystem by – 

• Powering decentralized applications (dApps).

• Creating new financial models like decentralized finance (De-Fi).

But how do they work or get executed? And why are they considered to be so reliable? Let’s find out. 

Smart Contracts – A Brief Overview 

In a smart contract, the terms of a project or agreement are written into a code and stored in a blockchain. If you meet the predefined conditions, the contract will be completed without a middleman, with no delays or hidden fees. 

These contracts usually rely upon distributed ledger technology to ensure transparency and security. Also, as these contracts operate in a decentralized system, they’re protected against fraud. 

Ethereum smart contracts are great examples of these agreements, as they helped create decentralized applications (dApps). In this case, developers have to write code in Solidity (the programming language used in Ethereum) to automate various tasks like – 

• Financial transactions 

• NFT sales 

• Supply chain tracking 

Due to being a part of blockchain-enabled transactions, smart contracts reduce the need for manual processing, errors, and expenses.  

How Smart Contracts Facilitate Cryptocurrency Creation? 

Crypto smart contracts usually focus on streamlining token creation without needing an entirely new blockchain. With these, developers use established platforms like Ethereum to launch their crypto coins instead of building everything from scratch. This also allows them to reuse the pre-existing blockchain technology, infrastructure, and security. 

Here’s how a developer can use smart contracts to facilitate cryptocurrency creation –  

1: Defining A Token Behavior 

With smart contracts, you can define your new cryptocurrency’s behaviour, including its supply, burn mechanisms, and transfer rules. Standards like BEP-20 (Binance) and ERC-20 (Ethereum) also offer a blueprint for token functionality. Using these can help you ensure compatibility with different digital wallets and exchanges. These also allow thousands of tokens to exist on a single blockchain. 

2: Maintaining Trust And Transparency 

Crypto smart contracts are usually stored on a blockchain ecosystem, which is immutable and transparent. So all parties can see the terms of the contract and check as each step is completed gradually. Once the contract is recorded, it cannot be changed or tampered with. 

3: Cryptocurrency Network Governance 

Thanks to smart contracts, many blockchain projects can allow users to use governance tokens to vote on decisions. This creates a decentralized and community-driven ecosystem while maintaining a sense of trust and transparency between everyone. 

4: Smart Contract Interoperability 

Projects like Cosmos and Polkadot use a specific blockchain-based system to connect different blockchains. This enables smart contracts to interact across different chains. For example, if a contract is created on ETH, it can also function seamlessly on Solana – which would make cross-transactions much more secure and efficient. 

Advantages Of Using Smart Contracts For Crypto Creation 

Smart contracts are all about making processes more efficient, secure, and decentralized. Here’s why the adoption rate of these digital agreements has become so popular in tech verticals. 

1: Transparency And Trust 

Whenever a smart contract executes a contract, it gets recorded on a public ledger, which increases transparency between the users. The blockchain network’s nodes also verify each transaction before adding it to the blocks to prevent the risk of double-spending.  

2: Better Security 

Smart contracts run on blockchain technology, which makes them immutable and unchangeable. This, in turn, prevents fraud and ensures that each crypto transaction follows the exact rules coded in the contract. There’s no space for a shady middleman or hidden loopholes.  

3: Automation 

Traditionally speaking, launching a financial product requires legal contracts, intervention of banks, and tons of paperwork. However, you can eliminate all these barriers with smart contracts by automating each and every process on the blockchain. As there’s no involvement of an intermediary here, you can also save on a lot of expenses. 

4: Simplified Token Creation And Management 

With smart contracts, you can also create tokenized assets effortlessly. Whether you’re working on a utility token for a De-Fi platform or an NFT collection, you can use ready-made standards like BEP-20 or ERC-20 to launch your token without extensive coding knowledge. 

Challenges Of Smart Contracts In Cryptocurrency Creation 

Smart contracts can be an excellent option if you’re considering launching cryptocurrencies. However, they still have their own flaws. For example – 

1: Execution-Related Vulnerabilities

It's been five years since the infamous #DAO hack in 2016 when $50 million worth of cryptocurrencies was stolen. This became the starting point for two parallel ways of #Ethereum development – standard and classic. https://t.co/Ue7bpFecuY

— PixelPlex (@pixelplexinc) August 12, 2021

Once you’ve deployed a smart contract, it cannot be changed anymore. While this immutability offers excellent security, you also won’t be able to patch it easily if it’s bugged.  

DAO hack in 2016 is a prime example of this where the hackers exploited these execution-related vulnerabilities to steal $60 million worth of Ethereum.  

2: Issues With Distributed App Development 

If, for example, your business still relies upon a centralized database, it won’t communicate well with blockchain-based applications.

This might make it challenging to develop distributed apps, as developers will struggle to bridge the gap between new and old technologies.

As long as blockchain doesn’t get mainstream adoption, creating smart contract-powered apps will be difficult. 

3: Automation-Related Limitations 

Smart contracts work quite efficiently for predefined actions. However, they lack flexibility. So, in some cases, real-world scenarios of executing projects can become complex and may require assistance from human judgment.

For example, if a contract has been re-negotiated by both parties, it will be impossible for someone to change the smart contract again due to their immutability.  

Case Studies: Smart Contracts In Crypto Creation 

In this section, we’ll discuss some real-world applications of smart contracts and how they have changed the crypto creation landscape effectively. 

1: ETH And ERC-20 Token Standard 

EVM, or Ethereum Virtual Machine, is a powerful tool used to deploy smart contracts. With it, developers can create decentralized applications and tokens, even if they don’t have extensive coding language.

World-renowned projects, like Uniswap, Chainlink (LINK), and Tether, (USDT) use Ethereum’s smart contracts for creating, transferring and governing tokens. 

2: Binance Smart Chain And BEP Tokens 

While Ethereum was the pioneer of smart contracts, BSC took the idea even further by offering faster and more efficient transactions with lower fees. Projects like SafeMoon and PancakeSwap are using BSC’s smart contracts to create tokens that support – 

• Staking  

• Liquidity pools  

• Governance of digital assets 

The Bottom Line – The Future Of Smart Contracts In Crypto 

Since they were introduced, smart contracts have entirely transformed the process of cryptocurrency token creation by making it faster, more secure, and fully automated. They are not only a passing-by trend but the backbone of cryptocurrency’s future. 

The only question is – how far can they take us? Hopefully, we’ll get the answer soon, or maybe a new invention in the crypto market will sway us away from them.