Smart Contracts

What Is a Smart Contract?

A smart contract is a program stored on a blockchain that automatically executes predefined rules without relying on intermediaries. Instead of traditional legal language, the terms of the agreement are coded, and actions—such as transferring assets or recording information—are triggered when specific conditions are met.

A blockchain functions as a shared public ledger maintained collectively by participants. Once data is recorded, it is stored across the network and becomes extremely difficult to alter. After deployment, a smart contract’s execution and results are transparent and verifiable to all. Ethereum is one of the leading networks supporting smart contracts, enabling developers to encode business logic directly on-chain.

How Do Smart Contracts Work?

Smart contracts are executed when triggered by a “transaction.” In this context, a transaction refers to an on-chain request sent to the contract, containing parameters and transaction fees. Once received, the network processes the request, executes the logic, and updates the contract’s state.

Execution requires payment of Gas—the pricing unit for computation and storage on the blockchain. Users pay gas fees with on-chain tokens to deter spam and compensate validators. The total fee depends on the complexity of the code and current network congestion.

The actual execution takes place in an environment called the EVM (Ethereum Virtual Machine), a secure sandbox where each node processes inputs and steps identically to guarantee consistent results. Smart contracts maintain critical “state” data on-chain and broadcast outcomes through “event logs,” making it easy for blockchain explorers to track activity.

What Can Smart Contracts Do?

The most common use of smart contracts is automated asset settlement and escrow. For example, multi-signature escrow releases assets only when multiple parties approve, reducing single points of failure.

In trading scenarios, contracts can match orders or price assets algorithmically, enabling decentralized exchanges and settlement without intermediaries. In lending use cases, contracts automatically issue loans and liquidate collateral based on predefined ratios, removing delays from manual approval. For NFTs, smart contracts mint unique digital certificates as assets, managing both trading and royalty distribution.

On deposit pages at Gate, many tokens display their “contract address,” which points to the token’s corresponding smart contract—helping users verify that the blockchain and asset match. Using Gate’s Web3 wallet, users can interact directly with smart contracts for transfers or decentralized application participation.

How Are Smart Contracts Deployed and Invoked?

Deploying a smart contract on-chain involves development, deployment, and invocation:

Step 1: Set up your environment. Choose a blockchain that supports smart contracts (such as Ethereum or compatible networks), install development tools and compilers, and connect to a testnet for debugging.

Step 2: Write your code. The most common language is Solidity—an “EVM-oriented contract language” with syntax similar to modern programming languages, making it straightforward to express logic around funds and permissions.

Step 3: Local testing. Write test cases using frameworks to cover key paths, edge cases, and failure scenarios. This helps identify issues before mainnet deployment.

Step 4: Deploy on-chain. Send the compiled code to the network and pay gas fees to complete deployment. Successful deployment generates a unique “contract address,” which will be used for all further interactions.

Step 5: Verification and documentation. Publish source code and interface details on a blockchain explorer (such as Etherscan), allowing users and tools to understand function inputs and event outputs.

Step 6: Invoke contract methods. Prepare a wallet and use either graphical interfaces or scripts to send transactions to the contract. Gate’s Web3 wallet allows users to call contracts; after signing, the network packages and executes them. Always safeguard private keys—never sign transactions on untrusted sites.

Two core concepts during invocation are ABI (Application Binary Interface) and contract address. The ABI acts as a “function menu,” defining how external parties should format data for contract calls. The contract address serves as an “identifier,” specifying which contract you’re interacting with.

How Do Smart Contracts Affect Blockchain Fees and Performance?

Every smart contract execution requires gas fees, impacting both costs and usability. As network congestion increases, transaction slots become more competitive, driving up gas prices and reducing user experience quality.

As of early 2025, Ethereum processes over a million transactions daily (source: Etherscan, H1 2025), with peak periods showing significantly higher fees. To improve scalability, the ecosystem has introduced “Layer 2 networks,” which bundle many computations off-chain before writing back to the mainnet—leading to much lower fees compared to base layer transactions (source: L2Fees, 2025).

For developers, optimizing code can reduce gas consumption—techniques include minimizing storage writes, batch processing, and reusing data structures. For users, choosing optimal timing and networks can further help manage costs.

How Do Smart Contracts Differ from Traditional Contracts?

The most notable difference is in execution: smart contracts are self-executing code, while traditional contracts require human or institutional enforcement, often with legal recourse.

Smart contracts offer determinism and transparency—anyone can verify rules and outcomes. Traditional contracts provide more flexibility, allowing interpretation or renegotiation. Once deployed, smart contracts are difficult to modify; upgrades require special mechanisms, whereas traditional contracts can be amended with supplemental agreements.

In cross-border or multi-party settings, smart contracts reduce reliance on centralized entities; however, their effectiveness is limited by code quality and on-chain resources, lacking discretionary handling in extreme scenarios.

What Are the Main Risks and Security Issues for Smart Contracts?

Risks stem from both code vulnerabilities and operational errors. Common coding risks include reentrancy attacks, overly permissive access controls, integer overflows, or manipulated price feeds—all potentially leading to asset loss.

Governance design is equally critical. If ownership is centralized under one private key, there’s a single point of failure; upgradable contracts require strict delay mechanisms and multi-signature controls to prevent accidental or malicious upgrades.

Operationally, beware of phishing via fake “contract addresses” or over-authorizing permissions. Always verify that contract addresses and network names match before deposits or withdrawals; Gate’s deposit page displays these details to help prevent mismatches that could result in lost assets.

Risk mitigation strategies include third-party audits, formal verification, phased spending limits, bug bounty programs, on-chain monitoring, and contingency plans for rollbacks. All investments and interactions carry risk—only participate within your means.

How Do Smart Contracts Access Real-World Data?

Smart contracts cannot directly access off-chain data; instead, they rely on “oracles” to deliver external information on-chain. Oracles function as trusted data relays—feeding price feeds, weather updates, or event outcomes into smart contracts.

This applies to randomness as well—the deterministic nature of blockchains makes generating random values insecure on-chain. Typically, specialized services provide verifiable random numbers for contract consumption. Design considerations should include minimizing data delays and sourcing from multiple providers to reduce manipulation risk.

How Can You Systematically Understand Key Points About Smart Contracts?

Think of smart contracts as “automated programs written onto public ledgers”: rules are expressed in code; transactions trigger execution; results are recorded network-wide; costs derive from gas fees; performance depends on network conditions and scaling solutions; typical applications include payments, trading, lending, NFTs, and governance. Compared to traditional contracts, they are automated and transparent but less flexible. In practice, always prioritize audits, access controls, and address verification. Beginners can start by reading simple token contracts before deploying and interacting with them on testnets—using block explorers and Gate’s Web3 tools for safe hands-on learning.

FAQ

How Can a Completed Smart Contract Run on Blockchain?

A smart contract must go through a deployment process before operating on-chain. First, code is written (usually in Solidity), then uploaded via a wallet or developer tool to the blockchain network. After paying the required gas fees, the contract receives a unique address where it is permanently stored. Once deployed, anyone can interact with it using this address.

Why Are Smart Contracts Considered Vulnerable to Code Bugs?

Once deployed on-chain, smart contracts cannot be modified. If there are coding errors or logical flaws, attackers may exploit them to steal funds—the infamous DAO incident led to significant losses due to such vulnerabilities. This is why rigorous auditing is essential before deployment; testing thoroughly on testnets is also strongly recommended before going live.

How Do Smart Contracts Access Real-World Data Like Stock Prices or Weather?

Smart contracts cannot fetch off-chain data directly—they depend on oracle services for this purpose. Oracles act as intermediaries that retrieve real-world data from the internet and write it onto the blockchain for smart contracts to access. Leading oracle solutions include Chainlink, which ensures data authenticity but introduces additional trust assumptions due to third-party reliance.

Can Beginners Interact with Smart Contracts Using Gate?

Absolutely! Gate supports various blockchain networks. Users can connect their wallets via Gate to participate in DeFi projects—which are fundamentally powered by smart contracts. Actions such as providing liquidity or staking are all executed via contract interactions. For deeper learning, users can experiment with deploying and invoking contracts in Gate’s testnet environment.

Can a Single Smart Contract Run Across Multiple Blockchains Simultaneously?

Not directly—a smart contract cannot run across different chains (such as Ethereum, Polygon, BSC) at once since each blockchain is an independent network. To provide the same service on multiple chains, you must deploy separate instances of the contract on each one. Cross-chain interactions require specialized bridge protocols and oracle coordination for interoperability.