How Smart Contract works internally

Smart contracts work internally on blockchain platforms like Ethereum by executing code according to predefined rules and conditions. Here’s a detailed explanation of how smart contracts operate internally:

1. Compilation and Deployment

1. Solidity Code: Smart contracts are written in programming languages like Solidity.

2. Compilation: The Solidity code is compiled into bytecode, which is a low-level representation of the contract that can be executed on the Ethereum Virtual Machine (EVM).

3. Deployment: The compiled bytecode is deployed to the blockchain network as a transaction. This transaction includes:

   • The bytecode of the contract.
   • Initialization data if any (constructor arguments).

2. Execution on the Blockchain

1. Transaction Execution:

   • When a user or another contract interacts with the deployed smart contract (e.g., calling a function), they create a transaction.
   • This transaction contains a method call (function invocation) and any necessary parameters.

2. Transaction Validation:

   • Miners or validators on the blockchain network validate the transaction.
   • They verify the digital signature of the transaction sender.
   • They ensure that the transaction adheres to network rules (e.g., gas limits, nonce ordering).

3. Smart Contract Invocation:

   • Once validated, the transaction is included in a block and added to the blockchain.
   • Nodes on the network execute the transaction, which involves invoking the smart contract’s function specified in the transaction.

3. EVM and Execution

1. Ethereum Virtual Machine (EVM):

   • The EVM is a decentralized runtime environment that executes bytecode of smart contracts.
   • Each node on the Ethereum network runs its own instance of the EVM, ensuring consensus on the outcome of smart contract executions.

2. State Changes:

   • Smart contract execution can result in changes to the blockchain's state (e.g., transferring tokens, updating storage variables).
   • These state changes are recorded in the form of transactions and blocks on the blockchain.

3. Gas and Fees:

   • Ethereum uses gas as a measure of computational effort required to execute operations or contracts.
   • Users pay gas fees to compensate miners for processing and securing transactions and smart contracts.

4. Immutable and Trustless Execution

1. Immutability:

   • Once deployed, smart contracts are immutable; their code cannot be changed or updated.
   • This ensures that contract behavior remains predictable and transparent.

2. Trustless Execution:

   • Smart contracts operate based on predefined rules and logic written in code.
   • Execution is deterministic, meaning the same input will always produce the same output, ensuring trustless interactions.

Example Scenario

Consider a simple token transfer scenario:

• Function Call: A user calls the transfer function of a token smart contract.
• Validation: Validators check the transaction and ensure the sender has sufficient balance.
• Execution: The EVM executes the transfer function, updating balances of the sender and recipient.
• State Change: The updated balances are stored as part of the blockchain's state.