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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:

Published on: Jul 08, 2024, 11:33 PM  


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