You can think of a smart contract as a small piece of logic or code that can interact with a block chain. A smart contract might, for example, be programmed to automatically split a payment sent to an address on a blockchain between you and someone else. Many blockchain implementations like Bitcoin have simple scripting frameworks that can do this. You could also call those smart contracts. One difference with the theorem however is that its smart contracts can be much more sophisticated and they're a part of the fabric of the system itself. They're a part of the block chain. These smart contracts, the small pieces of distributed logic, can actually get complicated enough to create applications that run on the blockchain. Let's look at a simple example of what smart contracts can do. Here we're talking about a theorem. A smart contract sits at an address on the blockchain. An address that looks identical to the ones that humans control. Suppose you and a friend both own property and you're renting it out to a tenant, a smart contract could be created so that the tenant doesn't pay either of you individually but pays the contract itself. Sending funds to the contracts address. That contract could be programmed so that when it receives payment it automatically transfers half the payment to you and half to your friend. Now, that seems pretty simple but it's kind of remarkable. For one, the payment can be split without any party handling it and having the option of not splitting it. Consider the difference between this and the deposit in a shared bank account or having your friend receive full payment and sending half your way. In either case, the distribution of funds relies on decisions by parties who may not always have shared interests and who may have the option to keep the money. A smart contract makes this sort of thing deterministic and on unreliant on anyone's will. There is no third party to trust. Another useful aspect of such a smart contract is that the logic of it is publicly viewable by both you and your friend. So, you can each confirm that it will operate as expected. It's fully transparent, trustless, and secure and because the blockchain is immutable so is the logic of the smart contract. Neither you nor your friend can go back and change it after the fact. Now, this is the most simplistic of examples, but imagine what could be possible using such a system. How many processes it could simplify? How many intermediaries it could circumvent? Smart contracts in a theorem can be coded in assembly which is a difficult and very raw programming language or they can be coded in a higher level language that has been developed specifically for smart contract programming. A popular one of those is called Solidity. Solidity code looks a lot like JavaScript. When a smart contract is deployed to blockchain, just like any transaction it is permanent. You can never change a smart contract. That is one of its benefits but also a drawback. You have to be very certain that your smart contract doesn't have any mistakes in it. This brings us to the EVM, the Ethereum Virtual Machine. You can think of smart contracts as the code and the EVM as the computer that runs the code. The EVM is a Turing complete virtual machine that runs on every full node in the network. To say something is Turing complete just means it has all that it needs to fully function as a computer or information processor. All processing on the EVM happens across the network and is verified throughout. The EVM is what makes Ethereum so exciting. It's like a distributed world computer rather than having consensus just on transactions and numbers, it's consensus on logic and the processes themselves. The possibilities are just starting to be explored and can defy our intuitions about how online systems can work. Even how fundamental concepts like ownership work. The EVM is what processes the code and smart contracts but processing isn't free. So, how do you pay for it? In Ethereum, you pay for processing with gas like a transaction fee for computation. If the EVM is the engine of Ethereum, then gas is the gas. Gas is a small amount of ether, the currency and Ethereum, allocated to pay for computation that is performed on the network. This serves three primary functions. For one, it incentivizes nodes to perform computation by providing them with compensation. Second, it reduces the incidence of spam and abuse as the rewards of spamming would be outweighed by the cost of gas. Third, it helps to prevent the EVM from being programmed into an infinite loop since the gas for a given process would get used up. To get a sense of how a smart contract works. We can consider the flow of one's operation. When a user interacts with a smart contract, it's done through transactions, like when you send coins to someone else. These transactions are picked up by nodes who check them for validity. If the transactions are valid that is there are enough funds to pay for any processing. The smart contract is executed by the EVM with the transactions applying any required data inputs. This process changes the state of the blockchain and those states get recorded back to it. Smart contracts often engage with other smart contracts and those networks of contracts can start doing fairly complicated things and allow for the development of decentralized applications.
