L05: Ethereum II Flashcards
Definition of a smart contract
* A smart contract is a …
* Key characteristics:
◦ Autonomous execution: … (→ code is law).
◦ …: Once a smart contract is created and deployed on the blockchain, it cannot be altered and acts as a standalone account that can receive and send transactions and store data. The operations are all visible and verifiable by all network participants.
- Smart contracts run on the Ethereum blockchain, which, by construction, cannot support native communication with external systems. Thus, smart contracts require so-called …
self-executing contract with the terms of the agreement directly written into lines of code, directly stored on the blockchain.
Smart contracts operate automatically without the need for human intervention, executing based on triggers or conditions defined within their code
Immutable and transparent
oracles (e.g., ChainLink) to provide connectivity with the outside world.
Advantages of smart contracts:
- Trust: Transactions and agreements are executed exactly as programmed without any possibility of downtime, censorship, fraud, or third-party interference, creating an environment of trust through technology.
- Savings: By automating processes and cutting out intermediaries, smart contracts can reduce administrative and operational costs associated with traditional contracts and transactions.
- Autonomy: Smart contracts eliminate the need for intermediaries by automatically executing transactions and enforcing terms based on the pre-written code, giving full control to the involved parties.
- Reliability: Due to their decentralized nature and redundancy across multiple nodes in the blockchain, smart contracts provide high reliability and continuity, ensuring that operations and agreements are always upheld.
- Accuracy: Automated transactions minimize human error, ensuring that each action is executed accurately according to the terms set within the smart contract code.
Disadvantages of smart contracts:
- …: Smart contracts are not inherently “smart” in the way they process information. They require all conditions and financial obligations to be explicitly defined upfront, demanding, at times, substantial collateral.
…
- Size limitation: Smart contracts may be too large to fit within a single block, necessitating their division into smaller, manageable parts, which complicates deployment.
…
- …: Smart contracts rely on external oracles for real-world data, which introduces potential security risks and centralization concerns, often at a high cost.
Limited intelligence
- Operational costs: Complex smart contracts consume significant computational resources, resulting in high gas costs and making them expensive to operate.
- Rigidity: Once deployed, smart contracts are immutable, making it impossible to correct any bugs or vulnerabilities without launching a new version of the contract. Since smart contracts are visible to all, anyone who can find a bug can exploit it for profit.
External dependencies
The DAO event – a turning point for Ethereum
* The rigid and immutable nature of smart contracts was strikingly highlighted in 2016 with the infamous DAO attack, a significant event that underscored the vulnerability of smart contracts to exploits.
- The DAO (Decentralized Autonomous Organization) was launched in 2016 on the Ethereum blockchain. It was designed to act like a …
◦ The DAO raised approximately $150 million in Ether, selling DAO tokens that represented ownership stakes and voting rights on the allocation of funds, amounting to about 14% of all circulating Ether at that time.
- Even before the initial token sale finished,…
◦ Attackers exploited a …
venture capital fund for the crypto space, investing in different businesses and technologies.
security problems in the DAO’s code were found.
reentrancy bug (repeatedly withdrawing funds before the balance was updated), eventually draining about one third of the funds.
The DAO event – a turning point for Ethereum
* The Ethereum community was left at a crossroads, debating whether ”code is law” or …
* Initially, a small update to the Ethereum protocol (a soft fork) was proposed by Vitalik Buterin and the Ethereum Foundation, which would prevent the stolen funds from being used but was later abandoned due to …
* Eventually, to mitigate the damage and return stolen funds to their rightful owners, a …
* This sparked a major controversy in the Ethereum community.
◦ Consequences of the hard fork–>???
intervention was necessary as the network stood to lose a lot from the hack.
potential vulnerabilities in implementing the soft fork.
hard fork was executed.
The implementation of a hard fork effectively split the Ethereum blockchain into two: Ethereum (ETH), where the funds were restored, and Ethereum Classic (ETC), which continued on the original path, adhering to the ”code is law” principle.
