How Smart Contract Automation Makes Building dApps Easier
A beginner’s guide to understanding smart contract automation
Decentralized applications (dApps) are becoming an increasingly popular way for developers to create applications that utilize a trustless and transparent blockchain infrastructure.
However, before embarking on an exciting and rewarding adventure of building a dApp, web3 developers need to have a full understanding of the opportunities and limitations presented by smart contracts, the backbones of any dApp.
This article aims to provide an introductory overview of some key challenges of making a dApp and outline the benefits of using smart contract automation services to address such challenges.
The article contains four main sections:
- What are smart contracts and how do they work?
- How does the nature of smart contracts complicate dApp creation?
- What are the existing approaches to automate smart contract execution?
- How do smart contract automation services make building dApps easier, faster, and cheaper?
First, let’s go to the basics.
1. What are smart contracts and how do they work?
To understand smart contracts we need to understand dApps.
On the surface, dApps are not that different from the mobile apps we use on our phones. Their front end usually looks basically the same.
However, the backend code of a dApp is where the magic happens — it is powered by smart contracts that run on distributed networks rather than a centralized system.
So, a smart contract is essentially a computer program that runs on a blockchain network. It works as a set of predefined rules that execute when certain conditions are met. The code is designed in such a way that all parties involved in the contract agree on its terms before using it. In turn, once the conditions are satisfied, the terms of the contract are executed automatically without any human interference.
Such design allows smart contracts to enable the exchange of value in a trustless manner without having to trust each other or a third party. They also ensure that all participants follow the same rules when interacting with one another on the blockchain.
Smart contracts make dApps more attractive than the usual apps in terms of decentralization and transparency. Just imagine — no single point of failure, no central authority, and no control over personal data. Even in case a project team decides to abandon a dApp, users can still access it via blockchain directly!
While blockchain technology, dApps, and smart contracts are revolutionizing the way applications are built, there are still many challenges along the way that need to be addressed before reaching the full potential of the tech.
2. How the nature of smart contracts complicates dApp creation?
For many people, that’s a revelation, but:
One of the key limitations of smart contracts and, respectively, building a dApp, is that smart contracts cannot auto-execute.
Why? Well, the code in a smart contract runs within the following logic: “if event X takes place, then action Y is triggered”. This means that the code will not run and make state changes on a blockchain until triggered by an on-chain transaction.
This is similar to how a vending machine works: it doesn’t distribute any products until you put in the right change.
Without an automated way to execute smart contract functions, a lot of use-cases for dApps would not be possible.
For instance, let’s consider decentralized exchanges (DEXs). Without smart contract automation, it’s difficult for DEXs to allow users to set up limit orders, that is, the opportunity for a trader to execute a trade in the future at a specific price. However, smart contract automation may enable the monitoring of on-chain conditions (e.g. prices) and seamless execution (e.g. buy/sale order) once a price reaches the limit set by a trader.
Another example could be a dApp that automates payment workflow for DAOs. With smart contract automation, DAO operators could establish conditions for such payments (e.g. submission of work by a contributor plus the arrival of a certain date), then automation software would monitor the provided conditions and, if met, it would trigger payment execution. If there is no smart contract automation in place, the development of such a dApp would not be viable.
A lot of other use-cases for dApps are similarly fully reliant on whether it’s possible to enable smart contract auto-execution. For developers, this means they need to find a solution to ensure that smart contracts do execute seamlessly when needed.
3. What are the existing approaches to automating smart contract execution?
There are two primary ways how developers go around the issue of not auto-executing smart contracts:
- Manually sending transactions
- Building and maintaining off-chain software
Let’s have a look at each of these options.
3.1. Manually sending transactions
One way to address this issue is by manually sending transactions to execute a smart contract. Basically, a development team is needed to monitor respective conditions in real time and make on-chain transactions upon meeting certain conditions.
First and foremost, such an approach is error-prone because, well, people make mistakes. Any task that requires human intervention will do a worse job compared to an automated process.
A good example illustrating this would be the token vesting process. Without smart contract automation, a developer team would manually send tokens to certain addresses on pre-defined dates. As every web3 native person knows, it’s very easy to send tokens to the wrong address or select the network incorrectly. In turn, smart contract automation allows to distribute tokens automatically upon reaching established conditions.
Although manually sending transactions as a method can work on a small scale and satisfy the product needs on some levels, another significant disadvantage of this approach is scalability to ever-growing business needs.
If there’s too much activity happening on the blockchain, monitoring it manually could become too resource-intensive and expensive for teams to maintain over time. Additionally, the risks of untimely execution of smart contract functions causing downtime or delays are increased when manual developer operations are in place.
All in all, manually “poking” a smart contract does not seem to be an ideal solution.
3.2. Building and maintaining off-chain software
Another method for the implementation of smart contract automation is to build and maintain an off-chain service/program for this purpose. However, this approach is extremely time-consuming, costly, and centralized in nature.
- Time considerations. First of all, unless the team possesses considerable experience in building products integrated with blockchain (which is often not the case), it will take time for developers to build knowledge about how to interact with blockchain networks. In the context of the intrinsic difficulty of technology, the novelty of the industry, and the low supply of web3/blockchain experts, the timespan for delivering off-chain software for most teams could go well beyond the desired timeframe.
- Costs considerations. Second, significant funds will need to be allocated to hiring an engineering team, building the necessary infrastructure as well as maintaining off-chain software. This means that the project developers do not only need to allocate resources to smart contracts development but also extra expenses are required to basically support a complete web2 stack. At the end of the day, projects will need to spend 10x more time and money on a solution that does not constitute the core of their business or business model.
- Centralization considerations. Third, in all likelihood, such an off-chain solution will introduce a considerable degree of centralization to a dApp, making it essentially “an app” instead of a dApp, which goes against the whole concept of decentralized applications.
Projects will proceed with creating an AWS cluster or any other centralized cloud-based solution — and running all the off-chain software there, which constitutes a 100% web2 approach.
At their core, such types of projects only produce an image of decentralization while what is offered is simply a centralized stack with smart contracts on top of it. In such a case, smart contracts largely play the role of a marketing tactic driven by web3 hype, rather than a decentralized solution for addressing real-world problems.
Looking at all the commonly used ways to automate smart contracts it is obvious that none of these solutions solve the problem of non-self-executing smart contracts in a cost-efficient and predictable manner, while ensuring the necessary degree of decentralization. Whichever option developers choose, they are facing a trade-off, ultimately increasing project implementation risks.
4. How do smart contract automation services make building dApps easier, faster, and cheaper?
There is a solution to this problem and it is called smart contract automation services.
Smart contract automation allows developers to trigger smart contract functions in an automated way. It comprises a decentralized network of nodes that ensure the autonomous operation of smart contracts by monitoring pre-defined conditions set by developers and triggering the contract once such conditions are met.
Think of a decentralized architecture that enables automation of the key functions of a smart contract without relying on any off-chain programs or costly developer operations.
With smart contract automation, the only thing that developers need to do is decide on the conditions that trigger smart contracts, while automation nodes monitor those conditions and activate a smart contract when such conditions are satisfied.
Smart contract automation allows developers to explore a whole range of various use-cases for smart contracts, including harvesting yield, automating liquidations or reward distributions, rebalancing token supplies or liquidity providers’ positions, minting, updating or interacting with NFTs, and many more.
Needless to say, hundreds of novel use-cases are yet to be developed by creative web3 builders.
The advantages of smart contract automation are obvious: increased predictability and decentralization of dApp functioning, on one hand, and decreased development costs on the other.
Smart contract automation not only helps developers build dApps easier and bring the product to the market faster, but also saves on setup and maintenance expenses ensuring the necessary degree of decentralization in the spirit of web3.
5. Concluding remarks
A trustless and transparent blockchain infrastructure allows developers to build dApps that open up novel use-cases for the digital economy.
However, developers looking to create dApps need to be aware of the limitations presented by smart contracts, especially issues related to the fact that smart contracts do not self-execute.
All of the most commonly used methods to address the issue, such as manually sending transactions or building and maintaining off-chain software, complicate the job of a web3 developer. Such solutions are error-prone, entail high costs, cause delays in project implementation, or go against web3 ethos by being centralized.
Fortunately, smart contract automation services, such as Nerif, offer reliability, cost-and-time effectiveness, as well as decentralization that covers all the needs of web3 builders.
Thanks for reading this piece! In our next articles, we will dig deeper into the details of how smart contract automation works, explore the potential use-cases, and analyze if cross-chain smart contract automation is possible.