Smart contracts are the building blocks of any blockchain application. It has a lot of potential to lower business costs, get rid of centralized power, and make business transactions easier. Smart contracts are significant because they make it possible to move cryptocurrency and make it easy to handle on-chain events. A lot of decentralized finance applications are built using smart contracts. But they still lack widespread acceptance due to their design and technical restrictions.
Smart contracts offer many advantages over the standard contract, such as a decentralized architecture, no central point of failure, and much more. But there are quite a few limitations which we will discuss in the blog, and ways to overcome them.
Limitations of the Smart contracts
You might find a lot of advantages to smart contracts and their uses, but there are quite a few reasons one should avoid them. So, before you decide if you want to use smart contracts or not, here are some primary limitations of smart contracts.
It can’t be shared on different networks and is less scalable.
Smart contracts deployed on one blockchain are only accessible to that blockchain rather than available on different networks. Also, there are quite a few restrictions on the total number of transactions that can be made on the network. For example, on Ethereum, there are only 15 transactions that can be made, or 900 transactions each minute.
For complex applications like Uber or Facebook, it is quite challenging to run thousands or even hundreds of processes simultaneously.
Low Security of smart contracts
Decentralization is great, but not always. Most of the time, people deploy smart contracts without proper security checks. This can lead to severe circumstances like people can lose money if any smart contract gets hacked due to vulnerability or any bug in the code. According to statistics, people have lost nearly millions of dollars due to smart contract hacks.
Although Smart contract removes the need for third-party to manage operations, it is quite challenging to achieve 100 percent elimination of third-party participants. Third-party play an important role when it comes to writing traditional contracts. For example, Developers would not be able to write smart contracts on their own for any law firm, and they would need the assistance of lawyers to understand the clauses and rules so they can write an efficient smart contract.
Smart contracts do eliminate the need for intermediaries, but all the parties must work together and understand the legal implications of any contract. For example, law firms can’t execute things based on logic. Most legal contracts have phrases like best efforts, reasonable and good faith that are intentionally included to make the space for flexibility. It is challenging to render smart contracts in such situations.
How to overcome such smart contract limitations?
Smart contracts can power various industries like finance, Companies, Games, etc. But smart contracts cannot use any data from the outside world that is not on the blockchain. For example, if any blockchain needs data for real-world assets like gold, then it is difficult to retrieve it from the off-chain world. To overcome such limitations, there are blockchain oracles.
Blockchain oracles act like a bridge between off-chain and on-chain applications, and based on the request, they transfer data to the smart contract so it can be used. There are different types of oracles available, like centralized and decentralized oracles.
Upgradable Smart contracts
Once smart contracts are deployed on the blockchain, they can’t be changed, even in case of a bug or any security vulnerability. Hence, a new mechanism has been invented called upgradable smart contracts. Upgradable smart contracts are like traditional smart contracts. Still, unlike them, upgradable contracts can be easily fixed, and changes in the business logic can be made without losing any smart contract data. To make smart contracts upgradable, there are different methods one can follow,
- Create different versions of smart contracts and migrate data from the old contract to the new contract.
- Build various contracts for storage and logic.
- Use proxy patterns to make delegate calls to upgradable contracts and several more.
Security Audits of the Smart contracts
There have been many instances when a small mistake in smart contracts has caused losses of millions. Hence is it necessary to make your smart contracts go under a smart contract audit check before deploying them on the blockchain? A smart contract security audit would help you to know the possible vulnerabilities and fixes that you should make. A smart contract audit is a 4-step process.
Step 1: Smart contracts are sent to the audit team for the initial walkthrough.
Step 2: The audit team presents their findings about the code and possibly a way to resolve them
Step 3: The project team makes the required changes.
Step 4: The audit team releases the outcome of the audit and final report.
Follow Best Practices to Write a smart contract
Ethereum and other blockchains are still experimental; hence, you can expect constant changes in the security landscape. To ensure that your smart contracts are secure, follow some practices to write smart contracts.
- Always be prepared for any failure. Your code should be able to respond to any vulnerabilities and bugs gracefully. Just like a circuit breaker, you can make your contracts stop, when things go wrong.
- Always put some limit on the money which is at risk.
- Have a proper mechanism to upgrade the smart contracts in case of any improvements or bugs.
Though smart contracts have limitations, they also have some significant use cases. But to write smart contracts for any industry, it is important to know the limitations and follow the best practices to overcome them.
Any smart contract developer should work on the biggest problems of any smart contract and its design. For example, if a smart contract is upgradeable, it would be easy to make improvements in the future if needed and make it much better technology.
With time, smart contracts will improve and overcome all their limitations, but for now, there is a long journey ahead for smart contracts to transform the world and overcome these limitations.