The formation of smart contracts, the freezing of smart contracts, the execution of smart contracts, and the finalization of smart contracts are four important steps in the life cycle of smart contracts. It is different from the blockchain development life cycle, which starts with defining the problem you want to solve with a blockchain product and ends with a minimum viable product.
The iterative contract negotiation and implementation phases make up the creation phase. First, both parties must agree on the overall content and objectives of the contract. This is similar to traditional contract negotiation and can be done online or offline. On the underlying ledger platform, all participants must have a wallet. Its identifiers are mostly anonymous and are used to identify parties and transfer payments.
After the goals and content are agreed upon, the contract must be translated into code. The expressiveness of the underlying smart contract coding language limits the coding of contracts. Most smart contract systems provide the infrastructure to build, maintain, and test smart contracts to verify their execution behavior and content.
As seen in traditional programming languages, translating requirements into code requires multiple iterations between stakeholders and programmers. Smart contracts are no exception, and there may be multiple iterations between the negotiation and implementation phases.
During the release phase, when all parties agree on the encoded form of the contract, it is uploaded to the distributed ledger. During this phase, nodes in the distributed ledger receive the contract as part of a block of transactions. Once the block is confirmed by the majority of nodes, the contract can be executed. Since a decentralized smart contract cannot be modified once accepted by the blockchain, any changes to the smart contract require the development of a new contract.
While smart contracts are placed on the blockchain, this fact in itself should not be construed as an agreement by one party to enter into a contract, as anyone can submit a smart contract to the blockchain, implying an obligation for any random wallet owner. Likewise, decentralized smart contracts can benefit any blockchain participant, whether or not they choose to receive benefits early.
After being submitted to the blockchain, the smart contract is confirmed by the majority of participating nodes. A price must be paid to miners in exchange for this service to prevent the ecosystem from being overwhelmed by smart contracts.
The contract and its parties are now open to the public and available through a public ledger. During the freeze phase, any transfers to smart contract wallet addresses are blocked, and nodes operate as governance committees verifying that the prerequisites for contract execution are met.
Participating nodes read contracts stored on the distributed ledger. So, how are smart contracts executed? The integrity of the contract is verified and the code is executed by the inference engine (compiler, interpreter) of the smart contract environment. The function of a smart contract is executed upon receipt of execution input from smart oracles and related parties (promising goods via coins).
The execution of a smart contract generates a new set of transactions and a new state for the smart contract. The result set and new state information are entered into the distributed ledger and verified using a consensus mechanism.
Generated transactions and updated state information are put into a distributed ledger and confirmed using a consensus process after smart contract execution. The previously promised digital assets are transferred (the assets are unfrozen), and the contract is completed to confirm all transactions.