Smart Contracts
What is a Smart Contract?
A smart contract is a program that runs on a blockchain and automatically executes itself when the conditions written into its code are met.
For example, during a transaction, once the delivery of goods is confirmed and registered in the system, the smart contract automatically initiates the payment, without the need for any manual intervention.
How Do Smart Contracts Work?
Smart contracts run on a blockchain and are stored across a distributed ledger. This means they are accessible to all users on the given blockchain and apply equally to everyone.
Since these contracts execute automatically when predefined conditions are met, there is no need for intermediaries such as banks, lawyers, or notaries. This greatly simplifies the process, speeds it up, and makes it more cost-efficient compared to traditional contracts.
What Are the Advantages of Smart Contracts?
Let’s take a closer look at what makes smart contracts stand out:
Automation: The biggest advantage of smart contracts is automation. Once deployed, they no longer require manual input, significantly reducing the chance of human error. They also eliminate delays between different steps in the process, speeding up transactions, sometimes even making them instant.
Transparency and Trust: Smart contracts are inherently transparent. Every step of the process, from the contract terms to the outcome, is recorded on the blockchain. This means everything can be tracked and verified in real-time, ensuring full trust in both the system and the other party involved.
Security: Unlike traditional contracts, which can be altered or even forged, smart contracts are tamper-proof. Once deployed, their code cannot be changed. This ensures the conditions remain fixed and universally applicable for the contract’s entire duration.
Cost Efficiency: Since smart contracts eliminate the need for intermediaries, parties can save on bank fees, legal costs, and administrative expenses. As a result, contractual transactions become much simpler and more affordable.
How Is a Smart Contract Created?
Creating a smart contract requires programming knowledge, since these contracts are written in languages such as Solidity.
Programmers start by encoding the contract's terms, for example: if “A” happens, then “B” must follow. Once the code is complete, it goes through a testing phase. Only when it executes correctly without errors is it uploaded to the blockchain. From that point onward, it runs automatically for as long as it is valid.
The Role of Smart Contracts in Energy Communities
Smart contracts play a significant role in the operation of energy communities (ECs). Within these communities, members produce and exchange energy from renewable sources, and smart contracts help streamline and speed up these transactions.
Energy Trading: Suppose a household generates more electricity than it can use or store. Once this surplus is registered on the blockchain, a smart contract written for this situation can automatically initiate the sale of that excess energy within the community. The buyer receives the energy they need, while the seller is automatically paid the agreed price.
Energy Distribution: As ECs grow and more decentralized production units appear, the energy network itself becomes more decentralized. Smart contracts help balance supply and demand by automatically redirecting unused green energy to consumers who currently need it.
Cost Efficiency: Smart contracts allow energy exchange within communities to happen without involving third parties such as utility providers. Payments, credit allocations, and energy distribution are handled automatically. This reduces overhead costs and makes energy trading accessible even to small-scale producers.
Democratization: Smart contracts ensure that rules apply equally to all members of the community. Transactions become transparent, efficient, traceable, and fair, which builds mutual trust and confidence in the system itself.
Carbon Credits: These credits are awarded to producers who generate renewable energy. A carbon credit proves that the producer prevented the emission of one ton of carbon dioxide (CO₂) or an equivalent greenhouse gas. Allocation and trading of these credits are also managed by smart contracts, offering an additional revenue stream.
Green Certificates: Smart contracts also help producers obtain green certificates – blockchain-verified proof that a certain amount of energy was generated from renewable sources. Once the required quantity is produced, the smart contract issues the certificate, which can then be sold on the market.
As you can see, smart contracts offer an efficient, secure, and transparent way to manage increasingly complex energy systems. In ECs, they support decentralized, peer-to-peer energy exchange and make sustainable practices more accessible and economically viable.
