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Smart contracts ethereum blockchain
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In , he wrote an introduction to the concept and, in , an exploration of what smart contracts could do. Nick Szabo envisioned a digital marketplace built on these automatic, cryptographically secure processes. A place where transactions and business functions can happen trustlessly — without intermediaries. Smart contracts on Ethereum put this vision into practice. What are contracts? You're probably thinking: "I'm not a lawyer! Why would I care about contracts?
For most people, contracts bring to mind needlessly long terms and conditions agreements or boring legal documents. Contracts are just agreements. That is, any form of agreement can be encapsulated within the conditions of a contract. Verbal agreements or pen-and-paper contracts are acceptable for many things, but they aren't without flaws.
Trust and contracts One of the biggest problems with a traditional contract is the need for trusted individuals to follow through with the contract's outcomes. Here is an example: Alice and Bob are having a bicycle race. Bob is confident he'll be the winner and agrees to the bet.
In the end, Alice finishes the race well ahead of Bob and is the clear winner. But Bob refuses to pay out on the bet, claiming Alice must have cheated. This silly example illustrates the problem with any non-smart agreement. Even if the conditions of the agreement get met i. Smart contracts Smart contracts digitize agreements by turning the terms of an agreement into computer code that automatically executes when the contract terms are met.
A digital vending machine A simple metaphor for a smart contract is a vending machine, which works somewhat similarly to a smart contract - specific inputs guarantee predetermined outputs. You select a product The vending machine returns the amount required to purchase the product You insert the correct amount The vending machine verifies you have inserted the correct amount The vending machine dispenses the product of choice The vending machine will only dispense your desired product after all requirements are met.
If you don't select a product or insert enough money, the vending machine won't give out your product. Automatic execution One of the most significant benefits smart contracts have over regular contracts is that the outcome is automatically executed when the contract conditions are realized. There is no need to wait for a human to execute the result. In other words: smart contracts remove the need for trust.
For example, you could write a smart contract that holds funds in escrow for a child, allowing them to withdraw funds after a specific date. If they try to withdraw the funds before the specified date, the smart contract won't execute. Since smart contracts is a program that runs on the blockchain, users would need to send transactions to the blockchain to initiate the program.
Once the codes are defined and logic is locked, then only can run the program. Its main distinctive advantage is that it allows the performing of credible transactions without intermediaries. It is indeed a program that runs on the Ethereum blockchain to facilitate, verify, or carry out credible transactions autonomously. To know how it works, first, we must understand what a smart contract consists of.
The two or more parties must provide their consent to move forward with the proposed terms and conditions. Critically identify the subject of the contract. The subject should be within the context of the smart contract environment. Be specific with the terms. The terms need to be precise and described in detail. When these requirements are set, you can then enter the blockchain-based smart contract.
However, the agreement is subject to negotiation before the terms are put into practice in the blockchain. Typically, a smart contract will automatically trigger an action based on the agreement between two users sustaining on the blockchain. That means, when a seller intends to sell a BTC, the smart contract will govern the transfers until the BTC is successfully changed from one person to another. When that happens, the funds will be released, and there shall not be any changes.
And all of the information about the transaction will be listed and stored in a public database. Who Created Smart Contracts? The idea of smart contracts was originally introduced by Nick Szabo , a well-known American cryptographer. In , his article about smart contracts was published in the magazine Extropy where he prognosticated the benefits and features of the blockchain contract applications. He then developed this concept in several articles in the following years.
Ian Grigg and Gary Howland were the other contributors to the idea of smart contracts. They published their work about the Ricardian Contracts as a part of the Ricardo payment system in The implementation of smart contracts became possible after Bitcoin and its blockchain had come into existence, having created appropriate conditions.
This innovation finally broadcasted several years later on the Ethereum blockchain. Today, many alternative platforms allow users to take advantage of this function, though Ethereum remains the pioneer. How Do Smart Contracts Work? As mentioned above, smart contracts represent computer protocols or, in simple words, pieces of code that are a fundamental technological element. They serve to specify all the agreement conditions that are concluded between transaction parties to the blockchain. As soon as these conditions are fulfilled, the smart contract will automatically make a transaction.
A system based on the blockchain allows its participants to reduce intermediaries and excessive paperwork as it relies on the public ledger where any interested party can verify all transactions. The central requirement here is to describe all the agreement conditions via mathematical rules with suitable programming languages.
The blockchain represents a distributed network of nodes, each one storing the information about all transactions. Subsequently, an initiating message should be sent, and the nodes will pick it up. When the event established by the smart contract is fulfilled, the codes will execute. For example, vending machines automatically give a buyer an ordered item if specific requirements are met a definite amount of money is paid.
A smart contract works the same. Apart from transferring funds, there are several other use cases: Digital identity: It removes counterfeits and provides individual identity to digital assets. Financial security: They are perfect for liability management, automatic payments, or stock splits.
Trading activities: Smart contracts provide a great way to automate trading operations. Also, cross-border payments and international trades become more manageable with their help. Clinical trial: It provides cross-institutional visibility, facilitates and automates data share, and strengthens confidentiality. Government: Smart contracts can improve the transparency and efficiency of voting.
Smart contracts use cases are variable and cover numerous opportunities. Potentially, they can become a powerful tool in many fields of human activities. The Characteristics Of A Smart Contract Smart contracts possess some distinctive features that mark them out of other forms of financial transactions: Autonomy: Users have full control over their agreement. The smart contract is a guarantee by itself that excludes the possibility of interference by any other third party broker, lawyer, notary, and more.
Security: An essential purpose of the smart contract is to ensure the safety of transactions. Information entered into the blockchain cannot be wiped out or modified. Even if one of the parties breaks the terms of the agreement, the agreement stays intact. Speed: Document processing takes much time if performed manually, and this delays the task fulfillment. Smart contracts minimize personal participation and boost overall efficiency.
A decentralized network provides the environment that ensures the task completion without problems or delays. Cost-effectiveness: It can eradicate the excessively high transaction costs. And it is possible due to the removal of intermediaries from the process and agreement support. Accuracy: The process is automated, so the possibility of human error is reduced significantly.
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