Everything You Need To Know About Smart Contracts

Cryptocurrencies and the idea of blockchain is interesting because it gives us a decentralized system where we don’t need to pay middlemen or third parties when carrying out transactions. Even more, it’s faster and there’s less room for conflict. Now, blockchain has its flaws but it seems to be better than the traditional method of banking.

Piggyback to 1994, a cryptographer and legal scholar, Nick Szabo saw that blockchain could be used to create smart contracts. This works like a normal contract but is changed to computer codes that are replicated and stored on the blockchain network. Consequently, ledger feedback is gotten. Well, that’s the general idea behind smart contracts.

So, What Exactly Is A Smart Contract?

In simple terms, smart contracts are applications run on the blockchain network. Once these smart contracts have been signed and deployed on the network, they become immutable and self-executing.

Smart contracts have limitless uses. They can be used in building decentralized games, tokenized assets, exchanges, and so much more.

Additionally, smart contracts are built to not only disrupt the financial sector but also the legal sector. Since 2015, when Ethereum was released, smart contracts have turned to a major platform for many innovations in the blockchain space.

Now, How Do Smart Contracts Work?

Bitcoin was actually the first cryptocurrency to support smart contracts since value can be transferred from one person to another. Plus, transactions are validated by nodes only if they meet specific conditions. However, the use of bitcoin was limited to just the currency.

Ethereum, on the other hand, substitutes bitcoin’s restrictive scripting language with a language that lets developers build their own platforms by writing their own codes. With Ethereum, developers can program smart contracts using a “Turing-complete’ language that supports wider sets of computational commands.

That said, here’s how smart contracts work. An agreement is built on the Ethereum blockchain using these smart contracts. Once this agreement has been put in place, nobody can alter it. Plus, there are no commissions and you don’t have to wait long hours or days for third-parties to confirm the transaction.

Also, once the conditions of the agreement have been met, the smart contract is executed automatically.

What Issues Do Smart Contracts Have?

Just like blockchain, smart contracts are not close to being perfect. Bugs could get into the block of codes, what if a wrong code is sent? Or what if I want to rescind a contract?

Smart contracts actually have their flaws but experts still working towards unraveling them.

To Wrap It Up

Smart contracts have a lot of potentials. This lies in the fact that people can get access to automated and simplified repetitive procedures or routines which they would normally pay higher fees for. Also, smart contracts can control the behavior of parties involved by enforcing compliance.

Though they seem to be complex, the capabilities of smart contracts extend beyond just the transfer of assets. Plus, they could be used in insurance processes, crowdfunding agreements, legal processes, and so on.