Don't know what smart contracts are? Learn about the benefits of smart contract technology: its origins, benefits, features and applications
Since the blockchain was invented, it has served many useful purposes, including the creation of smart contracts. This is an outstanding technology, but not many people understand what it is and how it functions. Are you in the dark about the idea of a smart contract blockchain? This final guide is a must read. Without further ado, let's begin.
What is a smart contract?
25 years ago, Nick Sabo, an enthusiast of cryptographic protection, discovered that decentralized ledgers could be used to implement so-called digital “smart contracts”. These contracts are in the form of computer code and can operate on multiple nodes. Devices that control the blockchain can be used to monitor a smart contract. Consequently, it will facilitate transactions, the transfer of funds and the delivery of services and goods.
For a better understanding, you can refer to the smart contract definition given in Wikipedia. Seems too complicated? From the layman’s point of view, smart blockchain contracts are fragments of computer code that include certain contractual clauses that can be executed independently and enforced. Like any other decentralized ledger, intelligent contracts make the data completely safe - they cannot be falsified or altered. Many cryptocurrencies have begun to introduce this technology, and the most commonly used option is the smart contract Ethereum.
How do smart contracts work?
A smart contract does not resemble any paper counterpart. Yes, it can also be used to order services and products, conduct currency exchanges, or buy / sell real estate. However, unlike stacks of traditional documents, the blockchain smart contract is executed by itself - it takes effect automatically as soon as certain conditions are met.
If you want the blockchain of smart contracts to be explained in clearer terms, see this usage example:
To understand the principle of operation of blockchain contracts, imagine the “penny in slot” function. You decide to buy a cappuccino and insert coins into the slot. As soon as you press the corresponding button, the machine will instantly fulfill your order. Blockchain contracts do the same. They automatically perform some actions under certain conditions that trigger them.
Key benefits
Blockchain and smart contracts are revolutionary technologies that have created many opportunities and advantages. So, what exactly makes smart contracts useful to us? The list of benefits is a mile:
1. Accuracy of data. When people deal with paper contracts, there is always the risk of human error. Smart contracts guarantee data accuracy: details of conditions will not be changed by mistake. Skipping conditions may lead to transaction errors, but automatic contracts eliminate this risk.
2. Simple, understandable communication. Smart contracts must be precise and detailed - when everything is clear, the following conditions are simple. Thus, smart contracts facilitate communication, and participants have a full understanding of conditions and events.
3. Full transparency. Details of digital contracts are displayed for all interested participants. No conditions can be changed after such a contract has been activated. This eliminates the threat of data tampering, and all transactions are visible to interested parties.
4. Excellent speed. Because digital contracts run their code on the Internet, they can perform transactions at an exceptional speed, which saves hours or even days for business.
5. This is a paperless process. Good news for bureaucracy haters and nature lovers. With smart contracts, there is no need for manual processing of documents. Businesses are increasingly worried about the environmental impact, and switching to digital broadcasting is the easiest way to become greener and cut down on paperwork.
6. Excellent performance. Due to the high cost and 100% accuracy, smart contracts are very efficient and can process many transactions per unit of time. Again, this eliminates the need for third parties.
7. Exceptional security. Automated digital contracts use the most advanced encryption levels currently developed and set the standard for modern cryptocurrencies. This turns smart contracts into one of the most reliable things on the net.
8. Data integrity. Since each entry in the smart contract contains transaction information, this is a great solution for storing and backing up data. As soon as you use some information in a smart contract, it is added permanently and used for further recordings. In case of damage or loss of data, they can be restored in a jiffy.
9. It is cost effective. What is the main advantage of smart contracts for institutional users? Automatic contracts eliminate the need for intermediaries, resulting in lower costs.
10. This is trustworthy. Smart contracts are completely transparent, because no information can be changed after its creation. This eliminates the risk of manipulation and errors. The parties agree to follow the rules and provisions of the contract - the code does the rest.
No flaws yet?
Like any innovation, the system of chains of smart contracts is not without flaws - the medal has two sides. Some of its advantages create difficulties:
Spheres of application
Smart contracts have the potential to revolutionize many industries. Use options are in:
1. Insurance. Companies automate their insurance policies, turning them into smart contracts. In certain events, the claims process starts immediately.
2. Content and copyright. Intellectual contracts are used to register ownership of content (images, music, text, video, etc.) and automatic transfer of rights. Tariffs and royalties for the use of content are provided instantly and transparently. It establishes the credibility of true ownership.
3. IoT. Smart contracts help store data from devices, transfer them over the Internet, track delivery, register device ownership, etc.
4. Banking. Smart contracts for cryptocurrency allow you to perform fast, cheap and transparent transactions. This helps reduce translation costs.
In addition, smart contracts are used in telecommunications, art, education, e-government, energy, and many other areas.
Examples of smart contracts.
Now that smart contract technology is explained, you may wonder if it is already used anywhere. Yes, some companies are gradually introducing smart contracts. The following examples prove this.
How smart contracts work in special cases?
AXA, a French airline, uses a blockchain for insuring flights. In the case of delays, users with a proprietary application are notified of compensation options. The amount of insurance and compensation depends on the triggering event.
Propy is a real estate agency that performs operations with digital contracts. This allows users to sell and buy real estate offers and negotiate on them. Both parties can participate in a smart contract, and buyers can reserve them properly by paying $ 5,000 in escrow. To ensure the legitimacy of transactions, third-party payment processors can be involved, as well as local authorities to draw up all protocols.
Populous uses digital contracts for billing. The role of technology is to eliminate risks, human error and duplication of documents. As soon as the invoice and its terms are settled in the system, users order it and transactions are executed using a digital contract.
DAO is another example. This project uses the most complex form of code - decentralized autonomous organizations. DAO is used for storing and managing registries (documents, certificates, etc.).
Ethereum smart contract: the backbone
Ethereum smart contracts are the most common. This code was invented by Vitalik Buterin in 2013 and published two years later. A virtual machine full of Turing executes the codes: it simulates a PC using its own logic. This makes the Ethereum contract more advanced than Bitcoin, which uses simple mechanisms for transactions.
So what is a smart Ethereum contract? This is code written in the Solidity language. This is similar to JavaScript, code running on an Ethereum virtual machine to create contracts.
Why do companies trust Ethereum with its infrastructure?
● This is the most frequently used technology of its kind, the founder of other contracts with the blockchain.
● Hardness is understandable and can be mastered by experienced programmers.
● Ethereum uses the ETH cryptocurrency, which is often used as a local currency.
● When it comes to the versatility of smart contracts, Ethereum is the absolute leader. It can be used literally in any area without restrictions.
● Ethereum allows you to create decentralized applications (dApps) that make data safe and transparent.
Today, more than 1,300 applications are being created or developed on the basis of this technology.
Examples of Ethereum smart contracts include:
1. IOST (Internet Services) is a by-product of Ethereum, which provides the tools and environment for creating decentralized applications. Being built on the basis of the Ether chain, it allows one to exclude intermediaries.
2. MEvU - decentralized P2P betting software. No matter what you bet on, Ethereum gives users the confidence that their bets are absolutely safe. This application was created to prevent cheating.
3. CryptoKitties is one of the first applications using Ethereum smart contract technology. This game allowed the use of digital “collectibles” stored on the blockchain — users breed their kittens using essential tokens to launch a digital contract. It sounds like nothing serious, but this application has demonstrated the power of Buterin's creativity.
In addition, let's not forget that Ethereum has a huge network of supporters who can potentially use smart contracts. The Enterprise Ethereum Alliance brings together several Fortune 500 companies, such as Intel and Microsoft, as well as numerous startups.
Bottom line
Now that you know what smart contracts are, you can imagine what potential you can realize. Digital contract technology has caused a stir in the cryptocurrency community and has opened up many opportunities for small and large companies, regardless of their specifications.
The blockchain of smart contracts is in its infancy: not many companies understand what it is and realize its advantages. The number of enterprises actually introducing it is even lower. However, in the next decade we will probably see the massive use of this technology in various niches.
Since the blockchain was invented, it has served many useful purposes, including the creation of smart contracts. This is an outstanding technology, but not many people understand what it is and how it functions. Are you in the dark about the idea of a smart contract blockchain? This final guide is a must read. Without further ado, let's begin.
What is a smart contract?
25 years ago, Nick Sabo, an enthusiast of cryptographic protection, discovered that decentralized ledgers could be used to implement so-called digital “smart contracts”. These contracts are in the form of computer code and can operate on multiple nodes. Devices that control the blockchain can be used to monitor a smart contract. Consequently, it will facilitate transactions, the transfer of funds and the delivery of services and goods.
For a better understanding, you can refer to the smart contract definition given in Wikipedia. Seems too complicated? From the layman’s point of view, smart blockchain contracts are fragments of computer code that include certain contractual clauses that can be executed independently and enforced. Like any other decentralized ledger, intelligent contracts make the data completely safe - they cannot be falsified or altered. Many cryptocurrencies have begun to introduce this technology, and the most commonly used option is the smart contract Ethereum.
How do smart contracts work?
A smart contract does not resemble any paper counterpart. Yes, it can also be used to order services and products, conduct currency exchanges, or buy / sell real estate. However, unlike stacks of traditional documents, the blockchain smart contract is executed by itself - it takes effect automatically as soon as certain conditions are met.
If you want the blockchain of smart contracts to be explained in clearer terms, see this usage example:
To understand the principle of operation of blockchain contracts, imagine the “penny in slot” function. You decide to buy a cappuccino and insert coins into the slot. As soon as you press the corresponding button, the machine will instantly fulfill your order. Blockchain contracts do the same. They automatically perform some actions under certain conditions that trigger them.
Key benefits
Blockchain and smart contracts are revolutionary technologies that have created many opportunities and advantages. So, what exactly makes smart contracts useful to us? The list of benefits is a mile:
1. Accuracy of data. When people deal with paper contracts, there is always the risk of human error. Smart contracts guarantee data accuracy: details of conditions will not be changed by mistake. Skipping conditions may lead to transaction errors, but automatic contracts eliminate this risk.
2. Simple, understandable communication. Smart contracts must be precise and detailed - when everything is clear, the following conditions are simple. Thus, smart contracts facilitate communication, and participants have a full understanding of conditions and events.
3. Full transparency. Details of digital contracts are displayed for all interested participants. No conditions can be changed after such a contract has been activated. This eliminates the threat of data tampering, and all transactions are visible to interested parties.
4. Excellent speed. Because digital contracts run their code on the Internet, they can perform transactions at an exceptional speed, which saves hours or even days for business.
5. This is a paperless process. Good news for bureaucracy haters and nature lovers. With smart contracts, there is no need for manual processing of documents. Businesses are increasingly worried about the environmental impact, and switching to digital broadcasting is the easiest way to become greener and cut down on paperwork.
6. Excellent performance. Due to the high cost and 100% accuracy, smart contracts are very efficient and can process many transactions per unit of time. Again, this eliminates the need for third parties.
7. Exceptional security. Automated digital contracts use the most advanced encryption levels currently developed and set the standard for modern cryptocurrencies. This turns smart contracts into one of the most reliable things on the net.
8. Data integrity. Since each entry in the smart contract contains transaction information, this is a great solution for storing and backing up data. As soon as you use some information in a smart contract, it is added permanently and used for further recordings. In case of damage or loss of data, they can be restored in a jiffy.
9. It is cost effective. What is the main advantage of smart contracts for institutional users? Automatic contracts eliminate the need for intermediaries, resulting in lower costs.
10. This is trustworthy. Smart contracts are completely transparent, because no information can be changed after its creation. This eliminates the risk of manipulation and errors. The parties agree to follow the rules and provisions of the contract - the code does the rest.
No flaws yet?
Like any innovation, the system of chains of smart contracts is not without flaws - the medal has two sides. Some of its advantages create difficulties:
Smart contracts have the potential to revolutionize many industries. Use options are in:
1. Insurance. Companies automate their insurance policies, turning them into smart contracts. In certain events, the claims process starts immediately.
2. Content and copyright. Intellectual contracts are used to register ownership of content (images, music, text, video, etc.) and automatic transfer of rights. Tariffs and royalties for the use of content are provided instantly and transparently. It establishes the credibility of true ownership.
4. Banking. Smart contracts for cryptocurrency allow you to perform fast, cheap and transparent transactions. This helps reduce translation costs.
In addition, smart contracts are used in telecommunications, art, education, e-government, energy, and many other areas.
Now that smart contract technology is explained, you may wonder if it is already used anywhere. Yes, some companies are gradually introducing smart contracts. The following examples prove this.
How smart contracts work in special cases?
AXA, a French airline, uses a blockchain for insuring flights. In the case of delays, users with a proprietary application are notified of compensation options. The amount of insurance and compensation depends on the triggering event.
Populous uses digital contracts for billing. The role of technology is to eliminate risks, human error and duplication of documents. As soon as the invoice and its terms are settled in the system, users order it and transactions are executed using a digital contract.
DAO is another example. This project uses the most complex form of code - decentralized autonomous organizations. DAO is used for storing and managing registries (documents, certificates, etc.).
Ethereum smart contract: the backbone
Ethereum smart contracts are the most common. This code was invented by Vitalik Buterin in 2013 and published two years later. A virtual machine full of Turing executes the codes: it simulates a PC using its own logic. This makes the Ethereum contract more advanced than Bitcoin, which uses simple mechanisms for transactions.
Why do companies trust Ethereum with its infrastructure?
● This is the most frequently used technology of its kind, the founder of other contracts with the blockchain.
● Hardness is understandable and can be mastered by experienced programmers.
● Ethereum uses the ETH cryptocurrency, which is often used as a local currency.
● When it comes to the versatility of smart contracts, Ethereum is the absolute leader. It can be used literally in any area without restrictions.
● Ethereum allows you to create decentralized applications (dApps) that make data safe and transparent.
Today, more than 1,300 applications are being created or developed on the basis of this technology.
Examples of Ethereum smart contracts include:
1. IOST (Internet Services) is a by-product of Ethereum, which provides the tools and environment for creating decentralized applications. Being built on the basis of the Ether chain, it allows one to exclude intermediaries.
2. MEvU - decentralized P2P betting software. No matter what you bet on, Ethereum gives users the confidence that their bets are absolutely safe. This application was created to prevent cheating.
3. CryptoKitties is one of the first applications using Ethereum smart contract technology. This game allowed the use of digital “collectibles” stored on the blockchain — users breed their kittens using essential tokens to launch a digital contract. It sounds like nothing serious, but this application has demonstrated the power of Buterin's creativity.
In addition, let's not forget that Ethereum has a huge network of supporters who can potentially use smart contracts. The Enterprise Ethereum Alliance brings together several Fortune 500 companies, such as Intel and Microsoft, as well as numerous startups.
Bottom line
Now that you know what smart contracts are, you can imagine what potential you can realize. Digital contract technology has caused a stir in the cryptocurrency community and has opened up many opportunities for small and large companies, regardless of their specifications.
The blockchain of smart contracts is in its infancy: not many companies understand what it is and realize its advantages. The number of enterprises actually introducing it is even lower. However, in the next decade we will probably see the massive use of this technology in various niches.
