Definition of Smart Contracts
Most people may ask what is a smart contract at the beginning of investing in the cryptocurrency market. Here is the answer, smart contracts are simply programs stored on a blockchain that run when predetermined conditions are met. But unlike a traditional contract, smart contracts’ terms are executed as code running on an Ethereum blockchain They can be stored as part of a blockchain-based or other distributed ledger technology and integrated into various payment mechanisms and digital exchanges involving Bitcoin and other cryptocurrencies. Once a smart-contract app has been added to the blockchain, it generally can’t be reversed.
Benefits of Smart Contracts in Blockchain
To begin with, as they are run on the blockchain, smart contracts promise security, reliability, borderless accessibility, and traceability. Moreover, smart contracts come with open and transparent rules, and data is visible to the public, which means that there could be no false or hidden transactions.
Secondly, thanks to their security, smart contracts can, to a great extent, avoid any interference under normal execution.
Thirdly, as blockchain technology features decentralization, it can significantly improve the cost-effectiveness of smart contracts.
Last but not least, they are typically used to automate the execution of an agreement so that all participants can be immediately sure of the outcome without the intermediary’s involvement or time loss.
How Does a Smart Contract Work
Smart contracts were first proposed by Nick Szabo, a computer scientist, and legal professional, in the early 1990s. Smart contracts work by following simple “if…then…” statements written into smart contract code on the blockchain. Smart contracts can automate virtually any kind of transaction. A good analogy here is the use of vending machines. In such a scenario, once a user selects the product and completes the payment, the delivery logic will be triggered, making the machine deliver the desired product to the user. This process requires no human intervention, which saves the labor cost of sales. In other words, as far as Ethereum smart contracts go, a network of computers executes actions when predetermined conditions have been met and verified. These actions could include releasing funds to the appropriate parties, registering a vehicle, sending notifications, or issuing a ticket. The blockchain is then updated when the transaction is completed. That means you can not change the transaction, and only parties who have been granted permission can see the results. Moreover, smart contracts can be programmed by developers.
Smart Contract Decentralized Applications and Blockchain
Blockchain-based smart contracts are helping make transactions, and other business processes more secure, efficient, and cost-effective, thereby reducing transaction costs. Meanwhile, smart contract data is encrypted on a shared ledger, making it virtually impossible to lose the information stored in the blocks. For example, in 2016, people used blockchain to create a database to transfer and track property titles in some regions. In addition to the traditional paper deed, the buyer also received a digital token that could be used as proof of ownership when these transactions occurred. A variety of industries could benefit from using blockchain-based smart contracts as part of their supply chains. For instance, automating healthcare payments using smart contracts can reduce overbilling and prevent fraud. Moreover, the music industry could record the ownership of music in the blockchain. The most popular smart contract blockchain platform is Ethereum, which is also a widely-used crypto platform. The Ethereum community has developed the Solidity language for writing smart contract applications designed to run in the Ethereum Virtual Machine (EVM) execution environment.