With the rising popularity of ICOs it becomes necessary to learn about smart contracts technology. Just like the traditional agreements, smart contracts define the prerequisites on the blockchain to which all permitted parties have to agree. The specific actions on the blockchain execute as soon as the conditions defined in the smart contract stack are met. It’s that simple. The best thing about smart contracts blockchain is that these self-executed programs with predefined protocols wipe out the need of third parties.
The concept of cryptocurrency and blockchain isn’t new for the common people. However, the new entrants usually do not have comprehensive knowledge about a blockchain info system functions. For instance, how many of you know about the smart contracts except these are self-generated programs blockchain. But, actually, everything related to blockchain-based digital trading primarily depends on smart contracts. It’s consistently pushing the global economy to shift toward a more profound and secure digital ecosystem. Therefore, anyone interested in crypto-trading needs smart contracts blockchain explained adequately.
What are Smart Contracts?
If you want to know about smart contracts then you need to know the simplest form of explaining a smart contract is that ‘it’s a piece of secure computer program or code built on blockchain that will execute the actions against specific criteria conformed to completion.’ The blockchain development, as a decentralized ledger for transactions in cryptocurrencies, these smart contracts exist for all the parties involved.
From fiat money to paperless currency, the world is remarkably changing the way it operates. For instance, with smart contracts on the blockchain, you don’t have to pay intermediaries when exchanging money or any other assets, or anything of – saving you time and conflict.
The whole idea of smart contract is based on the concept of storing and implementing these tiny computer programs (identical to physical world contracts, but digital) within a distributed ledger.
Ethereum Smart Contract as an Automated Fund Collector:
A Ethereum smart contract does not function only as a software program that stores and implement the rules of negotiating terms of a business agreement, automatic verification of statutory requirements and, then, execution of the agreed terms. It can also perform the same actions as involved in the crowdfunding; setting goals, sharing projects and funds collection – but without any mediator.
Simply put, a smart contract performs all the actions from receiving funds until achieving the set goals. The raised money is automatically transferred to the end user as soon as all criteria or protocols are met before the deadline. In case of failure, the money will go back to the investor. It means your money is safe with smart contracts.
What Makes Smart Contracts Trustworthy?
As the smart contracts are stored and function within blockchains, they inherit a lot of properties from these decentralized, public ledgers.
- Smart contracts are distributed entities:
Identical to any digital transaction on the blockchain, anyone in the network can validate the outcome of the contract. It allows all the participants to mark any event invalid in case of any fraudulent activity they detect.
- Smart contracts are immutable:
Once implemented and stored on the blockchain, no one can change a smart contract. No hacking, tampering or breaking the contract is possible because of their inconvertible nature. Moreover, even if a hacker somehow penetrates into the system he cannot releases the funds because of these immutable smart contracts.
Working Mechanism of Smart Contract:
Simply put, a smart contract is a code containing specific terms executed when triggered by already settled and approved events.
Smart contracts are based on logically behaved algorithms that allow the hosts (investors) and guests (end users) to come in compliance with the agreed terms. Now as the coding and protocols are involved, no party can cheat. And, no transaction is processed unless conditions are fulfilled.
A Case in Point:
John wants to sell his house. Joseph is looking for a home to purchase. And, both want it through blockchain. The system will create independent storage where the can put value. Remember, once added, none of them can easily take their money out unless the project fails for any reason. In this case, the funds will be reverted to the owner.
With the storage creation, a smart contract is also generated within the blockchain. Following events are carried out in this self-executed smart contract against fixed terms.
Joseph adds money in the storage for purchase
John enters the address and code to his house in the storage.
The stored information is exchanged between the two.
Joseph needs to confirm the provided address and house code; if accurate, John will get the payment.
If John’s provided information is incorrect, Joseph will get his money back her submitted in the form of cryptocurrency against which the smart contract and storage was created.
If the buyer doesn’t check personally, the seller will get the liquidated damages payment, and the remaining amount will go to the buyer (Joseph).
In either case, the agreement ends, and the smart contract is considered completed and will remain stored in the blockchain.
Overall, blockchain network guarantees the smart contract fulfillment. Depending on the business nature, one smart contract can be used by the host. For instance, if John deals in real estate, he can use the same contract to sell other properties despite creating a new smart contract for every new guest (buyer).
It will be a sort of universal agreement that will make things convenient for both parties. Ethereum is the best option to design, create and implement smart contracts.