Smart Contracts Explained
In this article you will find more information about the history of smart contracts, how it works, and why Smart Contracts are essential for the crypto industry.
A Smart Contract is essentially an automated agreement between the contract creator and the recipient. This agreement is written in code and included in the blockchain, making it immutable and irreversible. Smart Contracts are usually used to automate the execution of a deal so all parties can be assured of an immediate conclusion without the need for intermediaries.
An enforced contract is a signed contract that establishes a contractual relationship between two or more parties. Once the contract is duly signed, each party promises to comply with the legal obligations agreed in the written agreement. Popularized by Ethereum, the second-largest blockchain globally, Smart Contracts have led to the development of decentralized applications (DApps) and many other use cases.
How do Smart Contracts work?
Let’s think of these Smart Contracts as if and then statements between parties. If the needs of a group are met, then the agreement can be honored, and the contract is considered finalized.
They can be programmed to work for the masses, replacing government mandates and retail systems. In addition, they would eliminate the need to bring inevitable disagreements to court, saving the parties both time and money.
This security is due primarily to the Smart Contract code. On Ethereum blockchain we have the smart contracts written in a programming language called Solidity and the limitations and the rules are written in the network code so that no perpetrator can manipulate the controls. Ideally, these limitations would mitigate hidden contract changes or scams. Smart Contracts can only take effect if all participants agree.
The idea of a Smart Contract can be focused on several steps. First, a Smart Contract will require a deal between two or more parties. Once established, the two can have an agreement on the conditions the contract will be considered completed. The decision would then be encrypted and written in the smart contract, stored in the blockchain.
Once the contract is completed, the transaction is recorded on the blockchain just like any other. Then all nodes will update their blockchain copy with this transaction.
Now you might be wondering if Bitcoin and other networks can use Smart Contracts. In a way, yes. Each BTC transaction is technically a simplified version of a contract, and Layer-2 solutions, such as Lightning Network, have been developed to extend network functionality.
Unlike most blockchain networks described as a distributed registry, Ethereum is considered a state machine, known as the Ethereum Virtual Machine (EVM). Ethereum status is a large data structure that holds all accounts and balances and a status machine. According to a predefined set of rules, this can be changed from block to block and can randomly execute the machine code. EVM defines the specific rules for changing the state from block to block.
In addition, over 200 Smart Contracts were listed on the Cardano blockchain in September 2021. ADA Smart Contracts are implemented using Marlowe, Plutus, and Glow programming languages.
Smart Contracts History
Smart Contracts have long preceded blockchain technology. While Ethereum is the most popular protocol implementation, cryptographer Nick Szabo established the idea in the 1990s.
At the time, Szabo was conceptualizing a digital currency called Bit Gold. Although the asset was never launched, this predecessor of Bitcoin highlighted the use of the smart contract – untrusted transactions on the Internet. If Web 1.0 was the Internet itself, and Web 2.0 was the advent of centralized platforms, then Web 3.0 is the automated version powered by the digital space user.
Many, including the Ethereum website, compare Smart Contracts to a vending machine. These distributors provide the product to the customer without a real person to take the money and provide the product. Smart contracts serve the same purpose but are more versatile.