What Is a Smart Contract and its uses in Blockchain
On Jan 06, 2021
Table of Contents
In this blog, we tried to provide the answers to all these questions and more for you, What is a smart contract?, What are smart contracts used for?
Over the years, technology has progressed at an unprecedented scale. Suddenly, the devices which we use regularly began to be characterized as “smart.” Although it might not sound believable, even contracts – written agreements between private parties, have jumped to the next level with the technology revolution. Thus, we heard the term “smart contract”. For many people, human-free legal action may seem impractical and complicated. If so, read this more carefully.
If you’re familiar with Blockchain technology and the Ethereum network, you’ve probably heard the term “smart contract” before. A smart contract is an expression used to describe the computer code running on the blockchain that will facilitate the exchange of money, content, property, shares, or any value.
What Are Smart Contracts Use For?
Now imagine you wanted to buy a house. This is how the process works with the traditional method. First, you make a price agreement with the dealer. Then, after depositing a certain amount of money, you receive the certificate of ownership. Now the purchase doesn’t end just like that. In the remainder of the transaction, you should check whether the ownership document is legal or not. For this, you have to hire a lawyer and pay him a certain fee. Then a whole lot of time-wasting paper signing jobs like this to finish the purchase.
Now let’s look at how the same transaction executes with a smart contract. There will be no difficult and at the same time long processes that will take your time. Everything is already recorded in the blockchain ledger. You can see the legality of all additional documents besides the price of the house you want to buy. All you have to do here is to allow the “if-then” mechanism and buy the house automatically after paying a certain amount.
For example, let’s say the price of the house you want to buy is 1 million. If you pay the deposit, you start legal purchases in the continuation of the ledger. Once the price of the house has been paid in full, the ownership documents are transferred completely in your name. And not one person doing this, but hundreds. In other words, hundreds of nodes automatically verify the accuracy of this process for you. That’s why you complete your transaction both reliably and smoothly.
Real-life examples of smart contracts are extremely wonderful. By using it, in the same way, you can also buy a car or another property and rent out your house.
Who Is the Creator of Smart Contracts?
Smart contracts are an idea first introduced in 1996 by computer engineer and cryptographer Nick Szabo. Over the years Szabo has made various edits and publications on the concept. In his article, he explained the concept of electronic commerce protocols and legal contracts between strangers on the internet. But until the first cryptocurrency Bitcoin emerged with its blockchain in 2009 and offered a suitable environment for smart contracts, smart contracts were not implemented.
This is how programmer and author Vitalik Buterin, who best-known as one of the co-founders of Ethereum, describes smart contracts.
“A smart contract is a mechanism involving digital assets and two or more parties, where some or all of the parties put assets in, and assets are automatically redistributed among those parties according to a formula based on certain data that is not known at the time the contract is initiated.”
Advantages of Using Smart Contracts
Gives you control of the agreement – eliminate the need for a third-party mediation
Nobody can steal or lose your documents – you don’t need to have set trust between you and the other party. Your documents are encrypted and stored securely in a shared ledger.
It’s more cost-effective – with smart contracts you don’t need to pay additional fees to notaries, real estate agencies, experts, and many more intermediaries.
Secure – perfect environments for smart contracts protected with cryptographic encryption to keep your documents safe and prevent people from changing records.
Saves time – you can save time by handling traditionally day-long operations within hours or even from where you sit with a smart contract.
In a nutshell, a smart contract is a certain computer code generated in the Blockchain network. And the participants or nodes on the network execute these codes with the “if this then that” logic. You can think of it simply as a vending machine. So, as long as you put the right and required amount in the vending machine, the machine will do whatever action you want automatically.
There are important technological differences between the old times, which most of us have experienced and most of us only watch in movies, and today. Back then, handheld mobile phones were only used for communication, but now we can almost meet our needs, including daily work, with a phone. Especially during the pandemic in 2020, technology suddenly went a few levels further. You can buy Bitcoin in Dubai with cash along with cryptocurrency consultation service. In almost all industries, people have experienced working online. In fact, in many countries, technology has suddenly made progress that would normally take years, according to some sources. Now, these smart contracts will also be part of this progress.