Technology

Smart Contracts – Simply explained

Smart contracts are very prevailing nowadays. However, what are they and what obstacles do they solve? The term “smart contract” was first used by Nick Szabo in 1997, enduring before Bitcoin was conceived. He is a law scholar, computer scientist, and cryptographer.

However, in simple terms: he needed to use a distributed ledger to store contracts. Now, smart contracts are just like contracts in the contemporary world. The only distinction is that they are entirely digital. In particular, a smart contract is a tiny computer application that is collected inside a blockchain. Let’s take a glance at an example to concede how smart contracts operate.

Kickstarter, the critical fundraising platform. Product teams can go to Kickstarter, fix a funding goal, design a project and start accumulating money from others who understand the idea. Kickstarter is a third party that lies among product teams and supporters. This suggests that both of them need to trust Kickstarter to manage their money accurately. If the project gets fortunately funded, the project team requires Kickstarter to provide them the money.

On the other hand, subscribers want their money to go to the project if it was financed or to get a refund when it hasn’t attained its goals. However, with smart contracts, we can produce an equivalent system that doesn’t require a third-party like Kickstarter. So let’s express a smart contract for this! We can display the smart contract so that it manages all the accepted funds until a particular purpose is reached. The followers of a project can now assign their money to the smart contract. If the project gets entirely funded, the contract automatically promotes the money to the producer of the project. And if the design breaks to satisfy the goal, the money automatically goes back to the subscribers. Pretty impressive right? And because smart contracts are deposited on a blockchain, everything is ultimately distributed. With this procedure, no one is in control of the money.

But wait a minute! Why should we trust a smart contract development company? Well because smart contracts are stored on a blockchain, they inherit some unusual properties. They are changeless and they are distributed. Being changeless means that once a smart contract is formulated, it can never be changed again. So no one can go behind your back and tamper with the code of your contract. And being distributed means that the production of your contract is authorized by everyone on the network. So an individual person cannot overcome the contract to release the funds because other people on the system will spot this effort and mark it as unreasonable. Tampering with smart contracts becomes practically unthinkable.

Smart contracts can be applied to many various things, not just on crowdfunding. Banks could use it to assign loans or to offer automatic payments. Insurance companies could use it to process individual claims. Postal organizations could use it for payment on transportation, and so on. So, now you might question how and where you can practice smart contracts. Right now there are a few of distributed ledger technology development company who support smart contracts, but the significant one is Ethereum. It was explicitly constructed and planned to sustain smart contracts. They can be processed in a particular programming language called Solidity. This language was designed explicitly for Ethereum and uses a syntax that resembles Javascript. Its worth noting that Bitcoin also has support for smart contracts although it’s a lot more limited compared to Ethereum. So now you understand what smart contracts are and what difficulty they answer.

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