what is smart contract in blockchain technology of Ethereum and How do Smart Contracts Work
Today, we will talk about Smart Contract. What is Smart Contract?. Many still do not understand the meaning behind Smart Contract. Let’s see, what is the use of Smart Contract. In this article, will be briefly explained about Smart Contract.
After this, you no longer need to use Google to search for “Smart Contract”. This article will also explain more about how smart contract started, were used and how can change society today.
In 1994, Nick Szabo, a cryptographer, came up with the idea of being to record contracts in the form of computer code. This contract would be activated automatically when certain conditions are met. His idea could potentially remove the need for trusted third-party companies.
Why, though? The answer is simple. Because yo no longer need a trusted third party when you make a transaction. Instead, the contract (or transactions) are Self-Executed on a trusted network. That is completely by computers. Sounds like “The Terminator Movie”.
Did you know that, Szabo worked on this idea for many years and even wrote a book about Smart Contract called: “Smart Contract: Building Blocks for Digital free Markets”. The problem was that back in 1994, blockchain technology didn’t exist.
But it does now! In 2009, Bitcoin introduced the first use of blockchain technology. In 2015, Ethereum was founded by an intelligent young man named Vitalik Buterin. And it introduced the first working smart contracts.
That’s a little bit about the history of smart contracts. In this article, there are three main key points for smart contract:
First, a smart contract is an agreement between two people in the form of computer code. They run on the blockchain, so they are stored on a public database and cannot be changed.
Secondly, the transactions that happen in a smart contract are processed by the blockchain, which means they be sent automatically without a third party.
Third, the transactions only happen when the conditions in the agreement are met. There is no third party, so there are no issues with trust.
How do smart contracts work, then?
For example, as this as the first scenario when you buy water at a vending machine the water is worth of $2, but when you insert a $1 coin, the water will not come out when you enter $3. The vending machine will issue a code to withdraw water and the rest of your money. This is a simple for smart contract.
Second scenario, John wants to buy David’s house. This agreement is formed on the Ethereum blockchain using a smart contract. This smart contract contains an agreement between John and David. In the simplest terms “when John pays David 300 Ether, Then John will receive ownership of the house.”
Without the use of a smart contract in this scenario, they would have to pay lots of fees to third-party companies. Including the Bank, a lawyer and house broker. If they use the smart contract, all transactions will be simplified. No more Delays, No more Commission for third party.
There are among the simple examples for smart contract. In fact, there are many more uses for Smart Contract. Smart Contract are automatically executed once the conditions of the agreement are met. This means there is no need for a third party.
The use of Smart Contract is Not limited, it is Endless!. They are already being used for Financial trades and services, insurance, credit authorization, legal processes, and even for crowdfunding agreements.
We can see that Smart Contract can replace a third party or middleman. What would happen then? The best thing about having no middlemen is the fact that we save a lot of money. Not only that, but we would no longer need to trust anyone, either.
Read also: Why Cryptocurrency is Better Than Cash
However, there is a potential downside, too, though: people may lose their jobs. A middleman is a real person, just like you and me. Why would someone pay an employee to do a job that could be done for free by using a smart contract? Of course, no one knows what the future holds. All we can do be prepared for all possible outcomes.
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