In this article, we'll review what a smart contract is. By the end of this post, you'll know the answer to the question: what is a smart contract, and how does it work? Before pivoting to smart contracts, we'll start by discussing what a blockchain is.
Let's get right into it!
What Is Blockchain?
Blockchain falls under the umbrella of Distributed Ledger Technology (DLT.)
Ok.. What's that?
Distributed Ledger Technology is the overall infrastructure that provides blockchain with revolutionary features.
Well, DLT allows blockchain to be:
- Programmable: Developers can run creative programming mods that add new functionality to a blockchain. (Smart contracts are an example of this!)
- Secure: Blockchain has built-in security. It can't be manipulated or modified by third parties. Every transaction on a blockchain is individually encrypted, making it pretty much impossible to tamper with. Once a transaction is added to the chain, it can technically never be altered.
- Transparent: Another benefit is blockchain's transparency for all parties involved in a transaction. For example, when a transaction occurs, all network participants receive a copy of the ledger.
- Decentralized: The greatest benefit is blockchain's ability to record transactions across many locations. This eliminates the need for a central authority (like a bank) to control and manipulate transaction records.
There are more features, but these are the most significant.
Now that you understand blockchain's characteristics better let's look at how smart contracts work.
What Are Smart Contracts?
As blockchain technology continues to flex its value to the world, individuals and businesses alike are progressively adopting it for various applications.
One of these applications is smart contracts.
Smart contracts are programs stored within a blockchain.
What makes these contracts 'smart' is their ability to trigger when predetermined conditions are met automatically.
Smart contracts execute basic 'if' and 'then' statements written in code. Once the 'if' condition is met, a network of computers will verify and then fulfill the contract.
And once conditions on a smart contract are set, they can't be changed.
Let's look at an example.
Mike wants to buy Roger's house, so the two set up a smart contract on the Ethereum blockchain.
The contract's terms are: IF Mike sends Rogers 50 Ethereum, THEN Mike gains ownership of the house.
In this example, let's look at how Mike and Roger benefit by using smart contracts.
What Are The Benefits Of Smart Contracts?
How Are Smart Contracts Being Leveraged Today?
While we're still far from fully adopting smart contracts as the new standard, several bodies have already started leveraging their power.
Governments:
Remember the U.S. presidential election of 2016?
Many voters suspected Russia of hacking the polls to push the result in favor of Donald Trump.
This wouldn't have happened if the U.S. government used blockchain technology to count votes.
Why?
Because blockchain technology would make voting much more secure!
Because once a vote is registered on the blockchain, it cannot be modified.
For example, in its simplest form, the election's smart contract would have the following rules coded in:
- If candidate A receives more votes than candidate B in state XYZ, then Candidate A wins the electoral votes belonging to that state.
- If candidate A receives more electoral votes than candidate B, then candidate A wins the election.
This would protect the election from:
- Human error of miscounting votes.
- Any conceivable threat of hacks or cyber-attacks.
- Criticism and distrust of the election being rigged or unfair.
- Voter fraud.
Businesses:
Businesses stand to make significant savings by harnessing the power of smart contracts. Take, for instance, the expensive operations of running payroll departments, which involve considerable management, compensation, and maintenance costs.
Now, picture a scenario where a business deploys smart contracts for each employee. These automated contracts can accurately track the number of hours an employee has worked, calculate the due remuneration, and establish the right timeframe for its disbursement.
Implementing smart contracts would result in substantial savings for businesses, both in terms of money and time, making them an economically viable solution to traditional payroll departments.
Conclusion: What Is a blockchain smart contract?
Are you starting to see how smart contracts can revolutionize how we do things?
I sure do.
Smart contracts have the potential to eliminate middlemen from our world.
And a world without middlemen is a more efficient and affordable one. One where we can save much more money and get things done faster.
A world with less fraud, delay, and complexity.
However, there's a downside.
You guessed it. Middlemen are people like you and me.
When smart contracts eventually take over, many people will lose their jobs, and several industries will suffer before they can adjust.
After learning about what is a blockchain smart contract, do you agree smart contracts are the future?
Do you believe they are phenomenal breakthroughs for businesses, governments, and individuals?
Or are they just another automation tool that'll kill jobs and hurt the economy?
Let me know in the comments!
Talk soon.
