SMART CONTRACTS (S.C.)
Blockchain has started a movement in a lot of aspects in our daily routines and lives. Its potential is affecting a lot of aspects of financial services, logistics, social networks, online gaming and a lot more. The biggest change is on how we use and interact with money. Bitcoin started this and then brought a decentralized global system. After bitcoin the most dominant cryptocurrency has been Ethereum, it brought its first implementation on smart contracts.
Smart Contracts was first defined in 1996 by a guy named Nick Szabo. It was described as a computer protocol intended for facilitating digitally, verifying, or enforcing the negotiation of a contract. Today smart contracts are slightly different, it can be used as a computer code that runs on a decentralized network and is able to transfer, receive and store money.
Benefits of S.C.
- Independent — it doesn’t have an owner and no one can control or change it.
- Autonomous — works solely according to its code and sustains its own balance.
- Computer code — as it is a computer code it cannot make errors (the only one who could make a mistake is the developer wrote the code)
- Runs on a Decentralized Network — Decentralization is the most important security measure that keeps smart contracts as powerful as described.
So what does decentralization mean? In this, the code is not running on one computer instead it runs on an open network where anyone can validate the code. Ethereum is running the environment but mainly it can be any blockchain that can allow running smart contracts on it. it’s worth mentioning that the main difference between bitcoin and Ethereum is that bitcoin allows a limited amount of commands while Ethereum allows programming with a fully operating program, in a simple way of explaining this, decentralized is important to make smart contracts immune to hacking by some owner of the system and allows it to be more resistant to attacks.
To transfer, receive and store money as a part of the functionality. S.C. should enforce their terms on its users. Enforcement of smart contracts is done financially by the contract itself and therefore should be sustainable from one code. As we all know cryptocurrency only exists in code forms, using smart contracts can help you manage accounts and handle transactions which may eliminate your need for a middleman.
So basically, smart contracts are a new way to create and manage financial systems without a need for a middleman.