It’s no longer news that technology has made business easier. So in this vein, it also made reaching an agreement even way easier without the necessity of a third party. With just a simple conditional statement of a programming language, you can seal an agreement seamlessly. Yes, as newbies you may feel some kind of confusion at this point. We clear your doubts before you finish reading this page. We have clearly explained what a smart contract is. Even more, we talked about smart contracts in cryptocurrency.
Meanwhile, a lot of people have this thin understanding of what a smart contract is and how it works. Many see it as just a network where every interested party adds up their asset for accumulation just to grow a blockchain. Yes, we can find a near truth to the fact that smart contract serves this purpose. But the question should be why? What is a smart contract in cryptocurrency? We need to understand the purpose of this technology to know how many benefits it serves.
Hence, considering this, our group of professionals at Blockfarm has carefully explained smart contracts in cryptocurrency. Giving lots of examples and its benefits. Ensure to read to the end.
What is Cryptocurrency?
Cryptocurrency is simply digital assets that have amounted significant monetary value. It operates under a decentralized economy and works with the principle of blockchain technology.
Furthermore, a blockchain is a decentralized network of a growing list of records/blocks. Blockchains are linked through cryptography. A blockchain network does not contain a single central point like a traditional database. The data stored in the blockchain become shared between all the computers that comprise the network. Thus, the network has less exposure to possible failures or attacks.
What Are Smart Contracts in Cryptocurrency?
Now, smart contract in cryptocurrency comprises how you can seal a contract through the blockchain of the crypto sphere. Hence, in a nutshell, a smart contract in cryptocurrency is a self-executing contract having terms of the agreement between buyer and seller directly written into lines of code. While the code and the treaties reached contained in the code exist across a distributed, decentralized blockchain network. The code regulates the execution. While transactions are irreversible and trackable.
Furthermore, smart contracts allow one to carry out trusted transactions and agreements among separate, anonymous parties without the need for a central authority, legal system, or external enforcement mechanism.
However, Nick Szabo an American computer scientist who invented a virtual currency called “Bit Gold” in 1998 first proposed the concept behind smart contracts in 1994. This is 10 years before the invention of bitcoin. We often rumored to call him the real Satoshi Nakamoto, the anonymous inventor of bitcoin, which he has denied.
Szabo defined smart contracts as automated transaction protocols that carry out the terms of a contract. He expected to expand the functionality of electronic transaction methods, such as POS (point of sale), to the digital sphere.
In his paper, Szabo also formulated the implementation of a contract for synthetic assets, such as derivatives and bonds. A note from Szabo says “The formation of these new securities comes from combining securities (such as bonds) and derivatives (options and futures) in a wide variety of ways. You can now build very complex term structures for payments into standardized contracts and trade them with low transaction costs, due to computerized analysis of these complex term structures.”
Important Points To Note
Many of Szabo’s forecasts in the paper came true in ways coming before blockchain technology. For instance, derivatives trading is now mostly performed through computer networks using complex term structures. Meanwhile, note these important points from the definition of smart contracts in cryptocurrency.
How Smart Contract Works
Time Needed : 1 minutes
Below we have carefully described how smart contracts work in steps.
Transfer contract terms into code
In a smart contract, firstly the two parties involved determines the terms of the contract. When they finalize the contractual terms, they become translated into programming code. The code involves several conditional statements that describe the logical scenarios of a future transaction.
The code is stored in a blockchain and duplicated between parties
When they create the code, they stored it in the blockchain network and replicate it among the participants in the blockchain.
When a term is met, computers in the network validate its accuracy.
As the code is running and executed by all computers in the network, if the term of the contract is satisfied and it is validated by all parties of the blockchain network, then the appropriate transaction is executed.
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Benefits of Smart Contracts
#1. Speed, Efficiency, and Accuracy
One of the great benefits of smart contracts includes it spread and accuracy of the response. Thus, once the set condition is met, the contract executes immediately. Also, knowing the digital and automated nature of smart contracts, you do not need any paperwork to process and no time spent intervening in errors that often result from manually filling in documents.
#2. Trust and Transparency
Due to the fact of no involvement of a third party, and because encrypted records of transactions become shared across participants, you don’t need to question whether information has been altered for personal benefit.
Transactions carried out through Blockchain transaction records have great encryption, so making them very hard to hack. Besides, each record has a connection to the previous and subsequent records on a disseminated ledger, so hackers would have to alter the entire chain to change a single record.
Smart contracts eliminate the need for mediators to handle transactions and, in addition, their associated time delays, and fees.
Applications Of Smart Contracts In Cryptocurrency
Best Smart Contract Platforms
Ethereum tops the list of smart contract platforms in cryptocurrency. The beauty of the Ethereum smart contract platform includes the degree of standards and support it offers. Ethereum published a set of clearly defined rules for developers to observe, making smart contract development less risky and easier.
Launched on March 31, 2015, NEM became favored by some developers because it is written in Java, which is one of the most applied programming languages in the world.
#3. HyperLedger Fabric
HyperLedger fabric is an open-source project that has the goal of supporting the growth of blockchain-based distributed ledgers.
Maintained by the Stellar Development Foundation stellar has gained wide recognition as one of the most exciting blockchain startups out there.
Waves is an open-source platform aimed to address many of the current barriers that stand in the way of more mainstream blockchain execution, namely speed, and scalability.
Frequently Asked Questions About Smart Contracts in Cryptocurrency
What is a smart contract?
A smart contract is a digital blockchain-based contract that stimulates an agreement and sometimes an exchange between two participants. You can use it to agree on a property transfer or automate supply chains, etc.
Which is a good smart contract platform?
Ethereum is a great place to create and host smart contracts. The platform has its smart contract language “Solidity” that helps smart contract development.
Where can I find smart contract programmers?
Looking to create a smart contract? Then you will need great developers. You can find expert smart contract developers online t different freelance websites.
Finally, coming to the end, smart contract in cryptocurrency has initiated many improvements in our financial growth and secured many transactions online. Deploying it to a business agreement is a great idea. Meanwhile, we hope you’ve clearly understood the basics of smart contracts and how it works. Feel free to ask us any questions in the comment box below.