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What are Smart Contracts?
Smart contracts are simply contracts that are basically digital, but they carry out specific tasks based on their coding. They can carry out transactions of money, shares, crypto and more. These transactions are trackable but irreversible.
Smart contracts are used by blockchains for their transaction capabilities. They run on the blockchain, which is distributed and decentralized so smart contracts are stored on multiple nodes, making it secure and resistant to tampering
Smart Contracts In-Depth
Smart contracts was a term coined by Nick Szabo in the 1990s. It refers to pieces of code that carry out specific tasks and are executed in a deterministic manner. This means that if it fails a criteria then it results in a specific outcome and if it passes all criteria then it results in another outcome. For example, a vending machine requires one dollar to buy a snack, if you pay less than a dollar the vending machine will return the money, if you pay exactly a dollar then the vending machine will give the snack, and if you pay more than a dollar then it will give the snack and change. Similarly, smart contracts have such input outputs.
Smart contracts, specifically blockchain ones, are coded in Solidity, a coding platform designed solely for coding smart contracts. These contracts are coded in a immutable and deterministic manner, meaning that once written and executed they cannot be changed and provide fixed results. Additionally, they are distributed, meaning the output of the smart contract is validated by everyone on the network.
Pros vs. Cons
Pros
- Speed — Smart Contracts are carried out at quick paces, as soon as the the contract is filled the contract carries out the results instantaneously
- Cost — Compared to normal contracts, Smart contracts don’t require such a high fee and reduce the risk of hidden costs.
- Reusability — A critical aspect of Smart contracts is their ability to be used over and over again. These contracts can be used over and over again, but they can also be written differently for different purposes.
- Fraud — The way smart contracts are designed helps prevent it from experiencing any fraud, as the outcomes occur in a deterministic manner.
Cons
- Software bugs — Smart contracts are susceptible to bugs and this can be exploited by malicious users.
- Immutable Nature — Since smart contracts are immutable, they cannot be changed once they are uploaded to the blockchain, even if there is some error
- Unclear Legal Status — The legal and regulatory status of smart contracts is disputed and it creates challenges in enforcements
Examples of Smart Contracts
Ethereum: Staking Ethereum is done in a smart contract. This smart contract can then operate based on rules from the blockchain. Ether is held as collateral in this smart contract. Some of the outcomes or operations the smart contract does is that it can hold the money that is then given to the user as a reward, it can take money from the collateral if the user does something illegal, etc. These contracts help to the run the Ethereum staking system.
Bitcoin: Bitcoin likewise uses smart contracts, and they have a number of different uses. The major use of smart contracts are transactions, where one side waits for the transaction to fill up and is then paid that money. Another example is betting and fantasy sports pools, where Bitcoin can be betted in these sports platforms. Especially after the Taproot upgrade has Bitcoin seen a greater usage of smart contracts.
Future of Smart Contracts
Smart contracts have a great potential, maybe even eliminating the need for normal contracts. Smart contracts offer a path to secure and transparent transactions, transaction not capable of being offered by the normal system.
“Smart contracts on the blockchain represent a seismic shift in how we transact, removing the need for intermediaries and fostering a new era of trust, transparency, and efficiency in our digital interactions.” — Andreas M. Antonopoulos, Bitcoin advocate and author.
Thank You for Reading
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