What Are Smart Contracts?
Smart contracts can significantly simplify the processes in different areas of life. But what are smart contracts anyway ?
Smart Contracts are computer programs in which sentences and commands capture the terms of the contract in code. The Smart Contract can be created and accessed by programmers, legal entities or individuals, but also by machines or other computer programs that operate and operate autonomously.
The contents of the Smart Contracts are subject to valid jurisdiction without being dependent on government agencies or other authorities. The virtual contracts consist of a code that is stored in the blockchain. They are stored and executed decentrally on countless different nodes - network nodes. This secures the data since several thousand copies exist and makes manipulation almost impossible.
Other than the name suggests, the Smart Contract is neither smart nor intelligent. He can not learn or make independent decisions as artificial intelligences can. He just solves the tasks that were given to him.
Smart Contract 1994 defined
The lawyer and cryptographer Nick Szabo defined the concept of the Smart Contract in 1994 . With the existing technological infrastructures of his time, it was not yet possible to put the concept into practice. Only with the appearance of Bitcoin and the underlying technology of Blockchain these intelligent contracts could be realized.
With Bitcoin limited Smart Contracts are executed by assets are transferred from one to another person. Only when nodes, the decentralized network nodes, validate the appropriate conditions, the exchange of Bitcoin takes place.
To perform operations of a more complex nature, the scripts of the Bitcoin blockchain are not sufficient. This requires a computer language that allows developers to write their own programs. One of them is Solidity, the internal developer language of the Ethereum Blockchain.
How do Smart Contracts work?
Ethereum is the first and to date largest platform for the creation and execution of Smart Contracts. With its own crypto-currency Ether (ETH), the initialization (the storage of records in the blockchain), changes and the execution of the Smart Contracts are paid.
How does that work exactly? Each program statement in a smart contract has a certain degree of "complexity" that is measured in gas. The more extensive the function, the more instructions must be executed and the more gas is consumed. A transaction is principally a function call that must be paid for. These transaction fees, the so-called gas price, changes depending on the number and complexity of the calculation steps.
When creating the transaction, you must specify how much gas can be used at maximum or how much ether you are willing to pay for each gas. Similar to Bitcoin, the number of transactions is limited in a given period of time. If many transactions occur at the same time, more must be paid for the transaction to be preferred and confirmed earlier. The miners prefer to select the transactions where the gas price is highest because they receive the fee.
There are countless other platforms for smart contracts that differ in purpose, by industry, or by open or closed systems. Other major platforms for running smart contracts are Hyperledger Fabric, Corda, Lisk, EOS, etc.
How smart contracts change the world
Smart Contracts have an incredible disruptive power. In almost every case where intermediaries act, they can be replaced by smart contracts. Existing products and services can be made simpler, cheaper, faster, and completely new applications and industries emerge. Changes are possible in every area: more efficient information exchange in decentralized areas such as the energy market, secure identity management in administrations, unambiguous assignment of copyright of digital media or complete documentation of pharmaceutical products. Electronic elections can be carried out tamper-proof and entire companies can be stored locally in the blockchain.
There is no lack of vision: virtual states can be founded, state services offered across borders, and the entire world digitally mapped.
Examples of Smart Contracts
The combination of Smart Contracts and the Internet of Things (IoT) is a novel infrastructure for a true sharing economy, with no intermediary companies to collect commissions and dictate conditions.
Community purchases, such as a self-driving car, manages and rents to its participants themselves, without an intermediary company (such as Uber, Drive Now, etc.) intervening and taking agency fees.
True peer-to-peer systems become possible, eg. B. an Airbnb without Airbnb. Doors rented (holiday) apartments open after money has been transferred. If damage occurs, the networked furniture and equipment will report it to the Smart Contract and the deposit will be automatically retained until cleared.
In the field of logistics, containers only open when the smart contract books incoming payments. Month-long payment delays by the customer can be avoided.
New (business) models in the development and insurance industry can be developed. Thanks to a smart contract, crop failure insurance is insured by small farmers in developing countries. If there is drought or flooding, the weather data is transmitted to the Smart Contract and then the default sum is calculated. With the lower premiums and contract sums of around US $ 100 for a piece of land, the sum would exceed the administrative costs of insurance carriers.
With Smart Contracts, the whole process of a contract can be mapped: the contract initiation, the review of the contract holder and the negotiation and execution of the conditions. Smart contracts simplify or curtail structures: contracts such as a will can be created and updated at no cost, and they can be used to allocate assets after death. If the contract takes effect in the event of death, the funds can be transferred to the address specified in the contract.
Benefits of Smart Contracts
Smart contracts have a number of features that can simplify many processes, reduce costs, and make applications safer. This creates services and products that were previously too expensive.
Verbal or written language can always be ambiguous or interpreted differently. Lawyers and judges, despite binding and usually unequivocal case law, have room for interpretation of contractual statements. Smart contracts eliminate these problems and thus guarantee higher contract security, since there are fixed conditions that leave no room for maneuver.
The virtual contract does not need a written signature. This simplifies the creation of a contract and simplifies or reduces bureaucratic structures.
Consumers save time and money as they do not need notarial credentials and do not need to go to distant places.
Dispensing with intermediaries saves costs and enables a true peer-to-peer system. Between two parties, automated contracts take place in a "neutral" decentralized, shared network.
Another advantage is the decentralized storage on the blockchain. The distributed data records enable secure storage of the data. Censorship is made almost impossible because once written into the blockchain data can not be changed.
Source of info cryptomonday.de.