Smart Contracts: A Brief Overview

Nick Szabo first propounded the idea of smart contracts in 1994 and defined it as “a set of promises, specified in digital form, including protocols within which the parties perform on these promises…”

The code and the agreements of a smart contract exist across a decentralized blockchain network. Smart contracts allow anonymous parties to draw agreements and conduct transactions through a safe network. In layman’s terms smart contracts, an automated computer program, are essential for the transaction of money or anything of value without the help of a third party. It makes for a much more transparent system than the traditional ways of transferring money.

The process of the transaction is extremely simple. The sender has to simply drop a cryptocurrency into the ledger. It’s just like paying in cash for an item at a shop. The sender and the receiver remain anonymous whereas the contact is stored on the public ledger (blockchain platform).

Figure 1: Smart Contracts, Transaction Process

Smart contracts and blockchain technology together are changing how the world perceives the process of financial transactions. Here are some reasons that are increasing the popularity of smart contracts as the changing face of transactions:

  • Programming code languages such as Java, C++, Python and Go are used to create smart contracts with the help of contract development tools. The software program on the decentralized system lends to a secure record of all the transactions.
  • The mumbo-jumbo of the process takes place behind the scenes leaving the surface transparent.
  • Smart contracts have made the transaction process faster and hassle-free.
  • As the transaction process no longer requires middlemen, the overhead costs have decreased significantly.
  • The automated process has resulted in lower administration and service costs.
Figure 2: How Smart Contracts Work

Sectors which Benefit from Smart Contracts

  • Government: The countries can use the system of smart contracts in the voting system. The votes would be protected by the sophisticated process and it is difficult to hack the system.
  • Management: The blockchain technology along with smart contracts is rapidly becoming popular in the management sector due to their ability to eliminate issues related to communication. It also makes for an increased workflow rate.
  • Automobile: Smart contracts has also made its way to the automobile industry, thanks to its automated features.
  • Smart contracts would prove invaluable in case of any unfortunate incident as it would be able to establish the guilty party.
  • Real Estate: With the incoming of smart contracts buyers would be directly able to contact the owner of the estate. After the terms have been met by both the parties the buyer can simply pay through a cryptocurrency and the legal contract will be visible to all as it would be encoded on the ledger. The process will effectually do away with the middlemen.
  • Healthcare: With the help of smart contracts the medical cases can be stored on the blocks with a private key that would be shared only with the patient (and family). If required the key can be shared with an insurance company. Doctors will find it easy to follow-up a case. Smart contracts can also be used to supervise drugs and manage healthcare supplies.
Figure 3: Ethereum Smart Contracts

Different Platforms of Smart Contracts

Bitcoin was the first among the cryptocurrencies to try out smart contracts. It was used to transfer coins or tokens from an individual to another. The nodes would authenticate only those transactions which met the criteria. Sadly, Bitcoin did not expand the application of smart contracts.

  • Ethereum Smart Contracts: Ethereum, unlike Bitcoin, uses a less complex language which enables the cryptocurrency software developers to create their own programs. This means that they can also develop their own smart contracts. The Ethereum white paper calls them autonomous agents. An account can be created that will require multiple signatures to transfer funds with the help of the Ethereum smart contracts. They can also be used to supervise agreements between the users. The Ethereum smart contracts can also service other contracts. The last but the obvious, these smart contracts make for a secure storage system for membership records, domain registration and other records.
  • Waves Smart Contracts: The aim of Waves is to facilitate incorporation of blockchain technology in the society, and financial institutions. Waves is itself an open-source platform that manages and stores digital assets. Waves is using smart contracts to make their platform more transparent and efficient. Waves’ approach to smart contracts has enabled the platform to execute all the scripts within a short period of time. This also allows for anonymity (in case of a transaction) that is often required in the cut-throat industry. The multi-faceted platform is surely reaping the benefits of smart contracts.
  • Stellar Smart Contracts: Stellar, founded in 2014 is an ICO platform. Stellar is most concerned about maintaining a fool-proof security system as it connects banks, payment systems and people throughout the world. The Stellar smart contracts has a much simpler model than the Ethereum smart contract. It allows flexibility and also ensures a safe platform for Stellar. The process of launching tokens has also become faster.
  • NEO Smart Contracts:NEO, often called the Ethereum of China, is the country’s first open-source blockchain. NEO not only applies the features of smart contracts to strengthen their security but also helps the developers to devise blockchain solutions that cater to specific business areas (law, healthcare, insurance etc.).
  • GAS Smart Contracts: GAS is a cryptographic currency that drives the Neo network. It is often said to be Neo’s alternative token. The clients/users run smart contracts on by paying in GAS. The smart contracts are used to ensure a safe transaction system.
  • Blockchain technology provides us with a decentralized, tamper-resistant, highly reliable system in which smart contracts are very useful.

    Da Hongfei’s words have proved to be true in most of the cases regarding cryptocurrencies. Smart contracts’ achievement to solve security issues is the most notable factor so far. 2018 looks forward to witnessing the concept of smart contracts and blockchain in every sector of human life.


    References

    1. https://eprint.iacr.org/2015/460.pdf
    2. https://www.coindesk.com/information/ethereum-smart-contracts-work/
    3. https://www.stellar.org/blog/using-stellar-for-ico/
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