Smart contracts are a crucial aspect of the blockchain and cryptocurrency industry. Despite its widespread usage, many people still don't understand what smart contracts are and how they work. In this article, we aim to provide a comprehensive understanding of smart contracts, from their definition to their real-life applications.
What Are Smart Contracts?
A smart contract is a self-executing contract with the terms and agreements between buyer and seller being directly written into lines of code. The code and agreements contained therein exist across the distributed and centralized blockchain network, and the code controls the execution. Transactions made through smart contracts are trackable and irreversible.
Smart contracts permit trusted transactions and agreements to be carried out among anonymous parties without the need for a central authority, legal system, or external enforcement mechanism.
How Do Smart Contracts Work?
Smart contracts were first proposed in 1994 by American computer scientist Nick Szabo. He defined smart contracts as computerized transaction protocols that execute the terms of a contract.
An example of a platform that uses smart contracts is Kickstarter. It acts as a middleman between buyers and developers, holding the funds on behalf of the buyer or seller. With smart contracts, the need for a middleman like Kickstarter is eliminated. The terms and agreements between the buyer and the developer are coded into the smart contract, which then executes the necessary actions.
Smart contracts eliminate the possibility of ad hoc editing of codes or withdrawal of funds, as the code is immutable once programmed. This makes smart contracts a transparent and trustworthy solution for crowdfunding and investment.
Conclusion
Smart contracts play a vital role in the blockchain and cryptocurrency industry, providing a secure and transparent method for executing transactions and agreements. By understanding what smart contracts are and how they work, individuals and businesses can take advantage of the benefits they offer.
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