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Smart contracts are protocols that have the ability to execute themselves on the blockchain but what’s the definition of smart contracts in blockchain and examples? Smart contracts function as self-executing slices of code that can read and change data on a blockchain, all without any interference from a third party. Most notably, they are usually powered by Etherium, which is an incorruptible type of digital currency with only one administrator.
More importantly, smart contracts are not programs or snippets of code that exist within one application or platform. Instead, they are contracts of the highest order that can be programmed into a virtual machine and then stored on a blockchain.
As we’ll soon see, smart contracts are really nothing more than code that can receive, store and send data to and from users.
This same code can then be used to facilitate, verify or enforce the negotiation of a contract.
Why is it called a contract?
Although the word “contract” is in the name of this technology, smart contracts have greater implications than just facilitating business agreements. Smart contracts are not actually contracted in the legal sense. Technically, they are not even contracts per se. The term “smart contract” has been used previously for other decentralized applications, with similar functions and behaviour.
For example, a smart contract has no real name, geographical address or even physical form. They are also self-executing, which means they require no third-party involvement to work.
Furthermore, although smart contracts can be used to settle business deals and other agreements, they can also automate non-business transactions such as voting and governance systems. In the blockchain, smart contracts are open to expansive applications, which raises intriguing questions about the full potential of the technology.
What can smart contracts do?
Smart contracts have evolved from laboratory experiments into emerging technology with high potential. Smart contracts are now being used in a variety of ways by financial institutions, businesses and governments all over the world. The Ethereum Virtual Machine(EVM) and Solidity language are widely used to facilitate smart contract simulations and experiments.
In general, smart contracts can be used by individuals to execute self-executing agreements. This includes financial transactions, asset transfers and payments. In some cases, the code can even be programmed to automatically enforce the execution of a contract.
Definition of smart contracts in blockchain and examples
Examples of current usage of smart contracts
1) An investor transfers money to an escrow account, which then releases the funds based on a series of conditions (date, stock price, and so on). There is no need for a third-party intermediary (like a lawyer) to verify the transaction.
2) A lender gives someone money. If they can’t pay it back on time, the smart contract automatically issues payments to lenders.
3) A person borrows money from someone without a contract. The lender automatically receives money when the borrower chooses to pay.
4) A person buys an apartment. The apartment door is held open by a smart lock with a guarantee that cannot be manipulated or undermined by anyone.
5) Person A buys a product from person B through the Ethereum network. This product may be anything from real estate to concert tickets, and once the payment is verified, both people receive their goods instantly (Ethereum allows for near-instantaneous transaction time.)
6) Person A wants to collect signatures for a petition. Person A creates a smart contract that locks onto the blockchain, and once it gathers signatures from enough people, those signatures are automatically registered. It is now impossible to eliminate the signatures or alter them in any way.
7) Person A buys stock through a smart contract that allows him to pay for it in instalments over time. If the price of the stock goes up, then Person A can sell some of his stock at that higher price to pay back his debtors.
8) Person A wants to run a fundraising campaign. This time, the popular charity of their choice is responsible for verifying that all of the donors have paid back their debts. The smart contract will automatically release donations when the campaign is over.
9) Person A decides to build an app and wants to build it on Ethereum. He uses the EMV security system that ensures his source code cannot be altered and made public, and he broadcasts it through the blockchain. Now, a hacker would have to alter the blockchain itself to hack the app.
10) Person A can contract with a computer programmer through an Ethereum smart contract. They agree upon the terms and conditions of their contract up front. Because smart contracts are not only decentralized but also transparent, this information is publicly available on the blockchain and can be verified by anyone. Once a person wants to hire a programmer, they can easily find and hire them through their reputations on the blockchain.
The above are just a few examples of how smart contracts are being used today.
What were the initial origins of the smart contract idea in blockchain?
The first blockchain with a built-in smart contract platform was Ethereum, which was started in 2013 by Vitalik Buterin and initially described in a white paper by Gavin Wood, who co-founded the Ethereum Project. It is now an open-source software platform that any developer can use to create and publish decentralized applications.
The idea of using smart contracts to create self-executing contracts that can be verified by the blockchain was first discussed in the original Bitcoin white paper by Satoshi Nakamoto. This was then explored further in subsequent research, with a more detailed description of what smart contracts could potentially do. But it wasn’t until Bitcoin’s underlying technology became of interest to the general public that people started getting really excited about the potential applications and uses of smart contracts.
Smart contracts were created to automate business transactions, but they can also automate much more — government functions, voting and governance systems and more.
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