Smart contracts are inextricably linked to the blockchain . The most obvious function for blockchain is to use it as digital money . This is also the reason why there are so many cryptocurrency's and why Bitcoin is so popular. The functions are endless, however, and this is all because blockchain offers the possibility to create smart contracts. What exactly are smart contracts? And what are all those endless possibilities? This article gives you a detailed explanation.
What are smart contracts? - Explanation
To start this explanation about smart contracts, it's nice to know the exact definition:
"A smart contract is a programmed contract, the agreements of which are set down in computer code on the blockchain.The contract is automatically executed without the need for an intermediary (confidence in) These appointments can always be viewed, but can not possibly be adjusted yet. "
A smart contract is therefore anything but a paper contract under which you sign with your pen, as we are used to. It is a fully digital contract, consisting of only computer code that has been programmed for you by a programmer. This contains all the information of the contract: the persons between whom it is valid, when the contract is to be executed, when the agreements have been recorded, etc. Below is a short video with a simple explanation of what smart contracts are.
In short, smart contracts are contracts that:
- Be completely digital
- Consist of computer code
- Being programmed on the Blockchain
- Automatically run without intermediary
- Impossible to be changed yet
- This gives a fairly abstract idea of what it exactly means, so let's make it less abstract with a simple example.
A simple example
The easiest example for which a smart contract is perfect is for a simple bet. Suppose Alice is a big fan of Ajax, while Bob is die-hard Feyenoordfan. The match between these two title candidates is coming and Alice thinks that Ajax will win, but Bob is convinced that Feyenoord will win. Bob wants to make a bet of 10 Dollars.
When Ajax wins, Bob pays 10 Dollars to Alice and when Feyenoord wins, Alice pays 10 dollars to Bob. Nothing happens at a draw.
Without a smart contract you make this bet on good faith and you assume that the other person pays nicely if he / she has lost. Alice knows that Bob can sometimes be a bad loser and if Ajax wins by an unjust penalty, chances are that she can whistle to her money. With a smart contract this trust is not necessary,Alice and Bob agree to record the bet in a smart contract that is set in motion on the basis of the official results as recorded by Association .
They both pay 10 dollars in the contract (in cryptocurrency's) and set the contract so that Alice gets 20 dollars of the smart contract when Ajax wins and Bob gets 20 dollars when Feyenoord wins.
In case of a draw, 10 dollars is automatically paid out to both. The contract is on the blockchainput, so that it is automatically checked by all blockchaing users and it is therefore impossible to adjust (Bob can no longer determine that the result will not tet if Ajax by an unjust penalty wins). When the Association releases the official result, the contract will automatically take effect and the winner will receive his / her money.
The advantages of smart contracts in a row
Trust - The smart contract is on the blockchain. The blockchain is a shared network. It is automatically controlled by all devices connected to it. These devices therefore all have a copy of the blockchain. This means no one can adjust the contract.
Autonomy - The agreement is really entered into by yourself. No trust is required in a bank, lawyer, broker or other intermediary. These people can not therefore manipulate the contract to their advantage. Moreover, you do not have to worry about the other person trying to get out of the appointment. The contract is managed by the network and executed automatically.
Security - A smart contract is protected by the best cryptography that the world currently has. It is almost impossible to hack this.
Speed - The smart contracts are fully automated. Some operations normally cost a lot of paperwork, but can be executed by a smart contract within a few seconds. This saves a lot of time and work. Moreover, the code is further developed every day, which will only make it faster in the coming years.
Backup - Because everyone has a copy of the blockchain, the contract can not possibly be lost.
Savings - Smart contracts are a lot cheaper than traditional contracts. This is mainly because no intermediary parties (with towering hourly wages) are needed. For example, you no longer have to pay for a notary or lawyer who draws up the contract or ensures that the contract is executed.
Accuracy - Smart contracts are executed by machines. Because of this you have (almost) no problems with human error.
Industries that can be shaken up by smart contracts
As we know, blockchain has the potential to do the same thing with banks as what the internet has done with post offices and libraries. Our example from Alice and Bob shows that it can also shake up the gambling industry, but this is certainly not the case here. The possibilities are endless and it can turn almost any industry upside down, as the internet has done.
A large part of the modern trends can be found in the food industry. People are becoming more and more aware of what they put into their mouths and what influence this has on the planet, the environment and the less fortunate. Examples include Tony's Chocolonely (who are committed to giving cocoa farmers a fair price for their cocoa), Fair Trade and organic food. But who checks that the products you buy are actually organic or how well Tony's Chocolonely actually pays the cocoa farmers? At the moment this is still based on trust, but thanks to blockchain technology and smart contracts, this can all be automatically and completely transparently recorded.
Smart contracts ensure that the route that food has taken is kept completely transparent and can not be changed. You can see exactly which farmers, in which factories and in which lorries your products have been.
A chicken that comes from a laying hens factory is registered and can therefore no longer be sold as organic chicken.
The farmers of Tony's Chocolonely can honestly indicate how many dollars they have sold their cocoa and so it is possible to see exactly which chocolate brand gives the most to the cocoa farmers without being able to manipulate it.
In which industry is it even more important to be able to check where your product comes from? The clothing industry. Because how do you know for sure if the Rolex you are offered is a real Rolex and not fake? How do you know if the Gucci bag really comes from the Gucci factory and is not a cheap counterfeit? With the help of blockchain and smart contracts, you can all see this in an instant. Nepkleding will be immediately recognizable with a simple scan of the barcode.
- Smart contracts in combination with RFID ensure that you can see exactly where your Rolex or Gucci bag comes from and whether it is a real product and not cheap counterfeiting.
- You can see whether a bag actually consists of real leather, for example.
- You can check whether the car you buy at the marketplace actually comes from the year 2013 and only has 80,000 kilometers on the odometer.
Music and tickets
A major problem for musicians currently is that their music can be downloaded anywhere for free. You might think that artists such as Justin Bieber and Ariana Grande deserve enough, but for them there are thousands of other artists who have to bite a bit. In addition, their fame does not ensure that it is fair to 'steal' their music. Platforms such as Spotify and iTunes are already making up for a lot, but these intermediate platforms earn millions over the artists' backs. Here, too, smart contracts can make a difference.
- An artist can put his / her number on the blockchain and record in the smart contract that users can listen to the number against a micro payment (for example 0.1 cent). This means that no intermediaries are required to count on this.
- Artists or entertainers put their tickets for concerts or shows on the blockchain. They program a maximum price in the smart contract. As a result, merchants can no longer buy in large numbers of tickets and resell them for four-fold.
The future of smart contracts
All in all, the future of smart contracts looks very bright. It can have a huge impact on our society as well as the internet. Almost every industry can be influenced by it. Smart contracts can ensure that intermediaries are no longer needed and that saves a huge amount of costs and work, but this also endangers the jobs of many people. However, the biggest challenge for the time being is how we should legally deal with the smart contracts.
There are still many situations to think of and we have no solution and as long as they are not solved, it is still waiting for the revolution that smart contracts can bring about.
That's all for now..!
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