What are Smart Contracts?

Imagine exchanging currency or property deeds digitally where contracts are being contained on a distributed, decentralised blockchain network. No organisation or central authority controls it, which means that two parties can deal with each other without any third party through cryptographic code. What has that got to do with Ethereum too? Let’s explore how smart contracts work.

Understanding Smart Contracts

A smart contract is a set of instructions or computer code which runs on top of blockchain technology, to which parties agree to interact. When pre-defined rules are met, the smart contract code automatically enforces and verifies conditions in the agreement.

For example, selling your property without an estate agent who typically helps with the paperwork and other duties. Smart contracts may enable the whole process to be more effective with its ‘If-Then’ principle, where ownership rights will only be transferred to a buyer when he/she sends the agreed amount to the system.

Conditions like time limit can be included, so if the buyer doesn’t pay a certain amount within a specific time, the contract will not be executed and you will get back the ownership rights. Since the ownership papers are stored in a distributed system, both parties will be able to view them in real-time. Thus, smart contracts enable transactions to be transparent and efficiency due to formalisation, and enforcement. Nevertheless, reducing middlemen services may not truly result in lesser cost. Other industry applications of smart contracts include supply chain; to log change of ownership and transfer payments to other vendors, and storage of information such as membership records.

What About Ethereum?

Smart contracts have to operate within an environment that supports usage of public-key cryptography, an open and decentralised database, plus reliable source of digital data. Ethereum is a public blockchain platform that’s built specifically for creating smart contracts. Paying for computing power is in association with its digital currency Ether*. It also enables users to exchange tokens that represent value over an open network. There are many other companies who are too vying to be a smart contract hub and gain developers’ adoption.

Conclusion

Today, governments, financial institutions and large corporations worldwide are testing and using smart contracts. Programmers have also built thousands of decentralised applications (Dapps). The potential applications of smart contracts are massive but remains limited for consumers. However, it may gain traction with common folks in future as it evolves just like other technologies.

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*Risk Warning

Digital asset trading comes with high risk. ecxx.com only provide users with an online exchange platform and do not provide investment, tax or legal advice. ecxx.com is not responsible for any review of the assets and your trading strategies. There is also no guarantee against losses. Should you choose to trade, you need to be aware of and accept three important considerations: 1. Liquidity 2. Diversification 3. Loss of Capital. Please consult with your financial advisor before trading.

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