If you look deep into the origins of blockchain, you can see how old this idea is. Back in 1994, the ideas of Nick Szabo, who is considered the founder of smart contracts, were too futuristic and unbelievable. Now, we actively use his ideas and improve them ourselves, finding new application areas and benefits that they can give us. This happened to smart contracts as well, they are now an eternal part of blockchain and all "crypto-enthusiasts'" life. Let’s take a closer look.
What are smart contracts?
A smart contract is a peculiar algorithm that operates on and is recorded in a blockchain. In other words, it's a code with self-executing conditions inscribed within it. Nearly like the ordinary contracts we see on paper or a computer, but computer code. The conditions described in such a contract are fulfilled automatically. Therefore, smart contracts are a fully trustworthy, secure and confidential system.
Back in time for a bit
Smart contracts were first proposed by Nick Szabo in 1994, and in 1998 he wrote a paper about Bit Gold, which became the progenitor of Bitcoin. His ideas were not welcomed at then, due to time and lack of interest. 10 years later, Bitcoin appeared, whose creator was Satoshi Nakomoto. Ethereum came after that, and it became the first blockchain with an implemented smart contract system. Thanks to Vitalik Buterin and his Ethereum, which made a breakthrough in the whole industry, we can easily use such a complex system.
How do they work?
There are always prescribed conditions for both parties in contracts, although the third party is always included interline, kind of a power broker. It could be a bank, another person, an escrow, or something else. In smart contracts there is no third party — all the terms are written in the contract itself, which runs on a blockchain and actions are performed automatically.
In Ethereum, smart contracts act as operators of transactions on the blockchain. They are triggered by the user and another user gets the result, but the transactions themselves are performed without anyone else being involved.
Decentralised exchanges (DEX) are the best example of interaction with smart contracts. If you have 1 ETH and want to buy DEL coins using PancakeSwap, then that transaction goes via a smart contract. The address of your wallet sends a transaction to the relevant contract which aims to get the amount. The smart contract calculates the price according to the available liquidity with a special algorithm and you get a relevant amount of DEL.
When it's done, the contract stays on the blockchain, in the nodes, only in a non-functional state. Also, as with blocks in the blockchain, the contract cannot be rewritten, deleted or changed. In rare cases, only if the contract maker himself does not script the self-destruct function. Most of the time, this does not happen.
Features and benefits of smart contracts
Smart contracts are perfect for business between unfamiliar users. This code is sure to perform the function that has been prescribed to it, so that each party can be assured that the conditions are satisfied.
This system is completely automatic. The only thing the user has to do is to trigger the contract. If it is not triggered by any party, it will simply be stored in the blockchain until one day it is activated.
Smart contracts are completely decentralised. Just like the blockchain itself in which they are stored, when a contract runs, the actions and history are copied across all nodes. Therefore, all users can verify the performance, terms and originality of the contract.
And yes, smart contracts are open sourced if they are stored in an open blockchain, so anyone can look, but at the same time, it cannot be changed. Isn't that a great and reliable replacement for our usual paper contracts?
An equally important feature of smart contracts is their flexibility and architecture. The creators of the contract can prescribe any conditions, create a contract according to specific customer requirements and so on. There, you can also include a self-destruction feature, which is rarely used, but it will allow the contract to delete itself, after which the vacated space can be occupied by a new contract.
Where can smart contracts be used?
The applications for smart contracts are varied, and so is the blockchain itself.
- Finance, trading
- Deals and agreements
- Real estate market
- Gaming Industry
- Identity and legal documents
The most common application is in stocks and exchanges. But for example, we take a look at loans. In a smart contract they will be convenient in case to prescribe the amount, time and other conditions.
DEX also works on smart contracts, such as Uniswap, dels.io, PancakeSwap and others.
NFT, is another one case of application. Most often this can be found in the gaming industry, where players themselves can buy, sell, and trade NFTs. Smart contracts in such a case act as a binding.
Just like a contract, an agreement and a business deal in general. When it comes to business and sales cases, smart contracts are often used. They act as a guarantor of the transaction, allowing the parties to be assured of receiving their piece and proper performance.
Smart Contracts in Decimal
The Decimal team is continuously updating and improving the network, doing systems and processes better. The latest technologies of the cryptocurrency industry are used and included in the chain. For example, Decimal blockchain operates on DPoS consensus algorithm. It’s considered as a more improved version of the original PoS.
Decimal provides an easy way to create your own token or NFT due to using recent developments in DeFi. Tokens and NFTs are based on the smart contracts which are the fresh and up-to-date systems in crypto.
And something more about smart contracts of Decimal. At this point, the function of adding a network into MetaMask has already passed the tests. You can add into there Decimal contract’s address and validate the smart contract. Examinations are continuing and all features are improving in order to publish the platform at the end of the year. The smart contract platform will provide Decimal users with full stack and stable interface and functionality.
There are quite a lot of use cases for smart contracts and they all lead to the automation of many processes. Often, smart contracts, like the entire blockchain system, are designed to allocate resources, realise complex ideas and processes, ensure security and privacy on the Internet, and give users more confidence in their actions. It’s believed that smart contracts have a great future when everyone understands the usefulness and necessity of this system. Perhaps in another 10 or 5 years, smart contracts will be a part of our daily lives.