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Smart Contracts: The Basics

📍Posted by: Samwise G.

There has been much talk recently of crypto currency, block chain distributed ledger technology, (the underlying technology that enables those currencies) and smart contracts.

Ethereum uses Ether as its cryptocurrency. In fact, Ethereum is a whole blockchain platform with a programming language (Solidity). This gives it the ability to verify and record transactions – smart contracts. Its utility makes it the most widespread cryptocurrency after Bitcoin, which does not have the same functionality. 

 

On a basic level, smart contracts are contracts or agreements between two people that can be programmed.

The contracts use Boolean logic (true or false, yes or no) and are held on a blockchain decentralised public ledger or database that records and verifies the transaction. Smart contracts can be linked together to make more sophisticated contracts and are becoming the foundation of decentralized applications (dApps).

An advantage is that the smart contract reduces or removes the need for intermediaries because the conditions and mechanics of the contract are all in the code. This is called trustless. Once created, they cannot be changed. Once the transaction is processed by the blockchain it can be sent immediately and automatically to the other party without third party assistance. This reduces delay, giving more timely execution, improving transparency and validation of the contract. 

Examples of where smart contracts are making an impact are banking, finance, legal, real estate and gaming. 

Imagine, for instance, selling a home. The time delays, follow up,  communication and verification between the steps as the various parties, vendor and seller, the real estate agency and the lawyers are involved confirming ownership and title, sending the deposit, ensuring it has arrived,  allowing the settlement period, finding and releasing the remainder of the funds, finally accepting the property.  We already now have digitized signatures. As smart contracts make an impact on these steps, selling the home will become smoother, faster and more secure.

The question becomes not if smart contracts will be used in an industry but how and when, as this technology makes a profound global change on how business is done.

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