February 04, 2021 |James Messi
The Technological Breakthrough of The Smart Contract
Cryptocurrency is on the rise and will soon be a normal part of every day transactions on a large scale.The beauty of newer technology is that it can be easily improved, and new inventions can make use of old improvements that have been nearly perfected.
Smart Contracts are just that improvement – now money can be not only moved but instructed to do simple tasks without the user directly influencing it in real time.
Today, cryptocurrencies like Ethereum, Cardano, and TRON have all created a smart contract system around their respective blockchains.
What is a smart contract?
A smart contract is a computer program that enables the exchange of money, shares, property, really any digital asset that could be traded. It contains the terms and conditions of a mutually agreed contract between the people that trade – and it executes the trade only when those specific conditions have been met.
One very unique thing about smart contracts is that once it is executed, it cannot be altered.
A major positive to smart contracts is that they are signed and executed anonymously on the network without the need of a central authority – a lawyer, bank, or the like. It provides the transfer of any asset or currency in a transparent and trustworthy manner.
Cryptocurrency in particular has always had a particular aptitude for cutting out unwanted or unnecessary clutter – eliminating the middleman is the inevitable next step with crypto.
Typically, contracts go through a specific process – the terms are written out, verified by a hired third party, and then executed. Because of this, human error and the risk of data being tampered with is out there.
With Smart Contracts, agreements are coded in programs and signed by both parties at that time, the result is then verified by not a centralized hired third party, but instead verified by users of the Ethereum blockchain network. The beauty of all of this is that once a contract is executed it cannot – under any circumstances, be altered.
These contracts can be complex or simple – a simple exchange of currency is one use, but they can be made to do complex things if one codes it well.
How Do Smart Contracts Work?
Take an example – Steve hires Robert to write a review for his new product. Steve writes a contract for $150 for the completion of this task. Developers code the contract according to the agreement that Steve and Robert met – how long the article would be, critical areas of the product that Steve wanted Robert to pay close attention to, etc.
Once the code is written and finalized, it is uploaded to the Ethereum blockchain. Once it reaches the blockchain, everyone part of the software program has a copy of the contract.
Robert finishes the review and uploads his work to the Ethereum blockchain program and the program then checks to ensure that all of the criteria have been met.
Once each part of the contract has been verified and the contract has been fulfilled, the money is then transferred to Robert for a job well done.
This can be used to explain many different types of transactions – filling all kinds of different requirements depending on how it’s coded. This is the beauty of Smart Contracts and the beauty of the Ethereum network.
Simple “if-then” Statements Turned Into Something Great
Smart contracts have brought about the inevitable next step in cryptocurrency. Now money is not just transferred on blockchain, but it can be withheld or only given under certain circumstances.
These contracts will only get more complex as time goes on. As coders learn the ins and outs of what they can do with smart contracts, the possibilities will increase tremendously. This kind of technology we have understood for quite some time now, but haven’t, until relatively recently, used it in such a way.
So What’s a DAPP?
Decentralized applications (DAPPs) are simply a chain of smart contracts that work together to create a larger program. These DAPPs can be programmed together to do extremely complex things with people’s money, and have the freedom to be programmed to do different things if the user decides to do so.
DAPPs have many different uses, and they are the natural development of smart contracts itself. This technology will only get more complex as time goes on, and layers upon layers will be added with no end in sight.
Fear not though – understanding the basics of these complex programs will allow you to have a rudimentary understanding of what happens when these programs continue to evolve into something even more complex.
DAPPs also typically have a nice, unintimidating interface that is designed to let anyone use it effectively.
With all this in mind, ask yourself what technology we have understood well already that hasn’t been put to work in such a way. What is the next place that we can take cryptocurrency with the technology that we already have and understand well, but just haven’t applied yet?
DAPPs To Keep An Eye On
DAPPs certainly make things easier, and while most are easy enough for anyone to use, they still each have separate functions that will attract different users. Here’s a few that might catch your eye:
- Augur – A tool to let users speculate on derivatives
- MakerDAO – A decentralized finance DAPP that enables loaning or borrowing cryptocurrencies
- Uniswap – An Ethereum based exchange that enables users to exchange ERC20
- Argent – An Ethereum wallet that chains smart contracts in abstract ways for private keys or addresses
Smart Contracts Are Gaining Popularity Quickly
Though many of these smart contract systems and coins have only existed for 3+ years, they have seen major money movers pick them up and begin to use them regularly.
The ease and many uses of smart contracts bring many people at the tops of their respective fields out for a gander, and many have already stayed to play.
- ING: Dutch bank and trading giant went and co-created Fnality, a blockchain based trade settlement system that boasts its efficient use of smart contracts.
- Ubisoft: The creators of Rayman and Assassins Creed have gotten their feet wet with many different cryptocurrency initiatives. Their company has found a use for smart contracts in their Rabbitds games.
- The Sweedish Government: That’s right, Sweden has already tasted the fruits of smart contracts. They have created a blockchain based land registry that allows land owners to prove their ownership.
Smart contracts can be used for literally anything, it seems. Video games to governments to banks, smart contracts will find their uses and become even more widely used as crypto normalizes itself into normal everyday life.
Smart Contracts Are Not Infallible
With all of their benefits, smart contracts still have some drawbacks.
“A contract in motion stays in motion” – a bug or a feature? The positives of this certainly outweigh the negatives if the code is properly written, but simple miscalculations can leave a code spiraling.
Executing a contract means that it cannot be altered after it’s been uploaded. While this is great to prevent data tampering – it’s terrible if there is a problem found in the code.
There are no take backs if a complex code is found to have an error – and this is the double edged sword that many have to fight with while they’re using smart contracts.
Some smart contract platforms, like Carnado, have verified academics and scientists check the protocols before they’re released. While this is indeed a plus for Carnado and those that use it probably have had bad experiences in the past or are fearful of a messy contract, it does add ‘a’ middleman back into the picture, in a sense.
The ability for someone to exploit a code that is set in motion remains the largest hurdle for wider acceptance. Should a fix for this be found, there is no doubt that smart contracts will inevitably become the normal. Unfortunately, as long as humans run the show, there will be room for error and that error will eventually find itself exploited.
For now, the best that these companies can do is have third-party development and security firms minimize the risk by auditing smart contracts before they’re sent. While this might make some users sleep easier, it does put the risk squarely on the shoulders of those auditing it, again, re-enabling the middle man that smart contracts sought to cut out.
Top Smart Contract Platforms By Market Cap
Smart contract platforms are the bread and butter of smart contracts. Without these interfaces, smart contracts would undoubtedly cease to exist. Below are the top smart contract platforms to watch.
- Ethereum: Designed to be the decentralized “world computer,” they have a platform that can program and run DAPPs. Ethereum have been hugely instrumental in making smart contracts what they are today, and their use of smart contracts is likely what makes them the second coin on the market behind Bitcoin.
- Cardano: Cardano is an open source blockchain that is set out to be the first peer-reviewed blockchain. They boast a network of academics and scientists that check each protocol before they’re run.
- Polkadot: A “multi-chain network” designed to join blockchain networks together and make transition and communication between them easy.
- Tezos: Created to give competition to Ethereum, it was designed from scratch that intends to let its users govern the coin. Tezos encourages coin holders to vote and direct the way that the Tezos blockchain will work.
- Cosmos: An interesting take on the “internet of things” cosmos sets out to be an “internet of blockchains,” again, seeking to connect other blockchains together in seamless communication.
Where Do Smart Contracts Go From Here
As the technology evolves and we learn how to better implement smart contracts into each transaction that we make, we will see major differences with how people handle money. This is just the beginning.
Smart contracts were invented from a perspective unseen before that allowed someone to see how simple if-then statements could work to make money handling more efficient. Where do you think the next breakthrough in cryptocurrency will be?