What is a smart contract and how does it work?
In our time, more and more companies are interested in blockchain technology, organizes ICO to develop their idea and goes deeper into the term of smart-contracts. What it is, how it works and why it became a high-frequency, we’ll talk further.
Blockchain is a decentralized system, the main advantage of which is that you do not need to cooperate with intermediaries in concluding any transactions, for example. Based on this technology, the concept of a “smart-contract” has appeared. This contract is recorded in the form of code, stored and duplicated in the system. A network of computers that work on the technology of blockchain, is responsible for its implementation.
How does a smart contract work?
With the help of a smart-contract, users can provide services, conclude deals or exchange money without intermediaries. A smart-contract greatly simplifies the business management and the exchange of any assets. To conclude a deal in the traditional sense, you need to look for a lawyer or a notary, pay this person for his service and wait indefinitely until all documents are issued. How does a smart contract work? It can be compared with a vending machine. You throw a “coin”, provide the document you need and immediately get your “goods” — the required service in this case. All quickly, simply and without intermediaries. It is this simplification that makes many individuals and companies turn to such technology.
Smart-contracts not only contain information about obligations, rights and penalties for both parties, they also control its implementation. The parties of the agreement retain their anonymity, and the contract falls into the register. This procedure allows to provide reliability, and also does not allow participants of the transaction to change any points of the agreement. When an event that leads to an unsuccessful final state occurs, the contract executes a condition that was written directly in the code. Blockchain allows regulators to monitor activity on the market, but all information about specific transactions remains hidden.
Smart-contract can be written on the basis of any blockchain, but the most popular and convenient for this is Ethereum. It provides a huge number of opportunities for programing smart-contracts and working with it. Often they are created on the basis of Bitcoin. But if Bitcoin is essentially a currency, Ethereum is already a platform for writing of various smart-contracts. It enables developers to write their own smart-contract without creating a new blockchain.
Turing completeness in regard to a smart-contract
If we apply the concept of “Turing completeness” to a programming language, it is explained as follows: this language has all the necessary tools and means for the fullest work and the solution of any tasks. The system, which works in this language, gets autonomy and some kind of independence. Most of the existing platforms that create smart-contracts are turing-incomplete. Ethereum is one of the most turing-complete systems. But the founder of the platform argues that it is not focused on this completeness, but rather on storing of the status in the blockchain. But such a feature of the system as Turing-completeness is often necessary for it, because it provides the most acceptable compatibility, and also ease of use.
Advantages of smart-contracts
Everything is quite simple in here. Summarizing all the above parameters and properties, we can talk about the following:
- Independence. Smart-contract allows you not to waste time searching for a specialist to conclude the transaction you need.
2. Security. The contract in the form of a code is encrypted and sent to the registry for storage.
3. Reliability. Any contract that falls into the register is duplicated many times in the blockchain.
4. Accuracy and error-free. A smart-contract prescribes a lot of data automatically, which allows the user to avoid mistakes when filling out different forms.
Smart-contracts are created to simplify and accelerate the conduct of a variety of transactions, both complex and simple. It is possible that in the near future only smart contracts will be concluded. But as long as there is a huge gap in the knowledge of developers and ordinary citizens who will have to face this technology. The average user probably does not have that experience and understanding of many aspects of the code, which contains a smart-contract. But many companies that develop their own smart contracts are ready to gladly explain to the user how a clever contract works exactly in their system. With the development of blockchain technology, a smart-contract can become a future for committing a variety of transactions.