Basic Intro To Smart Contracts — Gear

A very short history of blockchain technology

The first real use case of blockchain technology was in 2008, when Bitcoin was initially introduced. Bitcoin introduced new ways of facilitating digital financial transactions that did not require traditional financial intermediaries. However, although at the time this was revolutionary, in this state, blockchain technology couldn’t be used for much else.

The original iteration of blockchain technology was in a way comparable to the first evolution of websites. With this technology, you could do something that was new and impressive, but its fundamental functionality was severely limited. When blockchain technology was improved however, new possibilities arose, which meant that the second iteration of blockchain technology could be comparable to the introduction of Javascript to web pages. Now developers could build richer, more dynamic applications that greatly impacted user experience.

The main difference between blockchain 1.0 and blockchain 2.0 was that blockchains could now be programmable. This meant that they could do much more than simply record transactions. Now, developers could actually build applications on the blockchain that were dynamic and that could interact with data to present different outcomes. This meant that the concept of smart contracts could finally come to life, which presents the opportunity for web3 technologies to enter the mainstream.

What are smart contracts?

Smart contracts are transactional computer programs that can execute the terms of an agreement automatically without the need for intervention. They were first proposed by Nick Szabo in the early ’90s, but due to technological constraints they couldn’t function properly. It wasn’t until improvements were made to fundamental blockchain technology that application of smart contracts became possible.

In terms of blockchains, smart contracts are digital agreements that are stored and executed on a blockchain once predetermined criteria are met. Once a specific input has been made, a predetermined and specific output is automatically executed.

Smart contracts can be written in multiple different languages, with Solidity being one of the most popular. But thanks to recent advances in technology, smart contracts can now be written in more traditional programming languages, compiled and deployed on the WebAssembly virtual machine. Not only does this make deploying smart contracts much easier, but it also provides efficiency and speed benefits. You can find out more about this here.

How do smart contracts work?

Smart contracts have three main functions.

• They store rules
• They verify rules
• They self-execute rules

Smart contracts do this by following simple “if, when & then” statements that are written in programmable code.

Once a specific input criteria is met, a predetermined output is executed. Once this occurs, a network of computers, that helped facilitate the transaction in the first place, records the transaction on the blockchain where it gets encrypted and becomes immutable.

Why are smart contracts significant?

Fundamentally, smart contracts,

• Significantly improve slow, expensive, centralized and insecure transactional processes
• Enable transactional processes to become more efficient, transparent and autonomous
• Remove the need for third parties and intermediaries to alleviate human error and significant time and financial costs

This presents opportunities to automate and streamline industries that are long-winded and in need for more efficient transactional processes.

What are some real world applications of smart contracts?

Smart contracts best suit industries where an automatic executing process would be useful. For instance, the implementation of smart contracts would be great in industries which require an extreme amount of intermediation. This would help automate routine and repetitive processes which individuals currently pay sizable fees for. Processes where the trading of assets are extremely long-winded, like real estate for example, would witness exponential efficiency improvements as well as other benefits like enhanced security and reduced costs.

To date, smart contracts have been used in the financial industry to disintermediate and decentralize financial services; in the gaming industry to change the ways that modern games are played; in the legal industry to automatically execute legally binding contracts; and in the emerging technology industry to facilitate complex computational tasks like those involved in machine learning and artificial intelligence.

Will smart contracts enable complete decentralization and automation?

Smart contracts present more disruptive opportunities than simply improving singular transactional processes alone. They also facilitate the creation of completely decentralized applications that run on the blockchain. These decentralized applications, also called dApps, combine easy to use interfaces that emulate conventional web applications with the new added possibilities of programmable smart contracts and blockchain technology.

DApps provide numerous significant improvements to traditional web applications and services. The most notable improvement is the significant focus on privacy and data security. Recorded data is secured by cryptographic encryption and it’s immutable which means that it cannot be tampered with. DApps also greatly improve user experience by making interactions with decentralized services more simpler. Because they’re hosted on a network that is maintained by thousands of network operators, most dApps have zero downtime. And the removal of third parties and intermediaries means that dApps can operate with reduced costs and increased transaction speeds.

Smart contracts also enable more than just applications to run autonomously without centralized control. They also allow entire organizations to function without centralized involvement. These organizations are often referred to as decentralized autonomous organizations (DAOs) and you can think of them as businesses that are run on the blockchain and collectively owned by their community.

DAOs represent a revolutionary new form of corporate governance that enables global collaboration between individuals who do not personally know one another. This means that users no longer need to “trust” each other before they collaborate. Instead, users only need to trust the DAO’s smart contracts, which are completely transparent and verifiable by anyone. DAOs open up new and exciting opportunities for global collaboration and they have the potential to change the way that institutions are governed worldwide.

Final Thoughts

Smart contracts are far more superior than traditional transactional processes because they can potentially automate, and in some cases replace, entire industries altogether. They do this while also making transactions more fair, transparent and secure. But on top of automating and improving singular transactional processes, smart contracts also enable much greater solutions. They enable the development of completely decentralized applications and organizations. This means that we can now build digital services and even entire institutions that can operate automatically and effectively without centralized control. This is why smart contracts are one of the most promising aspects of blockchain technology and it’s incredibly likely that they will define how humans interact and transact in the near future.