Blockchain technology has taken the world by storm. Ever since the introduction of crypto currencies like bitcoin in 2009 by Satoshi Nakamoto, blockchain has been gaining prominence exponentially with every passing day.
Blockchain has become so synonymous with crypto currency that we often cannot think beyond the bitcoin when we talk about blockchain technology. However, blockchain is a lot more than just crypto currency and it is bound to have a variety of applications in almost every possible sphere ranging from forensics, supply chain management, authenticity establishment, voting, stock exchange, medical record keeping, and every other place where transparency needs to coexist with security.
One of the greatest advantage is brought about by blockchain is that it is extremely secure and at the same time, it is transparent. The security does not stay at the surface but rather goes a couple of levels deeper by ensuring that the information on the blocks are tamperproof. Since all the nodes involved in the blockchain need to have uniform information, it might not be possible for the hackers to just intervene in one of the notes and compromise on the security.
It does not, at the same time, mean that any information on the blockchain is extremely rigid. It can be clearly defined as to who will have the powers to do watch on the blockchain it can also be established or rather precondition that some rules need to be automatically executed upon satisfying certain conditions. All these things are made possible through one of the greatest innovations in the field of blockchain-smart contracts.
What are smart contracts?
A smart contract is literally what it means – it is quite similar to a contract in its physical context but yes, in essence, a bit smarter. It is digital and it is represented by a tiny computer program scripted inside a blockchain. It helps negotiate the terms and conditions, helps automatically verified fulfillment and executes the agreed terms.
Why smart contracts?
We have always talked about blockchain technology being decentralized! Decentralization simply means that there is no one centralized entity that exercises absolute command or power over the entire system. In essence, it is a peer to peer network that ensures that the entire system stays democratic.
In most of the real-world systems, there is a need for an intermediary or a third party to establish these business relations. They take care to validate the information from both parties and ensure that the contract is executed smoothly. It might not be a problem at a process level but it surely does cost a lot of time and money. It is also possible that there might be compromises on security when the information passes through these intermediaries.
Smart contracts completely eliminate the need for intermediaries, eradicating unwonted expenses in time and money, and compromises on security.
The way in which smart contracts functions
Smart contracts are nothing but complicated logical statements based on conditional execution – or in the programming lingo, an if, then, else statement. However, it does have a little bit of an underworld feel to it. Let us take an example of two parties Charlie and Mike.
An independent storage is created where both Charlie and Mike can put in their funds but cannot withdraw it easily. Charlie crops in the money, and Mike gives the information on the address to which the money needs to be sent. Both the parties are provided with a secret code called hash to ensure that the secrecy between the two involved parties is confined to just the two parties alone. Once the hash that these two entities involved matches, the money can be taken out by Mike. Until the verification happens, the smart contract ensures that it holds the money without giving it to the other person. If the money stays in there for a stipulated amount of time, a smart contract can be programmed to give the money back to Charlie.
It is quite evident that smart contracts are bound to go along way, and smart contracts are one of the biggest reasons why blockchains find widespread applications. Just imagine the field of supply chain management and if the smart contract is automated in such a way that it opens up a certain stage only when the previous stage is completed. This ensures that there are no lapses in the integrity of the process. The same logic can even be extended to processes like voting where authentication and authorisation are of paramount importance.
Smart contracts are the ones that made blockchains what they are. There are a lot of ways to write your own smart contracts and every blockchain like bitcoin, ethereum, and HyperLedger have their own smart contracts. Nowadays, a lot of blockchain development companies make use of exclusive and easy to use programming languages like solidity to create their own smart contracts.