Smart Contracts are all the rage these days, so what exactly are they and how do they fix problems? Nick Sabo invented the term "smart contract" in 1997, years before Bitcoin was invented. He is a cryptographer and a computer scientist.
Smart Contracts are now much like real-world contracts. The main exception is that they are all wireless. A smart contract is, in effect, a small programming program that is contained inside a blockchain. Let's look at a real-world scenario and see how smart contracts work. You've already heard about Kickstarter.
Wide fundraising site product teams will go to Kickstarter, launch a project, set a funding target, and begin gathering funds from those who believe in the concept. Kickstarter is basically a middleman between product creators and backers. This means that they would both put their faith in Kickstarter to properly manage their funds.
If the project is successfully financed, the project team anticipates receiving payment from Kickstarter. Supporters, on the other hand, want their money to go to the initiative. If it was sponsored, or to get a refund if it didn't meet its objectives. Both the product team and its investors would trust Kickstarter, but using smart contracts, we will create a mechanism that is similar to Kickstarter that does not need a third party.
But let's make a Smart Contract to deal with this. We may configure the Smart Contract to keep all of the funds collected until a certain target is met. Supporters of a project will now deposit funds into a Smart Contract. If the project is completely financed, the contract immediately transfers the funds to the project's creator; if the project fails to achieve these objectives, the funds are returned to the backers. Since smart contracts are held on a database, this system means that it is completely distributed. The capital is in the hands of no one.
Why Should We Trust The Smart Contract?
A blockchain is used to store Smart Contracts. They are endowed with a variety of intriguing characteristics. They are both indisputable and distributed. The word " indisputable " refers to the fact that once a Smart Contract is formed, it cannot be modified. So no one can tamper with the code of your contracts behind your back.
The performance of your contract is checked by everybody on the network since it is distributed. As a result, a single party cannot compel the deal to release the funds and other network members will notice and label the effort as null. It becomes almost difficult to tamper with Smart Contracts.
Smart Contracts may be used for a variety of purposes, not just crowdfunding. It could be used by banks to issue loans or offer instant payments, for example. It may be used by insurance agencies to manage such claims, mail companies for payment on delivery, and so on.
Where Are Smart Contracts Used?
There are a few blockchains that support Smart Contracts, but Ethereum is the most common. It was designed from the ground up to enable Smart Contracts. Solidity is a special programming language that can be used to create Smart Contracts. This language was developed especially for Ethereum.
It's also worth mentioning that Bitcoin has Smart Contract support, but it's far more restrictive than Ethereum's.
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