What are Smart Contracts?

Ethereum Technology

The year 2015 was very important for blockchain and cryptocurrency technologies. It was at that time that Ethereum appeared on the market. Unlike Bitcoin, Ethereum's main task was to create a fully decentralized application platform for users.

In addition to modern technology and innovations that came with this new open-source platform, smart contract is "probably" the most important business solution of the future.

So, what is a Smart Contract?

As I have already mentioned, Ethereum's main goal is to provide users with a decentralized application platform. Where any developer can create his/her own decentralized app with smart contract. 

To understand how this system works, we must first understand the concept of smart contract. The idea of ​​this solution appeared in 1996 - more than 20 years ago, but only now we have the technical possibilities to apply it through Ethereum.

Smart contracts are used to enforce individual lines of code. In other words, if there is an event A, the reaction will be B. The key point here is that blockchain, or individual nodes on the blockchain would verify if that event A happened to process reaction B. This would get rid off intermediaries and reduce costs.

It is a very simple process that happens simultaneously in thousands of blockchains. Also due to the existing technology, smart contracts provide extremely powerful computing power and new possibilities for everyone.

The main idea of ​​smart contracts is to use blockchain technology not only to enforce a certain type of action, but also to automatically verify and facilitate it. These actions must be carried out automatically. When this condition is met, the system proceeds to the automated execution of transactions.

This system is useful in many fields, not only for banks. Blockchain's ecosystem has an advantage over classic transaction, contract and agreement process. Blockchain doesn't need a third party to verify transactions or contracts. This is one of the main reasons why Ethereum is successful and is becoming more and more popular.

How to use Smart Contracts?

Now that you know what smart contracts are, I would like to point out some areas in which this technology can be practically used. Please note that not all of these solutions can be effectively introduced into the markets.

Let's think of automated payments or money transfer. "if the event A happen X amount of money has to be transferred to party B"

This technology would automate M2M (machine to machine) payments when it comes to Internet of Things. Where you drive your Tesla through the highway and the toll fee can be collected and verified automatically without you stopping.

Smart contracts will also allow us to replace traditional contracts.... think of rental agreements, labor agreements, etc.Thanks to smart agreements, we could automate the entire process related to traditional contracts.

Think of Sport Betting. All games and bets are in most cases conditional. If one team wins, you must pay X money to the user. Smart agreements will allow you to automate this process (no middle man to verify) and reduce the costs of bookmaking services, and increase their safety.

Considering everything I just wrote, it's easy to say that this unique technology will be quickly adapted by the market. The question is not whether this will happen, but when it will happen. Therefore, everyone should have fundamental knowledge about them and use their abilities!

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