What are Blockchain Smart Contracts (Ethereum) and their Benefits
What are blockchain smart contracts? Let's look at the main benefits of smart contracts and how they can be used. Can they really change our lives for several years?
Actively, smart contracts began to develop in 2014. In the period 2016-2017, the number of blockchain smart contracts have increased tens of times. Today you can see their application in many industries. For example, the Propy project offers its users to buy or sell a house for cryptocurrency. The rights and obligations of the buyer and the seller are regulated on the basis of smart contracts.
A smart contract is a small software script that describes the relationship of users. In fact, it is similar to the usual legal contracts that we are used to seeing, only with some differences. The algorithm of smart-contract is stored in the blockchain and starts actions under certain "if-than" conditions. To make it more clear, consider a few examples:
- If the user invests 10 ETH in the system, then he receives 1000 tokens.
- If the user invests 10 ETH in the system before January 1, then he receives 1000 tokens + 10%.
- If before January 30, the balance in the system will be less than 100 ETH, all users will receive a refund.
As you can see, the main benefit of smart-contracts is the absence of intermediaries. Everything is controlled using a pre-written program (script). The human factor disappears, it gives certain and important advantages, but at the same time, there are new rises, which we will talk about further.
The rapid growth of smart contracts is obliged by the development of the cryptocurrency. First of all, it should be noted Ethereum. This is one of the few platforms(currency) that enables you to create your own smart contracts. The main benefits of digital contracts:
- No presence of intermediaries. As already mentioned, the absence of intermediaries makes the process much easier and faster. Now there is no need to seek help from a lawyer. Everything follows the pre-written code.
- Safety and confidentiality. All contracts are stored in the blockchain, in an encrypted form. The goal of the system is that no one can change the smart-contract or replace the data. In addition, private keys are used for signing, which increase the level of security.
- Speed. Paper work takes a long time. The use of blockchain smart-contracts significantly speed up the process of concluding transactions.
- Saving money. Smart contracts exclude intermediaries from the business process. Once written, the program can be used for different transactions for different users.
With all the benefits and flexibility of smart contracts, they have many drawbacks:
- The difficulty of coding. You can get a standart contract from a lawyer. There are a lot of such services. You just need to contact any legal agency and get the necessary documents. In the case of blockchain smart contracts, the role of a lawyer is performed by the developer. Interesting, is not it? They code a script for conducting transactions. Currently, the number of such specialists is limited and not all have the required level of skills. Bugs in a smart contract can lead to large financial costs. Our company, Merehead, is developing scripts with a high level of security.
- Faults. As mentioned earlier, developers can make a mistake that can lead to loss of money or will allow hackers to steal money.
- Flexibility. Smart contracts do not have the flexibility. The technology of the blockchain is built in such a way that it does not allow changing the data. The previously created blockchain smart contract cannot be replaced any data or edited.
- Legal regulation. To date, there are no laws that could regulate the relationship based on the blockchain smart contracts. Courts will not be able to accept your application since the government hasn't yet passed the necessary laws.
Contracts are concluded with the use of blockchain technology. But it needs to note that not all cryptocurrencies support smart-contracts:
- Ethereum. This platform gives the most opportunities for coding various smart contracts. You can implement almost any scenario. Ethereum is the most common way (togehter with 0x protocol) for building decentralized exchange.
- Bitcoin. Interestingly, smart contracts are almost never used.
- Side Chains. The project bitcoin for the expanded use of smart contracts.
- NXT. An open platform that has a limited number of smart contracts. However, it does not allow you to code your own solutions (scripts) to create personal contracts.
As you understand, blockchain smart contracts are used on the basis of the cryptocurrency platform. They regulate transactions between accounts and can be used to raise funds when launching an ICO. Owners of startups who raise funds must provide safe conditions for investors. All participants must be sure that their money will not be stolen and will be returned if the project fails. All this can be prescribed in smart contracts. Ethereum is one of the few platforms that can offer this opportunity.
Blockchain smart contracts are just gaining popularity and every day developers are suggesting new solutions in different industries: real estate, banking services, healthcare, logistics.
If you want to use standard solutions, you can start from templates. If you decide to create your own script, then you need to choose a development team. Since the smart contract on the Ethereum platform uses the Solidity programming language. Our company Merehead is engaged in the professional development of platforms using the blockchain of smart contracts. For example, the launch of a cryptocurrency exchange using blockchain transactions. As mentioned earlier, the most popular solution is the use of the Ethereum platform. In order to use a smart contract, you need to create a wallet and start the transaction:
1. Sign up in ethereum.org
2. Download the crypto-wallet from the "Ethereum Wallet" tab and install it.
3. Create a signature and come up with a private key.
4. Go to the section for creating transactions. Here you can specify the crypto-wallet data, the transfer amount and add the program code in the input field. It is here that you can insert a script of a smart contract or use a ready-made template. Part of the smart contract code:
By the way, every transaction in Ethereum requires payment. For this goal, a special currency is used - Gas. It is transferred to the account of the "Miner", who is doing the transaction by the money. The fee cost depends on the contract of the smart contract and is calculated automatically by the system. If you have any questions, we will be happy to help you.