All about Cardano
04.08.2022
263 Views
Each day, cryptocurrency keeps scaling new heights to the surprise of many who could have…
Smart Contracts on Blockchain
We live in a world where the word “smart” gives just one common meaning and that is, trendy or neo. You will most of the time hear people talk of smart watch, smart clock, smart this…smart that. In the field of money, cryptocurrencies represent that acclaimed smartness. If anything, cryptos mark a departure from the past where banks exercised full control of their customers’ money. Another new trend that crypto has heralded is the ability to provide for completion of smart contracts. In real life, the terminology, smart contracts isn’t even close to complicated as it may appear.
WARNING: Investing in crypto, or other markets, can be of a high risk for your savings. Do not invest money you cannot afford to lose, because there is a risk for losing all of your money when investing in crypto, stocks, CFDs or other investments options. For example 77% of retail CFD accounts lose money.
Smart contracts refer to the simple programs that are stored on a blockchain. They run when the predetermined conditions are met. Basically, they are utilized in automating an agreement execution. The reason behind this is for all the participants to be certain of the outcome without a loss.
Furthermore, a smart contract is a digital agreement, which enables parties to exchange shares, property, money, or anything of value. It does so in a transparent way as it avoids any third party. In simple terms, smart contracts are just like a vending machine for complicated transactions.
The Way Smart Contract Works
In understanding the way smart contracts work, we can take the example of purchasing a mobile phone online. To purchase a mobile phone, you need a listing site that has information regarding the phones that you need. Apart from that, you need to find a way of communicating with the sellers.
Apart from the above two requirements, there should be a payment system allowing you to exchange money after choosing the phone of your choice. Besides, there needs to be a capacity for getting a refund in case the phone you need is not there. Besides, if you want to change your phone ownership, you may do so with the authorities.
All the above-discussed components need some kind of trust. The trust is between you and the seller. Also, the different processes are controlled by varied individuals and companies. If one person or even company meddles with the processes then the whole process may be spoiled.
The following are the steps regarding the way smart contract works
- A trader starting a transaction from the blockchain wallet
- The transaction arrives in the distributed database. This is the place in which confirmation of identity takes place.
- The transaction is approved in this stage which can include funds transfer
- The transaction entails a code defining the kind of transaction that should be completed
- The transaction is added to a block that is in the blockchain
- In case of a change, then it follows a similar process before it is updated
The Features of Smart Contracts
Smart contracts are different from traditional programming languages. Therefore, smart contracts have the following features:
The first trait is immutability. After the deployment of a smart contract, it cannot be modified. Thus, it is guaranteed to function identically irrespective of when it is called. This process allows the smart contracts to operate as trusted and reliable third parties as there is no person that controls them. Therefore, it can act as a trustworthy automated market maker and financial intermediary by guarding impartiality.
The second feature is simplicity. Smart contracts are somehow expensive to organize in the blockchain. Also, it contains sensitive logic that dictates the financial transaction flow. Therefore, they are simpler and smaller than most codebases.
Another trait is transparency. The smart contracts are published in the blockchain. In addition, it may be written and read by any individual who can access the blockchain.
The smart contracts act as independent actors after they are deployed. Besides, even though they are transparent, they contain complex logic. The smart contracts work in such a way that instead of human users having Ethereum accounts, there are two kinds of accounts. They include contract accounts and Externally Owned Accounts (EOAs). The Contract Accounts are managed by smart contract code while EOAs are managed by a human user.
Top Smart Contract Case Uses
Smart contracts have different uses in varied fields. For instance, in the mortgage system, it is used in fastening the process as well as automating mortgages. Another area in which it is used is in the digital identity. In this sector, it offers individual identity in the digital assets, makes KYC (Know Your Customer) frictionless, and removes counterfeits.
Smart contracts also have important usage in the financial field. For instance, in financial service, it is used in providing error-free services. Basically, it automates several aspects. Additionally, in financial security, it is utilized for liability management. Apart from that, it helps in automating payments, dividends, and stock splits.
Still, in the issue of finance, smart contracts play an important role in financial data recording. This is done by improving data recording. Through it, there is a high level of accuracy and it highly saves on auditing as well as reporting costs. In trade finance, it is utilized for cross-border payments. Also, in some cases, it may be used in international trade.
In the government sector, a smart contract is important in automating operations. Additionally, it improves efficiency and transparency. Another sector that smart contract plays a significant role is clinical trials. There, it provides cross-institutional visibility, improves privacy, and automates the data share process.
In the trading activity, trades are conducted without using intermediaries. The reason is that the process is automated. Also, in escrow, it automates the escrow amount. Apart from that, it improves trust and authenticates data. Remember, escrow is the process of storing value among parties while the contract is active. They are used in platforms including Upwork as well as other freelancing platforms.
The Benefits of Smart Contracts
Smart contracts enhance savings by reducing fees and time delays. They remove the need of having intermediaries to handle transactions. Also, there is transparency and trust in smart contracts. The reason is that no third party is involved. Also, it is because all the encrypted transaction records are shared by all the participants.
Smart contract promotes accuracy, efficiency, and speed. After a condition is met, the contract is completed very fast. In addition, smart contracts being automated and digital, there is no paperwork to process transactions. Also, there is no time utilized in reconciling errors from the documents that are manually filled.
Furthermore, smart contracts highly enhances security. Blockchain transaction records are usually encrypted. This makes it a little bit challenging to hack. Also, each new transaction is connected to the subsequent as well as previous records in the distributed ledger. It means that if hackers want to change a single coin, then they have to change the whole chain.
The Top Smart Contract platforms
The main platforms supporting smart contracts include Hyperledger, Ethereum, Stellar, EOS, and others. While some of these platforms have their own smart contract virtual machine and contract language, others do not have. Besides, they have unique features.
Algorand
Algorand is DeFi’s permissionless smart contract platform. The company made an agreement with Circe in 2020 after the introduction of fiat-backed stable coin functionality to Algorand. The platform provides high speed without sacrificing security, scalability, and minimal prices.
Algorand features include friendly to the developers, Smart Contract Programming Language Made Simple, and auditability of the code. The other features are that it has low transaction costs, the transactions are processed fast, and carbon negative. Besides, its nature is forkless.
Apart from the features of this smart contract, it has some benefits one of them being that it is fast. In mining, it utilizes Pure Proof of Stake consensus. This strategy ensures that there is maximum performance irrespective of the number of transactions in the block. The other benefit is the fact that it is scalable. This means that it addresses important blockchain challenges such as decentralization, security, and scalability. Also, the smart contract is cheap as it uses Clarity programming language that saves effort, time, and money.
Ethereum
Ethereum is the first best smart contract platform. Even with the introduction of the different smart contract platforms, it still ranks highly. With time, it has gained popularity and this made it attract considerable investments. It has attracted companies such as Samsung and Intel.
Some of the top features of Ethereum include the fact that the setup is free and it has ERC-20 which is the token standard of Ethereum. The other features include the fact that developers need to follow clear guidelines and it has an avant-garde development community.
The advantages of the Ethereum smart contract include reliability. Ethereum has a team of dedicated developers who have developed a dependable platform. In the platform, everyone may want to construct a distributed application or smart contract. The other advantage is that it is very popular. Ether is the second most popular crypto after Bitcoin.
Apart from the above-mentioned benefits, it has some limitations. One of them is that it is very expensive. As compared to the other cryptos, Ethereum is the most expensive. Another disadvantage is that it is slow. The slowness is caused by an increased number of users on the platform. Ethereum is also vulnerable. In the past, it has been linked to security flaws and challenges.
EOS
EOS was developed in 2017. It has proved to be a promising smart contract as compared to the others. it almost has no transaction fees. Besides, it has the ability to handle several transactions in a second. Some of its features include scalable and simple to use. Also, it is not offered by a platform-specific programming language.
The advantage of this kind of smart contract is that it is quick. It uses Delegated Proof-of-Stake consensus in allowing the network to process several transactions. The strategy gives the investors access to resources while considering their computational power and stake. Also, it is inexpensive as compared to a smart contract like Ethereum.
The main limitation of EOS is concerning centralization. The fact that the technology makes this smart contract expensive and quick, is a source of worry. The worry is from resilience to censorship and centralization. The problem of centralization made the EOS Tribe which was one of the first participants to withdraw. The aim of the withdrawal was to raise awareness regarding the issue.
Hyperledger
Hyperledger was created by Linux Foundation. The Hyperledger Fabric, its blockchain, is authorized and the identities of the players are known. This issue makes the platform appealing to businesses as compared to other platforms. It also vows to comply with data protection needs and deal with sensitive data.
The aim of designing this smart contract is to enhance security, secrecy, and trust. The users have a chance of developing a secret channel for some specific members. This enables the users to just allow the selected participants to view the transaction data.
The features of Hyperledger include IBM offering assistance, it is completely free to use, and open source. Besides, membership is done with permission. The system also allows you as a user to code contracts in different languages.
The benefits of this smart contract include membership authorization. It means that it is important for the knowing companies. A permission blockchain is appropriate mainly for finance organizations. The other advantage is an immutable system. It has a ledger containing records of past and continuous transactions. The varied file systems are significant for varied blockchain applications. The other benefit is confidence, scalability, and high performance.
Apart from the benefits, this smart contract has some limitations including complicated architecture. Also, as compared to a platform like Ethereum, it does not have competent programmers. Besides, it is not a fault-tolerant network.
