So What Is Blockchain? And What New Applications And Opportunities Will It Bring Us?
Blockchain gives people the ability to not only create value and authentic digital information, but can do so in a matter that allows the data to become immutable. Many new and exciting opportunities can come about because of this.
Distributed ledgers enable the coding of simple contracts that will execute when specified conditions are met. Ethereum is an open-source blockchain project that was built specifically to realize this possibility. Ethereum has the potential to leverage the usefulness of blockchains on a truly world shaping scale.
At the technology’s current level of development, smart contracts can be programmed to perform simple functions. For instance, a derivative could be paid out when a financial instrument meets a certain benchmark, with the use of blockchain technology and Bitcoin enabling the payout to be automated.
The Ethereum blockchain works like the Bitcoin blockchain; a network of computers (or nodes) run software which confirms transactions on the network. Ether works more like fuel than a normal cryptocurrency. In the same way that you need gasoline or diesel for your car, you need Ether to run the smart contracts and applications on the Ethereum blockchain.
I want you to remember all of this as it will help you understand one of the main products of the Ethereum blockchain. This product is called a smart contract, and it are now used by many cryptocurrencies. Because of the growth in popularity that Ethereum has seen, the question ‘what is a smart contract?’ has become one of the most-asked questions in the crypto space just lately.
So, What Is A Smart Contract And When Was It Invented?
Way back in 1994, a guy named Nick Szabo who was a cryptographer at the time, came up with the idea of being able to record contracts in the form of computer code. The contract would be activated automatically, when certain conditions are met. If they weren't met then the contract wouldn't be completed. With this idea, you could potentially remove the need for trusted third-party companies, like the ones we know today such as banks.
Why? The answer is simple, because you no longer need a trusted third party when you make a transaction. No middle men, no taking a cut of the transaction. Instead, the contracts and transactions are self-executed on a trusted network that is completely controlled by computers. Removing the need for humans and extra cost.
Nick Szabo worked on this idea for many years and even wrote a book called “Smart Contracts: Building Blocks for Digital Free Markets“.
The only issue was that back in 1994, blockchain technology didn’t exist. But it does now.
A smart contract is an agreement between two people in the form of computer code. They run on the blockchain, so they are stored on a public database and cannot be changed, if the conditions aren't met then the contract isn't completed.
The transactions that happen in a smart contract processed by the blockchain, which means they can be sent automatically without a third party. This means the transactions can happened in moments and at any times.
So you're clear the transactions only happen when the conditions in the agreement are met, again, there is no third party, so there are no issues with trust when you remove the human element.
So, Just How Do Smart Contracts Work Then?
We can start by looking at how a smart contract can be used:
Say you want to buy a house. This agreement is formed on the Ethereum blockchain using a smart contract, and this contract contains an agreement between both parties.
In the simplest terms, the agreement will look like this: “When party A pays party B - in this case 3000 Ether, it's then party A receives ownership of the house”.
Once this smart contract agreement has been put into place, it cannot be changed — meaning party A can feel safe to pay party B 3000 Ether for the house.
Without the use of a smart contract in this scenario, Party A and Party B would have to pay fees to third-party companies do something that can be automated and done faster with smart contracts. This Includes banks, lawyers, and a house broker.
Everyone wants no more commissions or delays waiting for lawyers and brokers to process the agreement.
Smart contracts are automatically executed once the conditions of the agreement are met. This means there is no need for a third party, like a bank, a broker or a government.
How Is This Possible?
We have the blockchain to thank for that. Because of blockchain technology, we are able to decentralize smart contracts so that they are fair and trustless. By decentralizing, which means they are not controlled by one central party, like a government or bank.
The blockchain is a shared database run by many computers which are called nodes belonging to many different people. Because of this, not one single person or company has control of it on a public network.
It means it is near impossible to hack it. A hacker would need to hack more than half of the nodes if they wanted to attack the blockchain or the smart contracts that run on it. And would have to continue changing each block made afterwards Therefore, smart contracts can run safely and automatically without anyone being able to change them.
This could mean we finally feel safe to pay deposits for products or services, there is no trust involved.
So What Are Smart Contracts Currently Being Used For?
A house sale is not the only scenario in which smart contracts can be used. Smart contacts can be used for any type of transaction, it doesn’t have to be financial.
The possibilities are endless for smart contracts. They are already being used for financial trades and services, insurance, credit authorization, legal processes and even for crowdfunding agreements ICOs.
Can use smart contracts to record and safely transfer data.
We already see examples of smart contracts being used in the medical industry. This is an application that use smart contracts to transfer patient data in a secure way, allowing no access from third parties.
This way, the patients are in control of their own data and who can view it. If researchers want to use patient data, they must pay for it. Not only that, but the patient has to choose whether or not they want to sell it to them. It's a much better system that is already in place.
For governments, smart contracts running on the blockchain can make voting systems completely trust less and much more secure.
A secure and transparent online solution Follow my vote
Voting applications that use smart contracts and blockchain technology to protect votes from fraud. When the voting transaction is written to the blockchain, it cannot be changed. When the voting is over, the smart contract will send a token to an address that represents the winner of the vote.
This way, voting is always fair, meaning the winner is always correct. How many things can you say that about?
Businesses can benefit greatly from smart contracts. Instead of paying staff to run payrolls, they can just use smart contracts.
Businesses can just set up a smart contract that says WHEN the date is 28.03.18, the Business sends Mark 5 ETH. This means Mark will always be paid on time, and he will never be underpaid. The business benefits because it is all automated, saving them lots of time and money!
If you want to start your own project that uses the blockchain, you can build your project on the Ethereum blockchain, as we saw earlier. However, you’re going to need some money!
How’re you going to get the money you need? Welcome to ICOS.
An ICO (Initial Coin Offering) is a crowdfunding system for new applications that use blockchain technology. You create a smart contract and a token for that smart contract. Let’s imagine you call your token VDGC
You want to raise $8,000,000 to start your project and build your application, let’s imagine that $8,000,000 is equal to 10,000 Ether. You decide you’re going to put 100,000 VDGC tokens into the smart contract, and that each ABC token is going to be worth 0.1 Ether.
That way, if you sell all 100,000 VDGC tokens, you will have the 10,000 Ether that you need, because of 100,000 x 0.1 = 10,000.
Now, in the smart contract, you will write something like: IF 0.1 ETH is sent to the smart contract, THEN the smart contract will send 1 VDGV to the address that sends the 0.1 ETH. That way, the people contributing to the ICO always get the right amount of VDGC tokens.
Why would people want to buy the VDGC token?
Some of the most common reasons people buy tokens from ICOs are:
- The token can be used on the application once it is built
- The price of the token may increase when the project becomes more popular
You can think of ICOs as a blockchain version of Kickstarter, with the key difference is that it automates the whole crowdsale process in a secure, trustless way.
How Are Smart Contracts Created?
Smart contracts can be built on multiple blockchain platforms, including Ethereum and NEO. As Ethereum is the most popular choice for developers, I will tell you about Ethereum’s smart contracts. Ethereum being the most popular choice is why you’ll often hear the term ‘Ethereum smart contract’ or ‘Ethereum contract”
Smart contracts are developed using Ethereum’s original coding language, called Solidity.
If smart contracts fulfill their purpose, perhaps we’ll one day live in a world that is free of middlemen.
What would happen then?
The best thing about having no middlemen is the fact that we save a lot of money. Not only that, but we would no longer need to trust anyone, either.
There is a potential downside, too, though: People may lose their jobs. Middleman are real people, just like you and me. Why would someone pay an employee to do a job that could be done for free by using a smart contract?
That's the thing they wouldn’t.
So, as you can see, smart contracts can make the world a better place that is free of commission. It can reduce fraud, delays and the overall cost of many things. As we further advance technology, we remove the need for certain jobs, but at the same time create others.