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Mar 2, 2020

What are Smart Contracts and How can they Help Me?

ILCOIN Development team

Smart contracts are one of the most recent developments in blockchain technology and are a great example of the kind of creative innovation that we are seeing coming out of this industry. Smart contracts are revolutionizing the way that professionals interact online. But what is a smart contract and how can I use them too?

Smart contracts, despite what you may think from the name, are not complicated clause filled documents that will give you a headache just from thinking about them. On the contrary, smart contracts are a technology developed specifically to make everyday life easier, and yes, that means your life too. Smart contracts, in short, take out the middle man when it comes to things like lawyers and banks. A smart contract is a technology that digitally oversees, verifies and maintains compliance in agreements made over the blockchain networks.

How does it work?

Just like any other contract, it starts with two people coming up with an agreement or negotiation. On a basic level, if you want to buy a house but you don’t want to pay a bank or lawyer to oversee the transaction, using blockchain, you can agree on when money should be released from one party to another and when in turn the title of the house should be signed over. When these two things occur, this information will be logged into the blockchain with a digital signature to verify its validity. This log is only available to the parties who are involved. In the case that either side fails to comply with the agreement within the agreed time, the deal is nullified and any actions made are reverted.

In today’s world, many big corporations are starting to use smart contracts in their everyday business too. Banks for example are increasingly experimenting with the idea, and as time goes on and this technology becomes more and more secure and user friendly, we will probably be seeing them turning to smart contracts as a means of interacting with their clients too.

How can I use it?

It all starts by you choosing which blockchain you want to use. This is a critical decision. It is important because it will define the speed, capacity and ease of use of your transactions. One of the most popular networks for blockchain transactions and transaction storage is the Ethereum network. We will be using this as a base for our example of how to use this technology in a practical way.

In our example, we are going to take a straight forward give and take. You work for a company that produces software programs. You are expected to release a new software by the end of the month. So, the company you are working for creates a smart contract and puts your pay into it. This money is locked there until you have completed the software at the end of the month, and once it is confirmed through the contract that you have completed the job, the money is released to you. In the case that you don’t complete the task, the money is refunded back to the company that created the smart contract.

This application can go both ways; even if you are the person releasing the funds to another party. It has many applications and can work with any type of data transfer. What is the point of all this? Isn’t it easier to just go the traditional way and use a bank?

Why should I use it?

The main appeal of smart contracts for people is its decentralized nature. This means that there are no big banks or law firms getting in the way, no red tape or big bureaucracy involved, and this makes the method of transfer not only faster, but more effective and more secure. Your data doesn’t change hands, it doesn’t need signatures and it doesn’t require another person coming in to supervise the proceedings.

Another trait of this technology that makes it a stand out from others is the fact that this contract can’t be changed after it is agreed upon. The digital signature that is required to activate the contract seals it in that form forever. Because of the nature of the source code of the smart contract, any participant attempting to compromise the contract or change it in any way will find a proverbial brick wall in front of them. Likewise, third parties cannot access the information in smart contract without the consent of the parties involved in the agreement itself.

So, to recap, it is instant. Once the contract has been agreed upon, it doesn’t need to go through any offices or receive any stamps. Once the transaction requirements have been completed, the money or data is transferred automatically. No one can change or alter the terms of the agreement once it has been put into place. Most importantly, it is impossible for anyone to gain access to the contract other than the persons involved in the agreement.

Smart contracts aren’t a particularly new idea. Computer scientists have been tossing around the idea since the mid-nineties, but now, this dream of a freer and easier method of interaction has developed into a practical everyday tool. In time, this disruptive technology could come to replace some of the more tiresome aspects of our society; dealing with bankers for your loans, lawyers for property transfers or having to visit hospitals to access your medical records. It is easy to see that there is literally a use for smart contracts within just about any aspect of our society today.

For someone who has no prior knowledge in this sector, it may seem daunting idea. No one gets excited about contracts or making agreements, but this is actually a really amazing technology worth getting excited about. It can make our futures so much simpler; especially in our workplaces. There are great things out there, and it is time to embrace what could be the greatest breakthrough of this century.

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