Cryptocurrencies are all over the news right now. Is anyone surprised?
But it can be easy to think of them as speculative investments and not innovative pieces of technology in and of themselves. Smart contracts are one of the largest innovations that have come out of the crypto revolution, and could potentially revolutionize the way eCommerce is conducted in the future.
But what exactly is a smart contract, how do you set one up, and what are the benefits of one? Keep reading to learn more!
What Are Smart Contracts?
First of all, smart contracts are not linked to every type of cryptocurrency out there. If you’ve been following Ethereum news at all, you’ll know that Ethereum was the initial cryptocurrency to develop smart contracts.
The Ethereum blockchain is made up of several nodes, each of which is connected or ‘chained’ together. This blockchain contains a ledger of all the Ethereum transactions that have ever happened. A smart contract is a short program, written in Javascript code, that is hosted on a specific node.
That code can tell the node to perform a certain action (most commonly releasing Ethereum) once specific conditions are met. As an example, this means that a smart contract can be written to pull from a database of sports results and release winnings to bettors if a certain team wins.
Most contracts will only be able to verify data from inside the blockchain. This means in order to import data from outside the blockchain, there are specific smart contracts that will pull data in.
Smart contracts do come at a small price. They use a small amount of Ethereum to run, known as gas. You can choose to use more gas to expedite the execution of your smart contract: other nodes will prioritize contracts that have a higher price tag attached.
What are the Benefits?
There are two major benefits associated with smart contracts.
The first is that they are immutable and unchangeable once they are on the blockchain. Since every node will have a record of the contract, you can’t tamper with the conditions associated with the contract. This can help prevent fraud and ensure that parties to certain contracts are not able to back out at the last minute.
The second is that smart contracts can automate a ton of manual work. Taking the example used above, imagine having to manually keep track and release winnings as a bookmaker. It would take a ton of time and effort, and there’s much larger room for human error.
Set Up a Smart Contract
Knowing what smart contracts are and how they can benefit you is only half the battle. Actually setting one up to benefit yourself or your business is a whole other activity and will require some coding knowledge.
For more information about cryptocurrencies, blockchains, and other financial and technological innovations, read through the rest of our blog.