Ethereum smart contracts
Ethereum Smart Contracts
If you want to change the way the Internet works, you need to come up with something that will shake its very core. Ethereum smart contracts could be just that, and we are about to show you why. In short, this is something that allows people to conduct all kinds of transactions online without any interference from any third parties, but always with complete security. How is this possible when you could potentially be engaging in a transaction with a person from the other side of the world? What guarantees do you have that they won’t trick you? We will explain that and much more in the following few paragraphs. Stick around and see Ethereum smart contracts explained completely.
How do smart contracts work?
We will begin our little tutorial by going through the main principles smart contracts are based upon. It’s actually not that difficult – two parties want to make a transaction. However, instead of a standard contract where the legal system of a country makes sure no problems occur, they go for a smart contract. Why? Well, because there are no third parties (like a lawyer or a public notary) involved and everything is much cheaper, plus the security of the whole transaction is undeniable. Just like the regular contract, the smart contract also has a prescribed set of conditions which have to be met. The only difference is that it is smart contracts themselves who execute transactions, and they do so as soon as the conditions are fulfilled, without anyone ever being able to tamper with them. To put it simply, everything is based on an if-then principle. Both parties will be notified immediately when the transaction goes through, and thanks to the Ethereum blockchain there will be a record of it for everyone to see. That way, you will have witnesses all across the world. What does this have to do with Ethereum? That’s what we’ll show you in the next paragraph, so keep reading.
Smart contracts and Ethereum
If you want to know “What is Ethereum?”, you cannot avoid the topic of this article. Ethereum smart contracts are the building blocks of everything that is done on this network. Still, it is interesting to note that it was the people behind Bitcoin who first came to this idea. The problem there is the fact that Bitcoin is limited to being used as a currency, whereas Ethereum is looking to introduce these contracts to pretty much everything you can do online. In order to do that, the programming language had to be changed, so Ethereum’s language (Solidity) is much more flexible and allows programmers to write whole programs with much less limitations. It is important to note that smart contracts can be used on all blockchains, but it is Ethereum that provides the best conditions for their implementation. Also, don’t look at them as separate entities. Sure, they can work on its own, but connecting multiple Ethereum smart contracts can provide you with some very interesting results. Don’t go away, everything will be explained as the article continues.
Creating with smart contracts
Ethereum blockchain was created with specifically smart contracts in mind. It facilitates their creation and allows you to connect them to each other. What you get if you create a series of these contracts is a decentralized app, also known as a dapp. The major advantage of using dapps is that there is no third party involved, just like in our earlier example with lawyers and public notaries. The contracts work together to make sure the information the dapp is using is always correct, so you never have to worry about security. Dapps cannot be censored, forbidden or restricted in any way precisely because they are decentralized, so as soon as they appear on the blockchain, they stay there forever.
But that’s not all. This can be developed further onto a much bigger scale. Enter DAOs, i.e. decentralized autonomous organizations. To put it very simply, these are essentially companies where there are no people in management positions. The idea is that because managers do their job according to certain rules, DAOs can enforce those rules through smart contracts in order to manage their resources more efficiently. Don’t worry; we humans never lose control. If anything, direct democracy becomes much easier – stakeholders simply vote on any action they want to take, and if the vote passes, the rest is completely automatized. We’ll give you some examples of real-life applications of this technology next. That should make things even clearer, so stay tuned to this Ethereum smart contracts tutorial!
Ethereum DApps
Where can smart contracts be used?
Wondering what all of this means for your Average Joe? Well, allow us to explain how Ethereum smart contracts can improve your life. We’ve already discussed how things get cheaper because you don’t need a witness for transactions, for example. Additionally, you can never lose anything that is on a blockchain, something we’ve also discussed. In the real world, this could revolutionize the insurance industry because the companies would always have access to all the data they need for a case. Let’s say two cars have a crash; in theory, smart contracts could in an instant reliably determine whose fault the accident was. Resolving disputes can become much faster, much more reliable and much more cost-efficient.
An interesting example of how smart contracts can also be used comes to us from the realm of politics. Come elections, you could actually do the voting from home, without any need for presenting your credentials. All you’d had to do is essentially log in and vote. This would definitely dramatically increase the voter turnout and even increase the safety of the whole process, something that is a pretty hot topic in the United States these days. It’s worth noting that some very influential institutions (Barclays Bank, for example) already use smart contracts to execute processes like transferring payments. However, for all their advantages, smart contracts have some downsides, too. We will explain that next in this Ethereum smart contracts tutorial.
Ethereum DAO
Potential downsides
So far, this way of doing things seems pretty attractive, right? Yet, it is not perfect. The nature of smart contracts and their connection to blockchains also has one big weakness. Think of this as sets of rules pretty much written in stone. Because of that, it is extremely difficult to change them later on if you need to fix something. In other words, if it turns out that there is a bug or loophole that can be exploited, it is quite possible that the issue cannot be resolved. That’s exactly what happened to the DAO project, which ended up causing a fork in the Ethereum blockchain.
There are also some other issues that arise from using smart contracts. For example, what about taxes? How can a government impose them on transactions such as these? Additionally, there is also a question of resolving legal disputes if some unforeseen circumstances arise. The smart contract will go through no matter what happens if, let’s say, a certain date for its execution has been set. There are a lot of questions like this, so we can’t consider the technology perfect, but if used properly, it can bring significant benefits.
Naturally, experts from various fields are constantly working on resolving these issues every day, so things will definitely keep improving in the future. Some of the biggest companies in the world, universities and many other institutions are interested in developing smart contracts further and have dedicated special teams to working on that. The future is definitely looking pretty bright.
Ethereum Home Page
Keep an eye on smart contracts in the future
We hope this little Ethereum smart contracts tutorial of ours has been helpful to you and that it has shown why this is the way of the future. This technology will significantly improve the way so many things are done in terms of speed, security and reliability. The amount of possible applications is simply staggering – from politics to healthcare, there are so many fields that can be taken to a whole new level.
What is important to emphasize is the role blockchains have in all of this. Thanks to them, decentralization is made possible and dapps and DAOs are beginning to emerge. Smart contracts can be used on any blockchain, but Ethereum was created with specifically them in mind. That’s why it has become the leading platform in the world for creating products based on this technology and why Ethereum’s popularity is growing so much. True, this technology is not perfect, but it represents a huge improvement and helps us take out any third parties from the equation.
Don’t think this trend is going away any time soon. Some big companies are already using this technology, with more and more joining them every day. So, you can be sure you will be hearing a lot more about this topic in the years to come. If you want more educational materials related to this, however, this is the website for you. Browse around, we have loads of very interesting and informative articles just like this one, both concerning Ethereum and many other cryptocurrencies. Good luck!