What is a smart contract? How does a smart contract work?

Nov 23,2022
What is a smart contract? How does a smart contract work?

Blockchain and smart contract go hand in hand like Internet and email. Smart contracts are the key to decentralization and the key trust mechanism to connect the blockchain with the real world. So, what exactly is a smart contract? How does it work? Next, let's have a look.

What is a smart contract?

Smart contract is a technology that intelligentizes the contract in life and can be automatically executed by the program when certain conditions are met. It's just like you made a promise with me. We decided on reward and punishment measures, and then entered the promise into the blockchain according to the code. Once the agreed standard is opened, there will be a program to automatically execute it. This is a smart contract.

Therefore, smart contracts enable the parties involved in the agreement to negotiate directly with each other without relying on a third party.

Advantages of smart contract:

Control: In the distributed architecture of confirming (or rejecting) contract performance, multiple parties continuously check, recheck and upgrade the content of the block, while other parties reject any implementation that does not conform to the specified rules.

Security: Follow the contract logic, and then run the program on all blockchain nodes at the same time. All interested parties can compare the results. These parties may modify their own block versions only after reaching consensus on the contract terms. The block is then copied throughout the network.

Transparency and flexibility: Any blockchain customer can evaluate the contract logic and underlying system. Each of them can verify and operate the same code. Customers cannot view independent contracts, and all details of contracts can only be seen by each other. If other users accept the contract terms and contract logic, then simply speaking, any of them can copy, modify and execute the contract again for their own purposes.

How does a smart contract work?

Smart contracts represent computer protocols, or simply, code fragments as basic technical elements. They are used to buy and sell all the agreement standards reached between multiple parties of a specific blockchain. Once these conditions are met, the smart contract will automatically buy and sell transactions.

The blockchain based system allows its participants to reduce mediation and excessive paperwork, because it depends on any interested party being able to verify the public ledger of all transactions. The key requirement here is to describe all protocol standards according to mathematical standards with appropriate programming language.

The blockchain represents a distributed node network, and each node stores information about all transactions. To cancel the trading or double flower assets, it is necessary to control more than 50% of all these nodes.

Suppose a person wants to launch a smart contract, they need to download special software and generate a public key published in the system. Then, an initiating message should be pushed and the node will receive it. When the establishment of the smart contract ends, the code will be implemented.

Where can I use smart contracts?

Smart contracts can be applied in almost all industries. For example:

1. Health care

Smart contracts can play a role in improving the health care industry by quickly accessing the medical insurance and medical data of global hospitals.

For example, Dentacoin is a kind of smart contract, which aims to establish a community between dentists and patients, so as to make the global dental health care cost low.

2. Banking

Smart contracts can change the banking industry through efficient and cost-effective transactions. Automatic trading of smart contracts also helps the banking industry to improve productivity. If we do not rely on intermediary services or third parties, the number of fraudulent transactions that cause too much loss to the field will certainly decrease.

For example, KYC Chain uses smart contracts to quickly share customer supervision information from one company to another. Therefore, it reduces the time and cost from the company to the company to restart the control steps.

3. Government

Governments can use smart contracts to ensure convenient and efficient provision of government services. If there is no traditional way of government business, citizens will be able to get rapid and adequate services. Smart contracts will also reduce fraud in the government, as anyone can easily enter the contract for verification.

For example, Horizon State is an Australian company that hopes to assist the democratic process by providing an effective voting system. With the support of blockchain based voting system, safe and cost-effective voting parameters will be recorded. Therefore, it will complete transparent and unbiased voting in all countries around the world.

Speaking of this, I believe you have a certain understanding of smart contracts, how they work, and what they can be used in. In general, smart contract is one of the key technologies of the blockchain. It not only plays an executive role in the blockchain, but also is a development direction of blockchain application, which broadens the use scenarios of the blockchain. Because of its existence, the blockchain has a broader stage.