It is now a common phenomenon that individuals, organizations, and the world look forward to the deployment of smart contracts in their daily transactions.
These terms may sound extraordinary to the common man but can be executed by the same individuals unknowingly in their daily lives.
As most industries try to maximize their profits by minimizing costs, there is a tendency to deploy technological tools to ensure these goals are achieved.
Typical examples include company payroll schedules, trading of artifacts on NFT marketplaces, execution of trading transactions, and other staking plans on various platforms.
What is a smart contract?
A smart contract can be defined from the lens of a layman as a set of computer codes used to instruct the exchange of assets including money, shares, properties, authority, and access without the need for any intermediates.
Technically speaking, a smart contract is a set of computer code that is an automated or self-executing contract that binds the legal agreement between two parties which is represented in a distributed, decentralized, and transparent way as it runs on blockchain technology.
Why use smart contracts?
Among the first to propose smart contracts a little over 20 years ago, Nick Szabo introduced the notion of a digital certificate between two parties for the purpose of signing an agreement.
He was actually reasoning in line with how lawyers prepare documents of contracts with individuals, companies, and institutions.
He was of the opinion that with the digitalized form of contract there would be virtually no need to involve a third party in the transactions.
While agreements could be signed mutually from well-structured contracts and such contracts can be implemented seamlessly, it would require some level of security and transparency.
However, the concept of smart contracts has since evolved over the years, but the implementation was attributed to the discovery of blockchain and its application.
As a result, when Bitcoin was released, the technology behind it came with the ability to support smart contracts.
However, it was only with the creation of Ethereum that the use of smart contracts in real-world use cases was embraced.
This further led to the development of the first decentralized application (DApps) which were built on the Ethereum blockchain.
Subsequently, several blockchain developers have technically modified (forked) the Ethereum blockchain to produce a similar blockchain with similar characteristics, which enables them to create other decentralized applications upon them.
This indeed has transformed the blockchain space with the implementation of smart contracts in virtually all facets of life endeavors from finance, education, health, governance, gaming and so much more.
How does a smart contract work?
The concept of smart contract was implemented on the Ethereum blockchain by Vitalik Buterin and he took some time to explain what he had in mind before the implementation in one of the crypto conferences he attended, tagged DC Blockchain Summit.
During the summit, Vitalik iterated that the smart contract had the capability to execute transactions without third parties based on a set of codes. This code would be executed according to the instructions outlined in it when it met the required conditions.
He was also quick to mention that the transaction would be registered on a decentralized ledger in order to establish the transparency and security of the agreement as such contracts can not be tampered with.
Possible use cases of smart contracts
The number of use cases associated with smart contracts is unlimited and can become an everyday activity in the life of everyone as we gradually transform the way we live in the world today.
In the finance sector, smart contracts are used for trading, lending, staking, and other activities. For now, let’s focus on staking.
Remember: what is staking?
In technical terms, staking is a process of actively involving one’s financial resources for the purpose of validating the nodes of a blockchain network.
As a consequence, the user can accumulate certain benefits which can come as financial rewards, status recognition, loyalty perks, and so on.
But what does it have to do with smart contracts?
The entire process of staking is developed in a smart contract to reflect the individual’s contribution to the network and the rewards that are due to the contributor.
This would eliminate every form of third-party interference as the line of codes would include every instruction that would be executed in a seamless way.
The smart contract involves two parties agreeing to the transaction and this is usually preceded by the consent of both parties by using their private keys to authorize such transactions.
It’s known that there are several scamming smart contracts developed and deployed with the goal of stealing from unsuspecting users of crypto platforms.
So it’s recommended to be wise and spend some time to carry out your own due diligence before authenticating any transactions with your private keys in order to avoid your funds being stolen from your wallet.
It is a Klever thing to do.