Smart contracts are electronic contracts that enforce and verify agreements as written in code. Since the future of cryptocurrency hinges on smart contracts, let’s take a look at what they are and how they work.
I have a question for all of you. Have you ever heard of Kickstarter? When you want to pursue an idea, but you can’t do it alone, you basically make a page and show off your idea hoping that other people will help you out with donations. For example, I may have an idea for a book that teaches cryptocurrency ideas and concepts. I would make a page stating that I am attempting to get $1,000 in donations. If people donate at least $10, I’ll give them a book. It took around a week, and I came up with $1,300 in donations. Once I reach my goal of $1,000, Kickstarter will provide me with all of the money that has been donated. Though if I didn’t reach the $1,000 goal and my grandma donated $1,000, I would not get any money, and all the people who donated would get their money back.
This smart contract is simply a piece of code that executes certain commands. These people are referring to something like If A, then B. The most popular smart contracts are written on the Ethereum network and use Solidity. Let’s explore how a smart contract can work with these as examples. If you send me five Ethereum in exchange, I will send you 20 Basic Attention Tokens. If you have over 100,000 subscribers, you will receive an additional 20 Ethereum this year. Additionally, if the temperature is above 95 degrees for more than four days, you will receive $100,000 as crop insurance this year.
With a smart contract, we could easily automate donations where a particular recipient is eligible to receive, say, 500 Ethereum. Every person who donated would be rewarded in the form of an artwork or some digital in-game collectible or something more tangible like reading a digital book. The potential of smart contracts is immense, but two specific aspects of them make them helpful to everybody.
Why Are Smart Contracts so Important to Cryptocurrency?
First of all, they are immutable, which means they do not change. I mentioned that many people call smart contracts ‘if this, then that’ because most smart contracts react to a triggering event by doing something. Those are coded on the blockchain, which executes the smart contract’s code. There are upsides and downsides to that; if there is a problem or the code isn’t well done, it will be there permanently. While that’s the case, you could make a new smart contract and notify everyone not to use the old one if you wanted to. That’s often the case.
A second important thing to know is that these words are spread out, meaning that there is no issue with disagreement. That is, you can’t hire a lawyer and claim. I had a completely different agreement with them because a few parties executed these smart contracts. In this context, smart contracts refer to an all-computer code that, in effect, removes any possibility of human error or issue. In short, if you can afford a lawyer, it may not be worth your while. Anyone who looked would be able to find your smart contract and trace how you were involved in it. We have standardized financial agreements because nobody can contest them when they’re written in code, the code never changes, and everyone has access to them.