The overnight rise of cryptocurrencies has given an entirely new vocabulary onto investors. Then there are a few phrases like “decentralized applications” and “smart contracts” that come up when discussing specific platforms and cryptocurrencies. And thus, today, we are talking about the use of Blockchain and Smart Contracts. Obviously, all of these things are matters of concern of investors. It’s because the ultimate success and effective proliferation of digital platforms will be driven by software developers, who can easily adapt to the blockchain-tokens pairings, which offer the most functionality.
Further, one of the most vital things for forward-thinking cryptocurrency investors to thoroughly understand is how the blockchain and smart contracts work together. With that keeping in mind, here’s a beginner’s guide to smart contracts and the blockchain.
A blockchain refers to a digital network, built and maintained by disseminated computers running specific pieces of software. In the matter of cryptocurrencies (which aren’t required for blockchains), blockchains bring together a digital and distributed ledger that can monitor and track monetary transactions. Moreover, blockchain networks can utilize their own individual tokens as a method to transfer value in transactions, which is what developed the various cryptocurrencies on the digital landscape now.
But apart from the fact that blockchains aren’t controlled by banks (decentralized) and likely to expedite information sharing than conventional ledger technologies, transferring value using digital tokens may not prove to be a wise idea. That’s where Smart Contracts come into the play.
A smart contract is a type of software program, it adds layers of information onto digital transactions that are done on a blockchain network. Ultimately, it enables for more complex transactions rather than just simply processing the exchanging of digital tokens for a service or product. In different words, it’s what it sounds like: a contract. Or sort of an agreement between involved parties in a transaction, that hold each side accountable (buyers vs. seller) for their role.
In a nutshell, founders often fail to meet expectations and plague crowdfunding systems. In fact, we’ve all heard news where fraudulent founders proceed with the plan to raise tens of thousands of dollars, just to dump the mission soon later and vanish with the money. One can consider this phenomenon as a systematic failure and inefficient; by handing all authority over funding in the hands of one individual, center figure
If crowdfunding sites instead use the blockchain and smart contracts, then donor may willingly put up money, donations would be processed in a distributed account across the network. In addition, the total sum of money would be released to the project owners they deliver– as mentioned in the smart contract. In case, if the project owners don’t deliver as mentioned in the smart contract, then the money will automatically return to donors.
This means, in the future, a likewise framework might work for funding huge capital projects, like a multi-billion dollar liquefied natural gas export, except the fact that donors would be debt owners or shareholders, spread over a distributed network.
Another fine instance of smart contracts in use: receiving paychecks. Rather than to wait to get your paycheck every two weeks or the last Friday of the calendar month, an employer can easily pay its employees every day or even every hour by utilizing the blockchain and smart contracts. Systems like this can work exceptionally well for contractors in the rapidly expanding economy (such as Uber Drivers and freelancers), that usually have lumpy, project-based income.
Another example of smart contracts in use: receiving your next paycheck. Rather than wait to be paid every two weeks or the last Friday of the calendar month, an employer that utilized smart contracts and the blockchain could pay its employees every day or even every hour. Such a system would work exceptionally well for contractors in the quickly expanding gig economy (think Uber drivers and freelance programmers), who can suffer from lumpy, project-based income.
Indeed, investors that opt to invest in cryptocurrencies are required to become comfortable with all of the pertaining jargon and comprehend all of the nuanced details of competing blockchains. Here, smart contracts become a perfect example of that. Meanwhile, smart contracts promise to deliver on the right value of what blockchain can do, not all blockchains support smart contracts are developed equally. This should be a concern of a lot of investors, and may eventually help separate the winners from the losers.