ZoneBitcoin EditorialAs you know, Ethereum has widely opened up and democratized the blockchain and that is how we began to hear about the famous “smart contracts”… Sometimes, without really understanding the issues behind it or even properly measuring the impact that this can have on the Challenge…
Although smart contracts were popularized (and heavily used) with Ethereum, it turns out that it is a concept that appeared quite a while ago. In fact, the first time we really talked about it was in 1994 with a publication of Nick Szabo, cypherpunk notorious.
He is a pioneering IT specialist in the field of digital online payment. He collaborated with David Chaum, inventor of electronic money “E-Cash” in the 90s.
That said, it's really only with Vitalik Buterin and his white paper that smart contracts have become a reality. And, in particular, thanks to the possibility of associating cryptocurrencies.
???? This is why, moreover, Ethereum is not the only protocol used for programming smart contracts. We can deploy smart contracts on other blockchains. That said, due to its popularity and ease of implementation, it is with Ethereum that the most smart contracts have been created.
Definition of a smart contract
To best define smart contracts, remember that they are computer programs that cannot be modified once they have been executed. This is indeed the case precisely because they are deployed on a blockchain. They will then follow a set of pre-defined rules to be able to execute automatically.
So, in the real world, a contract is executed via a third party and for example a lawyer. This is how we can define contracts. The validation is in fact done by a third-party legal institution, a fortiori. However, on the blockchain, this third-party institution no longer has room to validate the contract. This can be executed automatically, through the power of computer code. This is why the expression “code is law” of Lawrence Lessing was taken up in this context. The expression has become famous because it perfectly sums up the situation. It's a sort of equivalent to a notary contract for example, but in a digital version.
This is precisely what smart contracts are for: Executing a real-life contract in the blockchain for real-life use. Hmm…🤔 Am I clear…?
See the illustration below:
To explain it simply, a contract will operate following a defined causality. If “x” happens then “y” will happen. As they say in mathematics, “if this, then that”. For example, if a person gives x on the blockchain, then they will receive y.
A smart contract is a digital contract, which is self-executing according to predefined rules. It can send, validate or implement the execution of an agreement between two (or more) parties. It is stored on a decentralized blockchain.
This is the simplified version of smart contracts. Many smart contracts are more complicated. Indeed, there are no limits except the human imagination. There are very strong ambitions on the part of entrepreneurs and we are already seeing smart contracts interested in relatively complex systems. If there are really a whole bunch of legal rules integrated into the smart contract, in general, we will turn instead to DAOs (Decentralized Autonomous Organization). These turn out to be more suited to everything related to governance in general.
DAOs are another, equally interesting and useful pillar of Ethereum. There are more and more projects in this area. For the moment, this still remains in the experimental phase for most DAOs.
We will come back to this in a dedicated article.
How does a smart contract actually work?
Normally, with the definition you should understand (at least slightly) how it works. Unlike the execution of a traditional contract, all contract validation steps are recorded on the blockchain. This is how all operations are secure and visible to everyone. We cannot therefore modify, change, delete or censor an operation. (And this is specific to blockchain, and not necessarily to smart contracts).
We can therefore create smart contracts in different areas where it is really useful. For example, we saw with the startup RealT that smart contracts made it possible to buy real estate on the blockchain. Everything is then automated. The purchase and resale are recorded and therefore no one can censor or modify this information. Indeed, everyone can check on the. blockchain the proper execution of a contract and even knowing who owns this or that asset. You imagine as for the What's Nearby, for example, could it be useful?
The fact that this is based on computer code allows us to avoid the problems associated with human manual tasks. These are subject to errors, misinterpretations and a certain slowness…
Most of the time, smart contracts follow standards and the best known and most used remains that ofERC-20. It is indeed the ERC-20 which is the most used smart contract. This explains why the vast majority of tokens are ERC-20 type tokens. This type of smart contract allows the creation of tokens on the Ethereum network.
It is especially with this standard that we also realized thatEthereum could change our lives or in any case, improve entire sectors of our economy.
Now let's see what the advantages of the smart contract are
✅ Ease
One of the biggest advantages of smart contracts, that's the ease with which we can create them today. On the Ethereum network, for example, with the Solidity programming language, you can create smart contracts relatively easily. There are kinds of computer “templates” (standards like ERC-20) that allow you to create smart contracts easily.
✅ Safety
The other big advantage of smart contracts is that they are secure on the blockchain. Unlike traditional contracts, no one can falsify them. In fact, there may be ways to modify data on the blockchain but technically this would mean having more than 51% of the power of the network. Which is, in reality, hardly possible.
✅ Reliability
A smart contract will automatically execute on the network. We can then secure an agreement between two parties. With transparency and immutability, we can be sure that both parties have what they agree on. No possible errors or corruption as is unfortunately very often the case today.
✅ Fast
The fact of not having an intermediary, or even a human one, makes the execution of contracts extremely rapid. No more need for a notary or lawyer to specify a contract or validate it, it is the smart contract which will do this systematically.
What are the disadvantages of smart contracts?
There can't be only advantages, you tell me!
That said, the advantages are so enormous and bring so much efficiency to our systems, that the disadvantages seem small in comparison.
In fact, the biggest disadvantage is that there may be flaws in the computer program. We saw in the article which explains what Ethereum is, that a big hack was precisely at the origin of the division in the original Ethereum Classic (ETC) blockchain.
Beyond the purely technical flaw, it turns out that sometimes, for certain projects or sectors, human presence proves useful, if not essential. Sometimes human governance is needed not to validate smart contracts but rather to judge them in the event of a unique situation.
To this question, the solution seems to be provided with DAOs, and it is still a subject on which many people are working.
That said, there are still clans. Some do not want the slightest human intrusion into the blockchain while others find it necessary and useful at times.
Final word on smart contracts
In fact, smart contracts are still at an embryonic level but have a very bright and bright future, that's for sure. Numerous decentralized applications in the medical and insurance sectors, and especially in the supply chain (pharmacy, agro-food, cosmetics, medical and food, etc.) are under development.
Most certainly, in future years you will see more and more blockchain projects appearing. We are excited! Our current use of paper contracts will shift to digital for greater efficiency in our businesses. Overall, it is the individual who will benefit because it will facilitate their work in a profound way. Ultimately, that’s what we all aspire to…
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