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Author Topic: How do smart contracts work  (Read 3933 times)

Offline Tunir Baap

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How do smart contracts work
« on: June 16, 2021, 08:07:14 AM »
Simply put, smart contracts work a lot like vending machines. You just drop a required amount of a cryptocurrency into the smart contract, and your escrow, house ownership right, driver’s license, or whatever else drops into your account. All the rules and penalties are not only pre-defined by smart contracts but are also enforced by them.

Interdependence
A smart contract can work on its own, but it can also be implemented along with any number of other smart contracts. They can be set up in a way when they’ll be dependant on one another. For example, successful completion of one particular smart contract can trigger the start of another one, and so on. In theory, whole systems and organizations can run entirely on smart contracts. To some extent, this is already implemented in various cryptocurrency systems, where all the laws are pre-defined and because of that, the network itself can function autonomously and independently.

Objects of smart contracts
Essentially, there are three integral parts, also referred to as objects, to every smart contract. The first one is signatories, the two or more parties using the smart contract, agreeing or disagreeing with the terms of the agreement using digital signatures.

The second object is the subject of the agreement. This can only be an object that exists within the smart contract’s environment. Alternatively, the smart contracts have to have unhindered and direct access to the object. Even though the smart contracts were first discussed back in 1996, it was this particular object that stalled their development. This problem was partially solved only after the first cryptocurrency appeared in 2009.

Finally, any smart contract has to include specific terms. Those terms need to be mathematically described in full and using a programming language that is appropriate for the particular smart contract’s environment. This includes the requirements expected from all the participating parties as well as all the rules, rewards and punishments associated with said terms.

Environment
In order for them to exist and function properly, smart contracts have to operate within a specific suitable environment. First of all, the environment needs to support the use of public-key cryptography, which enables users to sign off for the transaction using their unique, specially generated cryptographic codes. This is the exact system that the absolute majority of currently existing cryptocurrencies is using.

Secondly, they require an open and decentralized database, which all parties of the contract can fully trust and which are fully automated. Moreover, the entire environment itself has to be decentralized for the smart contract to be implemented. Blockchains, especially the Ethereum Blockchain, are the perfect environments for smart contracts.

Finally, the source of digital data used by the smart contract has to be completely reliable. This entails the use of root SSL security certificates, HTTPS, and other secure-connection protocols that are already being widely used and are being implemented automatically on most modern-day software.more updates
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How do smart contracts work
« on: June 16, 2021, 08:07:14 AM »

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