What are 'Smart Contracts'?

What are Smart Contracts?

1. Definition

Smart Contract is the technology that modifies and concludes contracts easily using P2P without an intermediary.
Using DLT(Distributed Ledger Technology) of Blockchain, this technology has a form of automated contract process based on the trustable result of the contract and contract through sharing network between interested parties. Because it was based on Ethereum blockchain and one step ahead than bitcoin, it is also called 'Blockchain 2.0'.

For example, Let's suppose Smart Contract as a vending machine. Like we put the money in the vending machine and get snack or beverage, Smart Contract is same. Usually, when making a contract, we go to a lawyer or notary, give them some money and should wait until we receive the contract document through varied processes. But let's suppose that I use Smart Contracts. If I put bitcoin in the vending machine (Ledger), I can get any kind of document of my accounts like escrow or driver license. Also, Smart contracts are similar to traditional contracts in terms of that concrete rule or punishment regulations are decided on the consensus of everyone, contractor and covenantee. But in Smart contracts, all these processes are automated and able to force these regulations to interested parties.

For instance, Let's suppose you live an apartment on monthly rent. You can pay the deposit or rental fee with cryptocurrency using blockchain. Of course, both receive the invoice as written in the Smart contract. Then I have to send you a digital key on a fixed date. If the key has not arrived right time, blockchain will refund your money. If key arrives early, cryptocurrency is the role of fee and the other as key. There is no need to worry about security because Smart contract system has these premises and hundreds of people are keep watching. If I gave my key, I am sure I got money. If someone pays a certain amount of bitcoins, he will get the key. This document will disappear automatically, and the code cannot be manipulated by others because everything will be noticed by everyone.

2. History

In 2013, Vitalik Buterin extended the function that made possible not only financial transactions like payments or sending money but also all kinds of contracts are treatable. He tried to realize Smart Contracts function by modifying the source code of bitcoin. But his request was not accepted and he made new cryptocurrency which name is Ethereum and realized new Smart Contracts functions. You can realize any kind of contracts using Ethereum platform because it is possible for developers can directly code contract terms and content. But if you don't know Solidity, an independent programming language based on Java, the person who is not a programmer is hard to directly code Smart Contract's terms and content.

3. Method

Smart Contracts enable developers to make Smart Contracts autonomically. So according to Ethereum White Paper, interested parties are called 'Autonomous Agents'. If the Bitcoin was only part of blockchain technology only utilized on financial transactions, Ethereum Blockchain even includes Smart Contracts.

These are the range of Smart Contracts utilization.

(1) Function as Multi-signature, it could be used only on consensus by participants whose finance and operation of contracts are above a certain level.

(2) It is possible to manage agreement about contract or transaction between users.

(3) It can provide utilities to another contract contents.

(4) It can save the information like membership record or domain registration.

Source : tokenpost/terms/5447