Rosy future for smart contract and cryptocurrencies
What about the future of cryptocurrencies and smart contracts?
Some may have heard of a smart contract, but few know why the technology behind Bitcoin, Ethereum and the future of contracts actually works. We explain the potential behind the smart contract and what it looks like.
Some readers may have already heard of so-called smart contracts, but for others this term is completely new. And there are probably very few people who know exactly what the smart contract is all about. This article will try to make readers understand why then companies and individuals want to know more about smart contracts, what they have to do with cryptocurrencies and why this way of mapping contracts is predicted to have a great future.
Prerequisites for smart contracts
A fundamental prerequisite for smart contracts is blockchain technology. This is because it is only through the use of blockchain technology that the programming of smart contracts becomes possible. In this process, data records (in this case, contract provisions) are combined into individual blocks and stored in encrypted form as a chain with a precisely calculated and associated check digit per block, whereby each block must form a consensus with the entire chain. This blockchain can now be stored in a decentralized manner on different servers and computers, and each copy contains the same information. A new block of records (in this case, for example, the fulfillment of the terms of the contract) can now be created and appended by any “owner” of this blockchain by forming a consensus, which simultaneously gives everyone on the same network a new and valid copy of the blockchain. There are several ways and methods to create a consensus in a blockchain, but going into them is beyond the scope of this topic. You can learn more about blockchain technology in our previously published article: Smart Contracts, Blockchain & Co – Differences, Definition and Basics about the Distributed Ledger Technology
Smart contracts facilitate transactions
At first glance, this may sound very complicated to the layman. However, the functionality of a smart contract becomes understandable if you compare it with the way we are or were used to setting up and concluding contracts. Where enforcing contracts recorded on paper may require the involvement of lawyers and arbitration bodies, i.e. third parties, blockchain technology enables compliance and implementation of contract provisions without the need for a third party to be involved. And that’s what’s so groundbreaking! Not only can fine print be dispensed with. It will also no longer be necessary to challenge a smart contract (either way, the contract only acquires validity if the previously defined conditions are met) and contracts cannot be changed and manipulated after the fact (since only blocks of records with verified consensus can exist in a valid blockchain).
Application examples for smart contract
This new way of mapping contracts accordingly entails numerous advantages. Costs can be significantly reduced and efficiency substantially increased. In cargo shipping alone, the cost of accounting and manually recording orders and logging the loading and unloading process is often 50% higher than the value of the cargo itself. Or think of the fair distribution of revenues, e.g. in the music industry, where a musician himself determines who gets which shares when he makes his works available for download on the net. The times when an artist or entire bands are ripped off by their record label or manager will certainly soon be a thing of the past. So the potential is definitely there.
Smart contract as cryptocurrency
Ideally, this blockchain, which is used to record a smart contract, will also implement its own or an existing cryptocurrency, as is the case with Ethereum, the largest network after Bitcoin, for example. Thus, it is even possible to also still use one’s own currency to fulfill this contract. This can result in a separate, large community within a business field. This type of business relationship is basically exactly what the majority of people have been striving for since its existence: Simple, low-energy, efficient, trustworthy, social and fair. An incredible amount would have to happen for this technology not to catch on.
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