Do you know what smart contracts are? If yes, you might know how it is being used in major sectors like Finance, Healthcare, Real Estate, Automobile, Supply Chain, and Management. Even the Government is planning to use it for elections.
But it was first introduced in the crypto market. Do you know the technology behind crypto trading? The main technology is blockchain. But nowadays, trading platforms are using smart contracts to facilitate crypto trade.
White label cryptocurrency exchange uses smart contracts to facilitate crypto trade. Do you know how ICO tokens are created and sold? It is done by using smart contracts. It is safe to say that smart contracts have become a very important part of the crypto market and crypto trading.
Many people still don’t have any idea about smart contracts. So in this post, we are going to help you understand what exactly smart contracts are. We are also going to discuss how it is reacted to trading in the crypto market.
Smart Contracts
In technical terms, it is a computer protocol. This protocol works like a contract. It is like a digital contract. Do you know how a contract works? In a contract, two parties agree to certain terms and conditions. Once these conditions are met, the contract is executed.
Similarly, a smart contract is a computer program which works on the blockchain. Here the terms and conditions are written in codes. When the terms and conditions are fulfilled by both parties, the contract gets executed on its own. Once the contract is executed, it is updated across the blockchain network.
The idea was coined by Nick Szabo. He was a cryptographer. In 1994, he taught of using computer codes to write contracts and make it digital. However, it took 21 years for this idea to be implemented. In 2015, the first smart contract was developed. It was done by Vitalik Buterin. He is the founder of Ethereum.
A smart contract basically can be understood with the help of these three terms.
- Agreement: It is an agreement between two parties. The agreement is in the form of a written code. It runs on the blockchain. These codes are stored in a public ledger, which everybody can see but cannot be changed.
- Processing: The blockchain network processes the transaction agreement. There is no third party or mediator involved.
- Execution: Once the conditions of the contract are met, it gets executed automatically. There is no one to stop or intervene.
If you still have doubts about smart contracts, this example will help you.
Example
You have conducted an ICO. The smart contract is made on Ethereum Blockchain. The smart contract will contain an agreement between you and the investors. Suppose you have 100,000 Tokens. Now, you want to raise 1,000,000 Ether, so you need to sell one token for 10 Ether. Now, you need to create a smart contract which will help you to transfer 1 Token for 10 Ether. The smart contract will look like,
“WHEN the investor pays 10 Ether to you, THEN he will get ownership of 1 token.”
As per the smart contract, when you receive 10 Ether from an investor, he will automatically receive one token. You don’t need to go to any lawyer to create an agreement. With smart contracts, you can develop your own contract. The mechanism behind smart contracts is simple. Once the terms and conditions of the contracts are met, it gets executed.
