Everyone who enters the blockchain world has many different questions in their minds. One of these questions is how “smart contracts” work. I think we can clear this up a bit by looking at how Ethereum’s smart contracts work.
One of the most important features that distinguishes Ethereum from bitcoin is smart contracts. Any user can create a smart contract using the ethereum infrastructure and make it available. (In early 2018, there was news that the ethereum-like smart contract era would start in the bitcoin blockchain, but we can say that it is still in the testing phase.)
The smart contract idea, first conceived in 1993, was developed by computer scientist Nick Szabo and is exemplified by today’s vending machines. In fact, there doesn’t seem to be a good example of vending machines to understand smart contracts. Today, by throwing money into vending machines (sometimes they can also work with paper or plastic), we give a specific command and get our drink or food without any intermediaries.
Based on this basis, smart contracts enable a predetermined code snippet to take action with a certain data (money, data, etc.) and to do the transaction by eliminating the third parties in between, and while doing this, it shows the whole process transparently and can prevent unwanted interventions from the outside. is encrypting.
Ethereum developer Vitalik Buterin explains how smart contracts work at a blockchain summit: “Contracts are translated into computer language and recorded in blocks. In contracts copied to distributed ledgers, the parties are kept 100 percent anonymous. The code snippet is determined by specific tasks and details (such as time limit, where to go where, etc.). “
For example, let’s construct a contract in which half of this money is automatically sent to Can in every scenario where Jack sends money to Rose. This scenario is turned into a smart contract and recorded. Every money sent from Jack to Rose automatically triggers the code and half of this money is sent to Can. You can complicate and functionalize this process as you wish.
Since smart contracts and all transactions are kept in distributed ledgers, they provide a very high level of security and immunity.
Since Bitcoin was the first cryptocurrency, it is also the first example of simple smart contracts. However, due to its structure, bitcoin is only used for money transfer.
Ethereum smart contracts are leaving bitcoin at this point. Using the Ethereum code structure, developers can develop smart contracts that can serve many different purposes.
You can use smart contracts in rental contracts, insurance, loan use, legal transactions, crowdfunding and many other areas you can think of.
- Intermediary institutions and organizations accelerate the process as it eliminates lawyers and makes the whole process self-executing.
- Likewise, since it eliminates these intermediary institutions and individuals, it ensures that the expenses are minimized.
- There is no way you can lose it because it is encrypted and kept in distributed ledgers. There are hundreds of spares.
- It prevents possible errors because the system is automated, so it is away from manual touches.
I think we agree on what smart contracts are and how useful they are. Everything is great, but there are 2 important points we should not forget.
- Smart contracts are not free. Fees are paid, albeit very low, for the execution of these transactions. (Eth transfer fee eg.)
- It would not be right to say “perfect” for smart contracts yet. Although it is very difficult to hack, it is not impossible at this stage, and at the same time, some mistakes that can be made by the people who prepared the codes can cause serious problems.
I think we are very lucky to witness one of the technologies of the future. There are great opportunities in this field and those who take advantage of these opportunities seem to be the giants of the future. Therefore, it is very important to understand smart contracts and blockchain technology well.