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All About Smart Contracts And Their Applications

By Tokenize Xchange
October 05, 2022

First introduced in the 90s by Nick Szabo, smart contracts have been widely applied since Vitalik Buterin mentioned them in the Ethereum whitepaper in 2014. Then, smart contracts have become a popular term in the blockchain space with a great number of applications. So what is a smart contract and how smart contracts are used? Let’s find out with Tokenize Xchange Singapore Crypto Trading Platform

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What are smart contracts?

Smart contracts, also known as blockchain-based contracts, are the ones that run logic protocols in response to events. In spite of containing the word “contract”, a smart contract is not a legal contract.  Its primary duty is to programmatically carry out business logic, which has been programmed, to carry out certain tasks, processes, or transactions in response to a specific set of criteria. To link smarts contract with current laws, legal action must be done between parties.

Executing a smart contract has a variety of use cases including decentralized exchange, supply chain services, digital data accessibility, data manipulation, etc. Additionally, smart contracts can be taken advantage of to enforce privacy protection by, for instance, enabling the selective release of data that is privacy-protected in order to comply with a particular request.

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How smart contract works?

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In the first stage, the terms of the contract will be established according to a logic mechanism request from the business team. Then, the developers re-transform those ideas into an executable program through programming languages. 

Coders would write the smart contract code and compile it, then mark with an address and pass it into a block on the blockchain after completing the audit process from a third party like CertiK or Slowmist. Once transferred to the block, this data will be distributed and replicated by the active nodes on that blockchain network.

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Once it has been implemented, the smart contract is set up to wait for event updates from an oracle, which is a source of encrypted streaming data. The smart contract starts to work once it receives from one or various oracles the required combination of events.

Pros and Cons

Pros

  • Efficiency:  When a condition is satisfied, the contract instantly executes a respective action. So there is no paperwork to deal with and no mistake to be made manually because smart contracts are digitally automated.
  • Security: Blockchain transaction records are impossible to be attacked since they are encrypted. Moreover, by inheriting the security of blockchain, it seems to be impossible for hackers to alter a single record on a distributed ledger.
  • Transparency: Since there is not a third party sharing the encrypted transaction logs, there is no need to worry about data being altered.

Cons

  • The die is cast”: Smart contract will be programmed before the real battle. Once it is running, no one has the right to change the rules of the smart contract, even the developers. If the smart contract is programmed mistakenly, the project can fail from the beginning.
  • Some problems are related to legal aspects.

What are smart contracts used for?

Below are some smart contract examples

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Decentralized exchange

Decentralized exchanges (DEXs) play an important role in the Defi space. Instead of relying on an intermediary agency to process the transactions, those digital currency platforms carry out their business using self-executing smart contracts. Hence, instantaneous trades are made possible by this dynamic, frequently for less money than on centralized cryptocurrency exchanges.

Payment and billing

Each country uses a specific payment and billing system. This makes it difficult when currently buyers, sellers, employers, and employees are often not located in the same country. These payment issues can be resolved by using smart contracts, which are transparent, safe, and low-cost to maintain. They also last a very long time and are simple to automate to fit any payment process that is required, which prevents money from being mismanaged.

Data

Data are crucial to any firm. This is the field where smart contracts seem to be useful. They offer essential access to data records for a more precise and open collection of data. By applying smart contracts, users can simply manage consistent data recording across a company, which lowers the cost and volume of reporting and auditing.

In addition, once data has been written to the ledger on the blockchain, it will be public, transparent, and cannot be altered. Users only need to have an internet connection and suitable software to retrieve information on the blockchain.

Supply chains

Smart contracts can be used, for instance, to track things in the supply chain completely transparently by recording data into the blockchain. Firms can employ supply networks that are powered by smart contracts to precisely track their inventory or what stage their products are in. 

Additionally, it enhances corporate operations in other aspects related to the supply chain. Adopting smart contracts results in less verification work, improved traceability, and fewer frauds and thefts.

Bottom line

Smart contracts and blockchain technology can be applied to many aspects of daily life that we have not thought of yet. With plenty of outstanding advantages, it could become a future trend. Keep following Tokenize Xchange Blog for more educational articles from Tokenize Xchange – Cryptocurrency Trading Platform Singapore. 

Disclaimer

Cryptocurrencies are subjected to high market risk and volatility despite high growth potential. Users are strongly advised to do their research and invest at their own risk.