Nick Szabo, an American computer scientist and cryptographer, is considered the creator of the Smart Contract concept in 1997. Szabo described in his article “Smart Contracts: the future of legal agreements” how contracts could be managed by computers, referring to traditional contracts, which are agreements written on paper that require human intervention for their execution. However, it was not until the emergence of Bitcoin in 2009 that the Smart Contract concept was put into practice, as the blockchain technology on which Bitcoin is based allows the creation of digital contracts.
A traditional contract, as mentioned, is a written agreement in natural language between two or more parties, and can lead to misinterpretations or conflicts of interest. On the other hand, a Smart Contract is written in computer code and is automatically executed on a blockchain, which eliminates the need for an intermediary and reduces the risk of misinterpretations.
An example of a Smart Contract would be an insurance contract, in which certain conditions are set that, if met, will automatically trigger the payment of an indemnity. These conditions can be based on information recorded in the blockchain, making the process more transparent and secure. Another simple example of Smart Contract is the software used in vending machines, as mentioned above. By entering a certain amount of money, the machine is programmed to offer a specific product without the need for human intervention, which reduces maintenance costs and improves efficiency.
In a traditional contract, trust between the parties depends on a third party, such as a lawyer or notary, who guarantees the integrity of the agreement. However, in a Smart Contract, trust is ensured by blockchain technology, which records and validates all transactions and events on the network. This guarantees the integrity and security of contracts, and eliminates the need for intermediaries. With the growing popularity of blockchain technology, Smart Contracts are expected to be increasingly used in a wide range of industries.
The Gas
When performing transactions on a blockchain, it is important to keep in mind that each transaction has a cost, known as gas. In the Ethereum network, gas is a fee charged for performing a transaction or set of transactions. This cost can vary depending on the complexity of the transaction, and the more complex the operation, the more gas will be required. For example, if a user wants to transfer Ether from his account to another account on the Ethereum network, a certain gas will be required to execute this transaction. The cost of gas is paid in Ether, which is Ethereum’s native cryptocurrency, and its amount will depend on the amount of gas required to proceed the transaction. Gas is essential in a blockchain network, as it ensures that the nodes that validate transactions are rewarded for their work. As nodes validate transactions and execute smart contracts, they receive a small amount of gas as a reward. In this sense, the gas also serves as an incentive for nodes to work to maintain the security and stability of the network.
It is important to note that the cost of gas can be high in times of network congestion. When there are numerous transactions to be processed, the network can slow down, which can increase the cost of gas. Therefore, users should be aware of the cost of gas when transacting on the blockchain. It is also worth noting that although Smart Contracts are known as “smart contracts,” these do not include Artificial Intelligence. Instead, they are a set of deterministic sentences that are executed on a blockchain automatically. The automation and execution of these sentences on a blockchain provides greater security and efficiency to contracts, eliminating the need for intermediaries and reducing transaction costs.
Oracles
Oracles are a fundamental piece in the execution of Smart Contracts in a blockchain network, as they allow contracts to interact with external information sources. This is essential for Smart Contracts to be able to function in an automated and autonomous way, as they require accurate and real-time information to make decisions and execute actions. For example, a Smart Contract involving online delivery of a product might require up-to-date information on inventory status or shipment status to decide whether to fulfil the delivery. An oracle could provide this information in real time and allow the contract to make informed decisions.
However, oracles also present some risks to the security of Smart Contracts and the blockchain network in general. Because oracles require access to external information, they are vulnerable to attack and manipulation by malicious third parties. For example, an oracle that provides incorrect or misleading information could cause a Smart Contract to execute unwanted or even harmful actions.
For this reason, it is important to take security measures to minimize the risks associated with oracles. This may include careful selection of oracles and implementation of additional security measures, such as checking multiple oracles to confirm the validity of the information.
DApps
DApps (decentralized applications) are an evolution of traditional applications, designed to run autonomously and decentralized on the blockchain network. Unlike centralized applications, which are controlled by a central entity, such as a company or a government organization, DApps are designed to be resistant to censorship and manipulation, as they run on a decentralized peer-to-peer network.
DApps are built on the blockchain topology, which means that all transactions and data are recorded on a secure, distributed blockchain. This allows them to operate transparently and reliably without the need for intermediaries, which reduces costs and increases efficiency. In addition, DApps benefit from cryptography and cryptocurrency, allowing them to offer secure and transparent transactions without the need for a trusted third party. Transactions on a DApp are conducted using tokens native to the platform, enabling the transfer of value between users quickly and securely.
Popular applications for DApps include online gaming, social networking, cryptocurrency exchange platforms and financial applications. DApps are also increasingly being used in e-government applications, to ensure transparency and reliability of government transactions and processes.
Use cases
Smart Contracts are standalone software running on a blockchain, and their use has spread to multiple domains thanks to the advantages they offer in terms of transparency, security, and efficiency. The most common use cases of Smart Contracts are explained below:
– Finance: Smart Contracts are widely used in the financial sphere to automate transactions and reduce costs. For example, they can be used to establish financial agreements between companies, issue and manage digital assets (such as cryptocurrencies or tokens) and automate payment and settlement processes.
– e-Government: Smart Contracts are a very useful tool for public administration, as they can simplify and automate processes, improve transparency and reduce costs. For example, they can be used to manage identity registration, to hold secure and transparent electronic voting, to monitor public subsidies and grants, among others.
– Online notary: They can be used to make digital agreements that are as binding as notarial agreements. In this case, they can automatically register the terms of an agreement and ensure that they are fulfilled efficiently and securely.
– Energy: They can be used in the energy field to manage and optimize energy consumption, as well as to manage the generation and distribution of renewable energy. They can also help reduce energy costs, improve efficiency and reduce environmental impact.
– IoT: They can be used to manage and automate IoT (Internet of Things) devices in an autonomous and decentralized way. For example, they can be used to control access to buildings and vehicles, to automate the management of vehicle fleets, to track and manage supply chains, among others.
– Supply Chain: They can be used to manage and automate the supply chain, improving efficiency, transparency, and security. They can also be used to automate the tracking and recording of the supply chain, for inventory management and quality control, among others.
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