How Smart Contracts Work

Smart Contracts and their use are defined as a process where any given input of data is computed, processed, and an output is returned or received.

How Do they Work?

ethereum image smart contractsSmart Contracts work just like a regular written contract – for example a lease, documented agreement, stipulation, etc. – between two parties.

Ethereum utilizes this technique of writing and defining an ‘agreement’ by making it easier to develop what they call ‘autonomous agents’ – Smart Contracts, as they’re used within the Ethereum network.

Ethereum is a platform that makes it easy for developers to write and implement Contracts using code written onto a Blockchain creating a sound environment for whatever they choose to use them for.

Smart Contract Examples

  • Execute a Constitution-like command – ie: decision on monetary spending, bet on tomorrow’s weather, what to eat for dinner, etc. – only once the majority of multiple parties involved ‘sign’ or agree to it.
  • Transfer of a Deed or Automobile Title between two people for record keeping and archiving.
  • Family records or databases of a family ancestry tree itself.
  • Fundraising – The idea is similar to the idea of Kickstarter, where people can choose to contribute money to an invention or idea, and once a funding goal is reached the idea becomes possible.

In the case of the first example (Constitution), the block of code that is a Smart Contract per ‘signature’ would collect Ether – the cryptocurrency behind Ethereum – based on how much processing power necessary to execute it, which is determined by the Ethereum network.

Once this par is reached, the Ethereum Virtual Machine (EVM) processes the Contract in ‘bytecode’ and the Contract then becomes a part of the Ethereum Blockchain.

This is somewhat like compiling and implementing code is to a Software Engineer; in this case eliminating the need of a middle-man.

Smart Contracts On A Blockchain For Dummies

More About Blockchains

As mentioned before, these specific agreements are stored in a public Blockchain.  Anyone, or even another Smart Contract may reference one another so long as it has the right ‘keys’ or commands to do so.

This referencing is highly encouraged and is part of what gives value to Ethereum (represented by the Ether coin).

These sorts of things help to make Ether sound in value as it is a real-world representation of the physical resources and processing power required per computational execution.

What Makes Smart Contracts Appealing?

One of the greatest appeals of the use of Smart Contracts is the solidarity of enforcement; once agreed upon (signed) between all involved parties – outlined by the writers/developers of the code within the contract – explicitly, as a Contract may only be executed as written by its creator.

In other words, users know exactly what to expect per agreement and eliminates the need for further encryption when it comes to more private/sensitive matters.  This creates efficiency and better utilization within a network when it comes to real world implications.

Decentralization Is Better?

Unlike some of today’s popular apps, ie: Gmail, Twitter, Facebook, the concept of decentralizing and setting-in-stone archiving is brought to life by Ethereum and its Smart Contract.

The less steps needed between agreements in a network, the faster a  network can function and the further a network’s possibilities expand.

This is a new concept Ethereum creates, and they explain the basics on their website for both developers and users very well at  Their site is not limited to those familiar in coding, but also intended for the average-Joe with an idea or concept as well as investors interested in the cryptocurrency market.

What About Dapps? is somewhat of the GitHub (open, crowd-sourced) site for developers in the Ethereum world.

Similar to Smart Contracts, Dapps – ‘Decentralized Applications’ – are created for other specific uses within and reinforced by the Blockchain network.  Users may post their concepts, prototypes, processes, or even their source code itself and work with one another to create and develop applications.

Blockchains, Smart Contracts, Dapps, and more, are some of the new things that are bringing together many people working towards the common goal of changing and improving the world.

The increased interest in cryptocurrencies, smart contracts, decentralized applications, and more, shows that may people are feeling that they alone should have sole control over the data and other information they choose to share without having any sort of central authority watching over them.

written by: Jake Simula

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