Smart Contracts: Power of Immutability and Distributed System

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Shikhar Bhagoliwal Feb 12 2021 · 2 min read
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Introduction


A smart contract is a computer program that is stored inside a blockchain. They are self-executing contracts containing the terms and conditions of an agreement in digital format. It executes in blockchain's decentralised platform and these agreements facilitate the exchange of money, shares, property etc.

The project team expects payment from crowdfunding companies, if the projects are well funded. If a group of interested members want their money to go to the project if it was funded or to get a refund when it hasn't reached its goals. With a smart contract, a similar system can be created that doesn't require a third party. The programming of the smart contract can be done in such a way that it can hold all the received funds until a certain goal is reached.

Smart Contracts Architecture, Image Source: Google Images

The group of interested members of a project can now transfer their money to the smart contract. If the project achieves well funded, the contract automatically gives the payment to the inventor and if the project fails to meet the goal, the money automatically goes back to the group of interested members. As the smart contracts are stored on a blockchain, everything is completely distributed. With this technique, no one is in control of the money. There are two most important properties of smart contracts:

  • Immutable: Once a smart contract is created, it can never be changed again.
  • Distributed: The output of the contract is validated by everyone, so a single person cannot force the contract to release the funds because other people on the network will spot this attempt and mark it as invalid.  

    • Banks can use to to issue loans or to offer automatic payments, insurance companies can use it to process certain claims, postal companies can use this for payment on delivery. Using Blockchain in voting process can eliminate malpractices. 

    Smart Contract implementation in Airline Industry, Image Source: Google Images

    There are ample amount of blockchains supporting smart contracts, but the biggest one is Ethereum. It was specifically created and designed to support smart contracts. They are programmed in their in-house developed programming language known as Solidity and Serpent. Bitcoin also supports for smart contracts, but they have some limitations compared to Ethereum. 

    Traditional Contracts vs Smart Contracts

    Comparison between Traditional and Smart Contracts

    Advantages of Smart Contracts

  • No Intermediaries: There are no third parties included in the execution of the process
  • Automated:  A code is sufficient for automating the process instead of a manual effort
  • High Speed: Speed of digital execution is higher than the traditional contract because the smart contracts run on programming code
  • Secure: The decentralised system helps the keep data highly secure, hence the modification of data is very difficult.
  • Accuracy: Based on the requirements, terms and conditions of a contract is recorded accurately.

    • Blockchain implementations of smart contract

    Using Blockchain, a digital token can be used as a currency

  • Objective: Design and issue our own digital currency
  • Create a tradeable computerised token that can be utilised as a currency, hare, an asset etc
  • These tokens use a standard coin API which allows contract to automatically access any wallet for exchange. 
  • As a result, we can build a tradeable token with a fixed supply and a central bank issuing digital money.
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