Several years ago, Satoshi Nakamoto developed the blockchain and Bitcoin. Nakamoto left Bitcoin in 2010; however, his project is still going strong. Nowadays, it is obvious that Bitcoin is not the only possible cryptocurrency, and that cryptocurrency is not the only possible application of blockchain.
Ethereum appeared in 2014 and quickly demonstrated that it is not just an ordinary cryptocurrency. Their platform allows users to develop their own blockchain, and currently there is a great number of Ethereum-based cryptocurrencies. Its other prominent feature is the possibility for users to run their own applications, called smart contracts. There is more information about Ethereum and the idea of smart contracts in our previous article.
Using smart contracts will help us to automatize the legal and financial sector, and to make it more transparent and at the same time more secure. In this article, we will explain how to use smart contracts in your everyday life, and also tell you a bit about the process of their development.
Ethereum was the first crypto-project to demonstrate that the possibilities of the blockchain technology are not limited to their use for cryptocurrencies. Many blockchain enthusiasts said that this technology is capable of finding its application in many different spheres of our everyday life. Ethereum demonstrated how it can be done with the help of smart contracts.
A smart contract is a computer protocol designed for digital validation and enforcing the parties’ compliance with its terms and conditions. This is the main difference between digital and ordinary contracts – while the traditional ones only specify the terms of the deal and the penalties for their violation, the smart contracts make the deal impossible unless all terms and conditions are fulfilled.
This result is achieved because the terms of agreement between the two parties are written directly in the code of application. Smart contracts permit trusted transactions and agreements without the need of their approval by external enforcement. The transactions regulated by smart contracts are traceable, transparent, and irreversible.
There are four things that are essential to conclude a digital contract:
The parties encrypt the necessary information to blockchain and sign the contract with their digital keys. If the contracts involve a certain sum of money, the necessary amount of digital currency is frozen and stored in blockchain. Once the partners validate the contract by activating their digital key, the deal is considered to be fulfilled – the contract comes into effect and the seller receives their money.
Standard blockchain transactions are also called “single-signature” transactions, because the transfer requires only the validation from the owner of the destination wallet. However, the blockchains network supports more complicated operations requiring signatures of multiple people for the transaction to be completed.
One of the means of making the smart contracts more secure is multi-sig technology. It implements validating the operation not by a single user but by the group of people. This is done in the following way: each participant of a multi-sig operation has a UI where they enter the credentials of the transaction they wish to confirm. The system gathers the signatures and executes the transaction. Nevertheless, the system does not have any control of funds and only people are authorized to approve or dismiss the transactions.
One of the possible applications of multi-sig technology is regulating crowdfunding campaigns like ICOs. Once the investors send their money, it does not go to the vault of the project immediately, but appears to be frozen for a certain period of time. In order for the starter to get their money, the participants of the campaign need to confirm their trust to the project by activating their digital keys.
The smart contract is a relatively new technology. However, it is currently recognized as one of the ones with the greatest potential. Many IT professionals are sure that in the very near future smart contracts will become an everyday phenomenon, and not a mysterious technology of the future. The numerous advantages of this technology give them grounds to think so:
Despite the aforementioned points, the smart contract technology is not perfect and has its own disadvantages:
Like any other technology, smart contracts have their own strengths and weaknesses. However, there is no doubt that they are of great interest not just to IT specialists, as they can be used in different spheres of business.
Smart contracts have great potential for use in different spheres of life. However, their greatest potential is in the financial sector and law. Let’s see how smart contracts can be applied in some different spheres of business:
These are the most common and obvious ways of using smart contracts; however, the possibilities are much wider.
The most famous languages for writing Ethereum smart contracts are Serpent and Solidity.
Serpent is the first language designed specifically for writing Ethereum smart contracts. It is based on Python and was developed by Vitalik Buterin while working on the Ethereum project. Nowadays Serpent is considered to be outdated and is no longer used in this area.
Preparation for the development of the application itself. While developing the smart contract, you will need the following software:
Planning the architecture is the main part in any sphere of software development. In order to develop the project of your future contract, you need to perform the following actions:
Releasing the application and testing it in the public blockchain. If the application does not work in the way it should work, then debugging is necessary.
Now you know how to use smart contracts in different spheres of business. If you think that this technology will suit your business, please contact us for a consultation. We can help you to develop Ethereum-based smart contracts on Solidity language. Any questions? We are here to help.