WHAT ARE SMART CONTRACTS IN CRYPTO? HERE'S HOW IT WORKS
A smart contract is an automated program in the blockchain system that will run when the conditions for a transaction have been met. As an investor, of course this term is familiar to your ears, right?
It is undeniable that smart contracts are the basic system of blockchain that is the center of buying and selling activities. However, to understand what a smart contract is, you must also understand blockchain technology.
So, what exactly is a smart contract? To be clearer, let's just look at the discussion below!
What is a Smart Contract?
A smart contract is an automated contract where the terms of the transaction agreement between the buyer and seller go directly into the line of code. This code will be stored in every node on the entire blockchain network. With the following program, every transaction with blockchain technology will be fully controlled transparently.
What's more, this code has been decentralized and distributed on the network. It allows you to track every transaction easily and get maximum security. All parties to the transaction including the sender and receiver can make exchanges without the need for a central authority.
Overview of Blockchain Technology and Smart Contracts
Blockchain technology may sound familiar to some. Basically, a blockchain is a type of information database stored in a computer network. Unlike most databases that use a centralized system, blockchain runs on a decentralized system.
In the sense that there is no one entity that stores all data so it has the ability to make data changes unilaterally. The decentralized system on the blockchain stores data into nodes that are then distributed to thousands of networks.
Thus, each node can be useful as a cross-reference when data changes occur. To facilitate such a complex database, in 1994, Nick Szabo came up with smart contracts.
Advantages and Disadvantages of Smart Contracts
Each new technology necessarily has its own advantages and disadvantages. What's more, for a database information system such as a blockchain that involves the use of smart contract programs to operate automatically.
Therefore, you must understand what are the advantages and disadvantages of the program before starting to use it.
The advantage of Smart Contracts is
1. Smart contracts operate transparently so that users have a high level of trust.
2. High accuracy due to the automation process of smart contracts.
3. Guaranteed data security due to the decentralized system.
4. Cost-effective: reduction of transaction costs by elimination of unnecessary intermediaries such as the services of lawyers or brokers.
5. Documents will be well preserved with advanced cryptography and encryption systems.
6. Guaranteed speed and efficiency of transactions because there is no more data recording in a manual way.
The disadvantage of smart contracts is
1. Smart contract code is still the work of programmers. Which means, human error is possible.
2. There is no clear legal regulation of this program.
3. High maintenance. In a sense, smart contract code requires the expertise of an experienced programmer. Thus, the program must work without failure.
How Smart Contracts Work
How to create a smart contract by programmers usually has simple rules that use words such as if, when, and then. The difference is, these words are directly written in the form of coding on blockchain technology.
Furthermore, the blockchain network will determine whether the conditions in the smart contract have been met and verified before the contract goes through. Examples of its actions include the process of sending or notifying related parties. As well as the suitability of lists and tickets that enter into the issue of transactions.
Once the transaction is completed, the blockchain system will automatically renew itself. Data is immediately sent to each node. So, transactions can no longer be changed or hacked. A smart contract will involve more than one provision.
There are so many conditions that must be met before a contract can be concluded with a service that satisfies users. In its application, a user must first determine how the transaction data will apply. All participants both sender and receiver must also agree to these smart contract rules.
All elements must learn the agreement and explore all the possibilities that can occur. So, all parties involved can determine the work plan when a dispute occurs. Furthermore, after the approval is carried out, the smart contract will start running.
Developers can ask their program to create its own coding for custom smart contracts. However, with the development of blockchain technology, many organizations provide special templates to simplify how to create smart contracts.
Examples of Smart Contracts on Ethereum
One of the uses of smart contracts is Ethereum. The ethereum smart contract has the name ERC20. This smart contract code became the standard for smart contract implementation on all Ethereum blockchain technologies.
The ERC20 smart contract contains a list of conditions you need to obtain or perform transactions involving all types of tokens in Ethereum. Using these smart contracts, developers can simplify the process by which each project occurs.
They don't even need to double-check when a new token appears. With a note that each token has passed the ERC20 standardization.
How to Create Smart Contract
On how to create smart contract, you need a special code according to the crypto token you want to create. Basically, you have to insert this code into the network in order for it to work properly.
Once the code is ready you can deploy the contract via your wallet. As a result, you will have your own tokens and be able to distribute them on the wallet market.
That's the discussion about what a smart contract is, advantages and disadvantages, how it works, examples, and how to make it. From this explanation, it can be concluded that smart contracts are programs that can facilitate the transaction process in the blockchain system. Its use has many benefits, especially in the fields of data security and transparency.