Introduction to Smart Contracts

The History of Smart Contract

The term smart contract was first used by Nick Szabo who is a cryptographer in 1994. In that year, he came up with the idea of ​​being able to record contracts in computer code.

The problem with the smart contract idea is that in 1994, blockchain technology didn’t exist yet. However, in 2009 Bitcoin introduced the first use of blockchain functionality.

Finally, In 2015, Ethereum was founded by a bright young man named Vitalik Buterin, and introduced the first working smart contract. To date, although there are several blockchains that support smart contracts, the biggest one is Ethereum. They can be programmed with a programming language called Solidity. This language is specifically made for Ethereum and uses a syntax similar to Javascript.

The Definition of Smart Contact

A smart contract is an agreement between two people in the form of code or a computer program. Smart Contracts run on the blockchain and are stored in a public and immutable database. Permanent means that once a smart contract is created, it cannot be changed again. So no one can hack the code from your contract.

Plus, because they run on a blockchain network, smart contracts are distributed which means the output of your contracts is validated by everyone on the network. So, one cannot force the contract to issue money or agree to anything because other people in the blockchain network will see this attempt and mark it as invalid.

Therefore, Hacking smart contracts becomes almost impossible!

Actually, if you look at Smart Contracts, they are the same contracts as in the real world. The only difference is that the smart contract is entirely digital.

Transactions that occur in smart contracts are processed by the blockchain, which means they can be sent automatically without any third parties. Transactions only occur when the terms of the agreement are met — there are no third parties, so there are no issues with trust.

How Smart Contract Works

Let’s look at the example below to understand how smart contracts work.

When Budi wants to buy Toni’s house, he forms an agreement made on the Ethereum blockchain using a smart contract. The content of this agreement is “When Budi pays Toni 100 Ether, Budi will receive ownership of the house”.

Once this smart contract is enforced, it cannot be changed — meaning Budi can feel safe paying Toni 100 Ether for the house.

However, if they don’t use smart contracts, Budi and Toni will have to spend a lot of money on lawyers, brokers, or banks.

Application of Smart Contract

Smart contracts can also be applied to other things such as:

• Bank for loan problems and offers automatic payments.

• Insurance Company to process multiple claims

• Health industry to record health data and record medical history.

• Government to protect voting from fraud.

• Industrial business to run payroll.

• And other companies.

Source : f.a.s