You may have heard that the key improvement of Ethereum (over Bitcoin) is that it includes support for smart contracts. These smart contracts run in Ethereum’s blockchain and enable creation of decentralized apps, or so called dapps.
How smart contracts work – an example
Imagine you own a home at Bahamas which you visit every year for three weeks. The rest of the time you want to rent it to other people and are employing a smart contract for that.
That smart contract is signed between you and the renter; in it, renter agrees to pay you, say $100, per day during his two-week-long vacation.
The smart contract would be defined as following:
- Each day for the next two weeks
- Withdraw $100 from the person renting the home to my_account
For added security, the two of you may agree to use some escrow service which would serve as an intermediary between the two accounts, while also making sure the amount owed to you paid on time. Or you could do without that.
The main idea of a smart contract is to remove the middleman from the equation, which in this case could include a company like Airbnb. This in turn would leave more money for the parties directly involved in the business. Also, a smart contract would automate transactions between the two or more parties, making for a that much faster experience.
Semi-definition
A smart contract is an automated decision making tool that provides the decision regarding financial transactions without any human supervision. This is triggered by certain events in the market which are pre-installed in its libraries.
Once signed, a smart contract enters the public ledger (blockchain) to make all parties involved accountable by enforcing the rules those parties have agreed to.
Smart contracts as decentralized app enablers
Decentralized apps (dapps) are enabled by smart contracts, which could serve as part of a dapp’s IF function(s).
In the example above, an app could be created to enable Airbnb-like services where smart contracts would enforce the rules between homeowners and those looking to rent a home.
Similarly, an Uber-like service could be created, relying solely on smart contracts to automatically move money from riders to drivers when a rider has reached his/her destination.
And the same goes for just about any kind of marketplace you could imagine.
On the more complex side, an app could involve more than two parties each of which could have a signed smart contract with other parties. This setup may involve one party waiting for the action of the other party, and this too could be automated.
We are still waiting for the major dapps…
While promising, we are still waiting to see any dapp becoming popular among the mainstream consumers. Chances are, we’ll see the first dapps getting traction in 2018, and in the meantime — we are still in the “Wild West phase” of the entire cryptocurrency market that leaves a lot of room for money-making opportunities.
So what are you waiting for? Are you ready to join the cryptocurrency (blockchain) revolution or watch it unfolding before your eyes? It’s your call…