Banks operate as intermediaries in the global economy by managing and coordinating the financial system using internal records. This system imposes to trust banks and their mostly obsolete infrastructures. The blockchain is free of intermediaries and replaces them with a
system without borders, which does not involve a relationship of trust, totally transparent, and easily accessible. It allows cheaper and faster transactions, facilitates access to capital, offers a better security of data, honors agreements that does not require a relationship of trust, fluidize the contractualization.
Cryptocurrency and crypto mining opened was the key behind exploring the uncharted limitless opportunities of blockchain technology. Techprenuers started identifying the gaps the World is facing today and realized blockchain technology could be the solution to these gaps. The word Smart contract has begun to resonate quite frequently and has started to garner interest among the investors. However, the invention of Smart contract can be traced back before the boom of the internet in 1997 by Nick Szabo, but Smart contract was put in the limelight by Vitalik Buterin in 2013. Vitalik Buterin founded the revolutionary global, decentralized computer platform Ethereum and its programming language solidity propelling the concept of Smart contracts among experts in blockchain and techpreneurs. <!–more–>
But still, Smart contracts are not a common word among the general mass, even though it is considered as a sleeping giant of opportunities for the future. Understanding the concept of Smart contract is simple, Smart contract are like contracts in the Real World but excluding hassles of long pages, intermediaries such as lawyers, government agents or any other agents. The smart contract is a deterministic digital agreement which is very reliable, transparent and tamperproof. The Smart contracts are stored inside the blockchain and inherit the property of immutability, i.e. once a contract is created, it can not be changed or tampered and distributed among the individuals in the network, thus increasing the validity of the contract. Ethereum is the most used platform for developing Smart contracts through its decentralized application Dapps.
The fundamental underlying foundation of Smart Contract is the pieces of codes that codify the business logic. The core functionality of the Smart contracts is to store rules, verify rules and self execute rules.
Businesses do not have to waste their valuable resources on intermediaries to validate and enforce the contracts. Embracing Smart contracts reduces injustice, corruption and makes it fair for all the parties involved in the contract. Smart contracts are replacing the digital agreements in the Software sector, Banking, Insurance and Postal companies. Smart contracts are becoming an inevitable reality towards an automated decentralized legal system.
The concept of the distributed digital ledger is simple to understand but understanding the functioning of the blockchain can be quite complex.
The idea of blockchain was introduced in 1991 by researcher Stuart Haber and W. Scott Stornetta while inventing time stamping of their digital document which used a cryptographic chain of blocks. <!–more–>
However, Blockchain chain technology failed to garner interest among the researchers and was not able to develop further. The formulation of Reusable Proof of Work (RPoW) by Hal Finney laid the foundation for the blockchain technology complemented by the invention of Bitcoin by the mysterious inventor Satoshi Nakamoto has bought blockchain to the limelight of the World. Learn more here.
The crucial elements of the blockchain are the following
Blockchain needs a network of computer known as the equally privileged nodes, i.e. open to anyone and everyone (internet)- share and communicates remotely.
Cryptography is known as the art of secure communication in a hostile environment. The preeminent application of cryptography in the blockchain is to analyze existing problems, security from foreign actors and to refine the blockchain. The digital encryption technology runs through the blockchain system and is the core technology of the blockchain. Cryptography is part of blockchain technology’s inner workings. Cryptographic hash functionality provides the characteristic of immutability, and the Merkle trees organize tradings, enabling blockchains to become more efficient, as well as for blockchain transactions.
A consensus algorithm is a procedure by which all the Blockchain network peers reach a collective agreement of the current condition of the blockchain to add a new block. Consensus algorithms thus achieve significance in the system and create trust in the between unknown partners in the network. Implicitly, the consensus protocol guarantees that every new block that is applied is the only version of the reality agreed by the Network nodes coming from the first source.
The right of the person existing in the network node to add a new block in the chain is given by solving a mathematical equation. Computers in the network try to solve the equation, and in the process, they consume high energy. When one of the participants are successful in finding the solution to the problem, they are displaying the proof of work and are entitled to add the next block.
The blockchain works on a punishment and reward system, which gives the participants a choice to follow what they want to follow. The participants have two primary tasks, i.e. to record and add pages or blocks in the blockchain. The reward is awarded as in each time a consensus has reached between the participants to add a block and is compensated with bitcoins. For bad actors who try to corrupt or tamper with the data are punished.
In every corporate environment, one can often find every kind of process; from those that are tangled up, to those who demand conclusion with certainty. Smart Contracts have proven to provide a series of benefits that work for the whole spectrum of industries, being of chief assistance in reducing costs and time where transparency remains an irreplaceable factor.
In Axeleratum we facilitate SmartContracts for your business!