Guide to Smart Contracts | Token Spoken
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Guide to Smart Contracts

"Smart contracts", one of the most controversial topics in the cryptography industry, is the programmable computer protocol first proposed by Nick Szabo.

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The primary purpose of smart contracts is to provide security for the users and to ensure that the operation is done automatically while enabling the ease of use regarding associated processes.

The best of the smart contracts that have been used for the first time along with cryptocurrencies that comes into our lives with Bitcoin is the “Ethereum” block platform. The first example to be announced is the DAO, an autonomous institution established in May 2016 with a credit of $250 million, which operates on Ethereum and is decentralized for venture capital fund. This organization was initially attacked and lost 3.689.577 ETH.

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Its History

Nick Szabo, a lawyer and cryptographer, first noticed in 1994 that decentralized account ledgers could be used for smart contracts. As a result, contracts could be converted into computer codes and have been stored, reproducible and auditable. Thus, feedback would be provided in money, product and service transfers.

How does it work?

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A code is written in the dialogue box among anonym users and this dialog is open to the network. The contract, having dates and all information, works according to the conditions coded.  This system automatically processes publicly, while ensuring the anonymity of parties.

When you normally perform a sales transaction, you receive a title deed and expect it to be processed in the governmental office. In smart contracts, you put Bitcoin in your ledger, and the task assigned to it between the parties is fulfilled.

What Do You Need to Create Smart Contract?

To create a smart contract, all you need is:

  1. The subject of the contract: The program should be able to access contracted goods or services to automatically lock and unlock contracts.
  2. Digital signatures: All participants constitute an agreement by signing the contract with their private keys.
  3. Agreement terms: The terms of a smart contract take the form of a complete sequence of operations and are necessary. All participants should sign these conditions.
  4. Decentralized platform: Smart contract is distributed in the blockchain of this platform and between the nodes of the platform.

What Are the Advantages of Smart Contracts?

Smart contracts have all the advantages of the blockchain technology.

  1. Security: Smart contracts are encrypted and distributed between nodes. This guarantees that it will not be lost or altered without your permission.
  2. Economy and speed: Most of the process is automated and most of the mediators are eliminated.
  3. Standardization: Today, there are a variety of smart contracts. You can select one of them and you can change to suit your needs.

What Are the Disadvantages of Smart Contracts?

In fact, smart contracts are not so perfect. For sure, some smart contracts can have some negative aspects.

  1. The human factor: Code is written by people, and people make mistakes. Smart contracts cannot be changed in the blockchain. A good example of a human error is DAO. Developers’ code errors were costly for users and the company. Some hackers took advantage of these mistakes and stole about $60 million.
  2. Unclear legal status: The smart contracts are not currently regulated by any government. Therefore, a potential problem may arise if government institutions decide to establish a legal framework for smart contracts.
  3. Technical costs: Smart contracts cannot be performed without programming. It is required that you have an experienced encoder to make smart contracts against malfunctions and to adopt the internal structure of the company in the blockchain technology.


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