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What is a Smart Contract?

by lerika

The concept of smart contracts was proposed in 1996 by Nick Szabo, a cryptographic programmer from the United States, long before the advent of blockchain. At that time, his concept was impossible to implement due to the lack of necessary technologies, such as, for example, a distributed ledger.

With the advent of blockchain and the first coin, bitcoin, in 2008, it became possible to create a distributed ledger. The problem was that the blockchain of bitcoin did not provide an opportunity to set conditions for the execution of a transaction in the next block.

Despite its imperfections, the bitcoin blockchain is a big step towards smart contracts.

Within five years, the Ethereum platform provided the opportunity to use smart contracts.

How do they work?
Roughly speaking, a smart contract is a piece of computer code. In simple words, this code is used to transfer the terms of the contract between the parties to the blockchain, where it can no longer be forged or changed. All obligations of the parties in a smart contract are presented in the form of an “if -else” algorithm. Any number of parties can participate in the contract, they can represent both themselves and the organization. Provided that all conditions are met, the smart contract independently executes the transaction.

Smart contracts make it possible to convert money into different currencies, buy any things and assets, from food and clothing to real estate. In a decentralized distributed ledger, all information is stored in its original form and cannot be falsified. Data encryption ensures the anonymity of the parties to the contract.

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