In the context of cryptocurrency, when one hears about Smart contracts, Ethereum is usually the first thing that comes to mind. But what exactly are those contracts and how do they help cryptocurrencies become a viable payment method worldwide?
What Are Smart Contracts?
Smart contracts are self-executing contracts that contain the terms of an agreement between two parties directly included into the contract’s code. The contents of such contracts exist within a distributed, decentralized blockchain network, such as Ethereum.
How do smart contracts work?
Individuals and organizations are able to perform trusted transactions between disparate, anonymous parties in a decentralized manner while rendering those transactions as traceable, fully transparent and irreversible.
Simply put, one is able to create a smart contract with certain requirements and limitations, requiring the transacting party to accept those requirements before a transaction takes place.
For example, an individual may create a smart contract to pay for any form of service. The service provider accepts the contract and the payment is automatically sent once the service has been given/received.
What’s more, all users are able to see their transaction on the blockchain as cryptocurrency transfers between wallets can be found back within the network they were exchanged in. This makes transactions transparent in nature and traceable in case it is needed.
Currently, the Bitcoin network has also introduced smart contracts and while these are not as sophisticated as Ethereum, they do help developers build decentralized applications on it, which is considered to be the biggest benefit for their use.