Smart Contract (Smart Contract) is the key to the digital economy system

Blockchain technology has revolutionized the way transactions are conducted worldwide, and at the core of this evolution is Smart Contract - a self-executing computer program on the Blockchain network that makes decisions and performs actions based on the conditions written into its code.

The Backstory of the Birth of Smart Contracts

The problem with traditional contracts is that they rely on intermediaries - lawyers, banks, or other personnel to verify and enforce the agreement. Additionally, they are slow, expensive, and pose trust risks. In 1994, American computer engineer Nick Szabo proposed the concept of smart contracts to address these issues.

However, Szabo’s idea was not practically implementable until Bitcoin was created in 2008 (Blockchain 1.0), confirming that Blockchain technology could operate effectively. Then, in 2014, Ethereum emerged alongside Blockchain 2.0, supporting full programming of Smart Contracts, making smart contracts a reality.

How Do Smart Contracts Work?

Smart contracts operate like an automated vending machine - you input (Input), and it produces an (Output) according to the code.

Six steps of operation:

1. Create the initial agreement

Parties agree on how the Smart Contract should function and what conditions or statements must be met for execution.

2. Write the Smart Contract code

Those agreements are translated into programming language. The code of the smart contract is written according to the specifications. This is a critical step because poorly written code can become security vulnerabilities.

3. Deploy the Smart Contract on Blockchain

Once the code is ready, it is sent to the Blockchain and recorded in the transaction data field. The Smart Contract must be confirmed by the network, and once confirmed, it cannot be altered or revoked.

4. Wait for trigger conditions

The Smart Contract continuously monitors the Blockchain network for specific conditions set in advance, such as a date arriving, a transfer completing, or other verifiable digital events.

5. Automatic execution

When trigger conditions are met, the Smart Contract automatically executes - transferring funds, registering ownership changes, or performing other programmed actions.

6. Record the results on Blockchain

All actions are permanently recorded on the Blockchain. Everyone can verify and audit them at any time.

Real-World Data: Why Are Smart Contracts Important?

Imagine this - two kids named Poo and Golf are racing bicycles. Poo bets $10 that she will win. Golf accepts the bet. Eventually, Golf wins the race, but Poo refuses to pay.

In such situations, Smart Contracts can fully resolve the issue because, from the outset, both parties agree to the conditions in the code - the winner of the race receives $10. When the race results are in, the Smart Contract immediately transfers the money to the winner. No rejection, no cheating.

Advantages of Smart Contracts

Complete automation

The written code will operate as specified, without the need for human oversight. Funds are transferred or assets change hands once conditions are met. Everyone trusts the code, not the person.

Transparency and security

All Smart Contracts operate on a Public Blockchain, meaning everyone can verify the code and track the contract’s execution. No tampering, no hidden support.

Privacy preservation

Although all transactions are transparent, Smart Contracts use wallet addresses instead of real identities. You can participate as a character in the contract without revealing your true identity.

No middlemen

Eliminating the need for banks, lawyers, or other intermediaries reduces fees and speeds up transactions.

Disadvantages of Smart Contracts

No modification after deployment

Once a Smart Contract is deployed on the Blockchain, it cannot be changed. If there is a bug in the code, no one can fix it. The burden falls on the users.

Legal issues

Current laws still do not fully understand or recognize Smart Contracts in many regions. If problems arise, you cannot appeal to courts or seek legal remedies.

Dependence on programmers

The success of a Smart Contract depends on the skill of the coder. If developers leave security vulnerabilities in the code from the start, they cannot be fixed later.

Applying Smart Contracts in Real Life

Stablecoin - Digital currency with stability

Stablecoins are cryptocurrencies with a fixed value, not subject to market volatility. They are often pegged 1:1 to real-world currencies like the US dollar.

Examples of Stablecoins on Ethereum:

• Dai (DAI) - A crypto-backed stablecoin with the most decentralized economy, valued at 1 DAI = 1 USD
• USDC - Supported by real assets, issued by Coinbase and Circle
• Tether (USDT) - The first and longest-standing stablecoin in the market

NFT - Digital proof of ownership

Non-fungible Token (NFT) is a token that cannot be exchanged on a one-to-one basis because each token has unique properties.

NFTs can be used to prove ownership of:

• Digital art
• Novels and music
• Sneakers in the Metaverse
• Unique identification cards (such as Ethereum Name Service, which allows you to set a name for your account address)
• Virtual real estate

DEX - Decentralized exchange

Decentralized Exchange uses Smart Contracts to enable users to trade cryptocurrencies directly with each other without trusting a central authority. Prominent DEX platforms like Uniswap, Kyber, and 1inch are all powered by Smart Contracts.

Agreements and Voting

Smart Contracts can automate voting processes and agreement enforcement. They can be programmed to conduct automatic voting, manage funds, or execute other transparent agreements.

Insurance Claims

Insurance companies can use Smart Contracts to automate and expedite claims processes. Insurance payouts can be programmed to be paid immediately once an event such as (natural disasters) is verified.

The Future of Smart Contracts

From Nick Szabo’s concept in 1994 to today, Smart Contracts have continuously evolved. Blockchain systems are moving toward Blockchain 3.0, and many large organizations - banks, insurance companies, governments - are exploring ways to leverage Smart Contracts.

The advantages of smart contracts - transparency, cost reduction, security, and elimination of intermediaries - make it a technology for the future. Smart Contracts will change how business is conducted, contracts are signed, and transactions are executed worldwide.

This afternoon, Smart Contracts may just be simple agreements and exchanges, but in the future, they will play a much more vital role in life - from helping manage the world to reducing costs and increasing efficiency across all sectors of society.