Blockchain Smart Contracts Overview: History and Mechanism

Blockchain Smart contracts can be termed as the most utilized application in recent times. This article discusses the history and mechanism of this technology.

October- 26, 2018 | AtoZ Markets – As the American cryptographer and programmer Nick Szabo back described them in 1996 (long before the blockchain technology appeared), smart contracts are digital protocols for information transfer, for executing a transaction once the established conditions are met and that fully control the process automatically, using mathematical algorithms.

This definition, over ten years, remains accurate today. Nevertheless, this vision could not be realized in 1996 due to the fact that the right technologies (distributed ledger) were unavailable.

In 2008, Bitcoin, the first cryptocurrency appeared, creating the ground for the technology of blockchain, without a decentralized ledger at the time.

Since it only contains information on the transaction itself, the Bitcoin blockchain –which was the base for developing smart contracts- does not allow concluding a transaction to be prescribed in a new block.

Five years later, the Ethereum blockchain platform made it possible to use smart contracts in practice, and while the market today offers many platforms that allow using smart contracts, Ethereum remains one of the most widespread.

How Do Blockchain Smart Contracts Work?

A smart contract is a computer program that directly controls the transfer of digital currencies or assets between parties under certain conditions.

The lingual form used in the smart contract is as “if-then”. For example: “if Party A transfers money, then Party B hands over the rights to the apartment”. The contract can include two or more participants as individuals or organizations.  A smart contract automatically executes the transaction once the given conditions are met. Furthermore, it ensures that the agreement is adhered to while data encryption ensures the anonymity of the parties to the agreement.

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