In 1997, long before the creation of blockchain technology, computer scientist, legal scholar, and cryptographer Nick Szabo coined the term “Smart Contracts”. He envisioned a digital contract stored on a distributed ledger. In Layman’s terms, a Smart Contract is just like a paper contract. The only difference being the contract is written in code and stored on a decentralized blockchain network.
Smart Contracts are basically decentralized applications, or DApps, which allow individuals to exchange data in a trustless, conflict-free manner without relying on a third party. Because they are trustless in nature, both parties involved in the contract don’t have to trust an external third party. Ethereum is the largest platform for decentralized applications, though there are other projects working to support decentralized applications on their network, such as NEO.
Ethereum’s Smart Contracts are written in a code known as Serenity – it was created by Ethereum’s development team. Alternatively, NEO’s platform for decentralized applications allows developers to use already existing infrastructure. Popular coding languages such as .NET, C# and Java are supported on the NEO network. In the future, NEO plans to support GO and Python as well.
Nevertheless, Ethereum remains the leading platform for DApps today – and it’s just that – a platform, not a medium of exchange. Bitcoin, for instance, serves an entirely different purpose than Ethereum. Bitcoin’s blockchain keeps track of wallet balances and transactions – in fact, the entire network consists of transactions. On the other hand, Ethereum is a platform which other developers can use to build programs. Just like Microsoft, Windows, and Apple IOS are platforms for applications, so is Ethereum.
Smart Contracts are decentralized. Therefore, they need to be validated, or mined, just like any other transaction on a blockchain network. There is a small cost associated with deploying and altering a Smart Contract – In Ethereum’s case, the transaction fee is known as Ethereum gas. Users pay a small gas fee (essentially a fraction of Ether) in exchange for deploying their Smart Contract.
How Are Smart Contracts Useful?
Believe it or not, Ethereum’s Smart Contracts will disrupt many different industries within the next 5-10 years. They cut out the need for an external third-party who not only have to be trusted in the exchange, but also charge a hefty fee for their service.
For example, online fundraising platforms such as Kickstarter help thousands raise funds for charity, startup projects, and more. Supporters of the cause give Kickstarter their funds, and if the goal is met, the project’s team receives the funding. Both the supporters and the team must trust Kickstarter. Moreover, the Kickstarter platform could be hacked, resulting in a loss of funds for all parties involved.
If a Smart Contract was created for the same purpose, users would send their funds to the Smart Contract. Once the goal has been met, the Smart Contract would automatically give the funds to the team – on the other hand, if the goal has not been met, the Smart Contract would automatically refund the supporters. Smart Contracts are protected by the blockchain and are completely transparent.
Additionally, Smart Contracts could soon replace traditional voting systems. Since the beginning of democratic governments, voter fraud and election tampering have been a problem – however, an Ethereum Smart Contract could be the answer.
By creating a transparent, immutable Smart Contract, users can cast their votes in a completely decentralized manner. The government and general public alike could see the true results of the election, without having to worry about fraudulent activity or election tampering. Everyone’s vote would be stored on the blockchain, safe from harm.
Smart Contracts also have the potential to disrupt today’s economy, replacing it with a Smart Economy of sorts. Take NEO, for instance. Their platform aims to digitize assets and track them via the blockchain. Wine shipments, for example, would be tracked by small, inexpensive microchips. Data such as the wine’s age, type, price, and location would all be stored on the blockchain.
Lastly, asset exchanges can benefit significantly from Smart Contracts – that is why the Digitex Futures Exchange is built atop Ethereum.
Digitex – A Decentralized Bitcoin Futures Exchange
On 19 June 2011, Mt. Gox, a prominent Bitcoin exchange at the time handling around 70% of Bitcoin transactions, suffered a multi-million dollar hack – $460 million dollars to be exact.
It wasn’t the first exchange hack, nor will it be the last. Mt. Gox was a centralized exchange, as are the majority of popular cryptocurrency exchanges today. Though they are encrypted, exchanges such as Bittrex, Binance and Poloniex are all centralized, each with a central point of failure.
These exchanges require their users to trust the exchange – if you want to make a trade, you do not have control of your tokens. Instead, the exchange stores them in an exchange wallet. Any time your coins are on the exchange, they are subject to cyber attack and theft.
Conversely, decentralized exchanges are immune to cyber attack and theft thanks to the power of the blockchain. That’s why Digitex Futures is built using a Smart Contract on Ethereum’s blockchain.
Digitex never actually holds your funds – rather, the Smart Contract on the Ethereum network is in control. This means your funds are protected by Ethereum’s blockchain. You’ll never have to worry about losing your tokens!
Remember the Kickstarter example? Well, in this scenario, the exchange Kickstarter and each trading party is the supporter or development team receiving funding. Centralized exchanges, like Kickstarter, are vulnerable to attack and must be trusted. With Digitex, users put their faith in the security of the blockchain, instead of an intermediary party like Kickstarter.
Platforms like Ethereum and NEO are the basis on which Smart Contracts are constructed. Decentralized applications, like Digitex, are trustless, immutable, and distributed across the entire community. Digitex Futures exchange is a decentralized exchange pioneer, as it is among the first to adopt the use of Smart Contracts. Going forward, you can expect to see more projects adopting this revolutionary technology.