How Do Ethereum Smart Contracts Work?

New Technology made possible by public blockchain, smart contract are difficult to understand because the term partly confuses the core interaction described. Smart Contract enforces a relationship with cryptographic code. Smart contract are programs that execute exactly as they are set up to by their creators.

First conceived in 1993, the idea was originally described by computer scientist and cryptographer Nick Szabo as a kind of digital vending machine. In his famous example, he describes how users could input data or value, and receive a finite item from a machine.

In a simple example, Ethereum users can send 10 ether to a friend on a certain date using a smart contract. Ethereum is a platform that’s built specifically for creating smart contracts.

What are smart Contracts?

Quoting Wikipedia

“A smart contract is a computer protocol intended to digitally facilitate, verify or enforce the negotiation or performance of a contract. Smart contract allow the performance of credible transactions without third parties. These transaction are traceable and irreversible”

The above definition basically states those smart contracts as the name suggests are contracts that can be programmed, verified without third parties, and track able and are immutable unless explicitly mentioned in the contract.

How smart contracts work

Its worth noting that Bitcoin was the first to support basic smart contracts in the sense that the network can transfer value from one person to another. The network of nodes will only validate transactions if certain conditions are met. Bitcoin is limited to the currency use case. By contrast, Ethereum replaces bitcoins more restrictive language that allows developers to write down programs.

Ether allows developers to program their own smart contracts, or ‘autonomous agents’ as the Ethereum white paper calls them. The language is ‘Turing-complete’ it supports a broader set of computational instructions.

A Smart Contract needs several mathematical moving parts for it to function seamlessly

1. A Block-chain platform — for its perform and verify transaction on chain

2. Public Key and private key — the smart contract must have access to the private keys that it plans on controlling.

3. Conditions — clear conditions must be defined by the smart Contract so that relevant transactions are carried out

Smart contracts are highly beneficial in a wide variety of domains as they let you create a contract that are secure, fast and are standardized for numerous use cases.

The use cases of smart contracts are so vast that we would probably need more than one post to elaborate on each of them. However we will try to cover as much as possible in one post