Introduction

Never have we believed something as a Smart Contract was to be possible until a few years ago. Now, thanks to blockchain technology, they are real!! Smart Contracts enable the automation of contractual relations between people and machines without the intervention of some intermediary you must trust.

Smart Contract definition

A Smart Contract is a software that executes commercial transactions and/or enforces legal agreements replacing the traditional “paper” contract that depends on an external third party and their transactions costs. It is a protocol that computers execute so that all the clauses of a traditional contract are embedded in a code that notifies if the contract is completed or it was broken by any of each part involved. This method is very efficient because it saves resources in both capital and waiting times, since you don’t need to rely upon external controls to validate the contracts.

What’s the difference between a Smart Contract and a traditional contract?

Many kinds of contractual clauses may be made self-executing, self-enforcing, or both. They provide security superiority compared to traditional contract laws and reduce transaction costs associated with contracting.

Logic as an State machine

Basically each node in the blockchain execute code in response to certain events.

A blockchain-based Smart Contract is visible to all users of said blockchain. However, this leads to a situation where bugs, including security holes, are visible to all but may not be able to be quickly fixed.

*Each block contains a timestamp and a link to a previous block. A blockchain is typically managed by a peer-to-peer network collectively adhering to a protocol for validating new blocks.

Example

An example could be taken in car rental cases, suppose a certain customer rents a car to travel inside the US, also suppose that the car has GPS chip that allows it to announce his position periodically.

The contract could be broken if the vehicle enters Mexico, in this case it does not take a third person to announce this rupture of a clause if not that the system detects the rupture and responds in consequence for example generating a fine to the client.

REFERENCES

“Blockchain Size”. Blockchain. Blockchain Luxembourg S.A. Haber, Stuart; Stornetta, W. Scott (January 1991).

What is Blockchain Technology?

A Blockchain is a data structure that makes it possible to create a digital ledger of all bitcoins transactions and share it among a distributed network of computers. The Blockchain is seen as the main technological innovation of Bitcoin.

“Every informed person needs to know about Bitcoin because it might be one of the world’s most important developments.” Leon Luow

So first… let’s see what a bitcoin is.

It is a currency just like $, €, £. However, bitcoin is a decentralized, digital money created, held and spent electronically around the world.

Distributed database technology

A Blockchain is a public ledger of all Bitcoin transactions that have been executed.
It is constantly growing and the blocks are added to it in a chronological order. Each computer connected to the Bitcoin network automatically gets a copy of the Blockchain. The latter has complete information about the addresses and their balances right from the genesis block to the most recently completed block.

What about an analogy with Conventional Banking?

To use conventional banking as an analogy, the Blockchain is like a full history of banking transactions. Bitcoin transactions are entered chronologically in a Blockchain just the way bank transactions are. Blocks, meanwhile, are like individual bank statements.

How does it work?

The Blockchain network automatically checks in for transactions with itself every ten minutes. Each group of these transactions is referred to as a “block”. Each block of new transactions is shared with all nodes in the network. Altering any unit of information on the Blockchain would mean using a huge amount of computing power to override the entire network.

All in all…

Clearly, the Blockchain technology is revolutionalizing the finance industry. It is the first time we can exchange value without intermediaries. Therefore, Blockchain has all the potential to solve some of your business complex problems now and in the near future.