Understanding Smart contracts and the future of digital relations

Previously covered: 

• Transparency is a core of creating trusted space in an environment, where total distrust is the norm. 

• Upkeep of the blockchains’ ledgers had to be delegated to Nodes.

• The Nodes have to generate revenue to be expedient. Each transaction now requires a fee to keep the Nodes incentivized. The Nodes have to be numerous to keep the system fair and efficient. Decentralization turned out to be expensive

So, let’s take a step back and look at the layers of communication that we’ve ended up with at this stage.

Now the immensity of the entire blockchain, writing every single transaction doesn’t rely on every single user (even the inactive ones). It’s taken care of by nodes. The innovation of nodes allowed for secure and reliable transactions along with a storage mechanism. Yet, a third party or mutual cooperation of actors is required to make and oversee deals. But as an actor interested in employing the potential of the system, you still need to get some kind of a permission. 

But why should the system and interactions within it be bound by the obligation to get those permissions? 

Wouldn’t it be great to have a system that allows every actor who has something to offer to the community to take advantage of the potential of blockchain and make profit without the need to ask for a third-party permission or mediation? A system that would allow developers to make profit from their programs without being obligated to register it and get approved or allow digital artists to interact with their audience directly and freely. 

For example, let’s automate the process of paying commissions for a digital artist with a smart-contract. It is actually quite simple.

Our artist creates a piece of digital art, for example a picture of this lovely chamomile.

The picture is embedded in a smart-contract, which has this set condition: each time the picture gets resold, the artist gets 0.5% of the transaction amount.

The artist then sells his picture to another user for 100 coins. Obviously, the commission in this case is included in a transaction.

Then another user sells the picture to a third user for 1000 coins. And an artist automatically receives a commission of 5 coins (0,5% of the transaction amount). 

And each time the picture gets resold, the smart-contract is triggered, and commission is paid.

Now let’s switch the artists’ commission for a donation to a charity fund. Or switch the art for a skin in a video game and program a restriction on exchanging it within the first five days. Or write a smart-contract for a token that cannot be swapped at the exchange platform. Practically anything can be programmed in a smart-contract as long as it can be articulated in code.

These contracts have no heart and soul, only a transparent set of codes. They cannot be tempted, lured, can’t lie and screw you over (unless they’re programmed to) . So, the responsibility is distributed solely between parties who agree to use a certain smart-contract. All they have to do is trigger it and the instructions will be strictly executed. Hence, if we go back to our example: the artist only gets a commission if users, reselling their art, agree to run a smart-contract (buy/sell the picture, in this case).

Smart-contracts also have this amazing feature: they are immutable, meaning once the smart-contract is created, it can never be changed. Being distributed and registered into the blockchain also means that the contract is validated by incentivized nodes on the network. So, any attempt of illicit activity with it will be automatically spotted by other actors and validators in the network and marked as invalid.

The concept of smart-contracts has already revolutionized digital transactions. And it’s yet to show its full potential, which is, frankly, almost immeasurable. 

Results:

Smart-contracts allowed for a significantly more broad and robust interaction between actors in blockchain, than a previous classical model, such as Bitcoin. This, in turn, made a whole new Pandora’s box for business, designed around algorithmization and permissionless interaction. The smart-contract overlay helped the crypto community build a new crypto economy. 

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