What is blockchain?
A blockchain is a database that is shared across a network of computers. It is a shared, distributed ledger on which transactions are digitally recorded and linked together so that they provide the entire history or provenance of an asset. Once a record has been added to the chain it is very difficult to change and is said to be “immutable”. Each record is also encrypted to provide an extra layer of security. To ensure all the copies of the database are the same, the network makes constant checks.
What are smart contracts?
A smart contract is similar to contracts in the physical world, the only difference is they’re digital and are represented by a tiny computer program stored inside a blockchain. In simpler words, a smart contract is a software that stores rules for negotiating the terms of an agreement, automatically verifies fulfillment, and then executes the agreed terms.
The main idea of a smart contract is to eliminate the reliance of a third party when it comes to business relations. Since a smart contract is stored inside a blockchain where all data is stored in a distributed manner, no one is in control of the money. In a decentralized business model, smart contracts replace any other trusted third party.
Smart contracts used by blockchain
Blockchain has formed a backbone for a revolutionary cryptocurrency and is bringing change in many sectors being used in daily life I.e. industries including logistics, web security, and even trade finance, etc. However, nowhere is this advance more evident than its growing function as an innovative payment solution. One of the key pillars driving this rapid adoption is the embrace of smart contracts.
The smart contract has been growing and it owes its success to its two pillars: automation and the cost savings it brings. Much has been said about smart contracts in relation to blockchain technology. While there are plenty of examples of smart contracts implemented within different blockchain networks and projects, the most notable remains Bitcoin and Ethereum.
Bitcoin is known for cryptocurrency but its protocol can be used to create a smart contract, the programming language bitcoin provides, allows or custom smart contracts like multi-signature accounts, payment channels, escrows, and time locks.
Ethereum is the most prominent smart contract framework, created and designed especially to support smart contracts. This decentralized platform runs smart contracts that are safe from fraud, censorship, and third-party interference. The Ethereum blockchain database stores transactions between people, transactions involving smart contracts, and their source code.
Blockchain is already impacting businesses and bringing revolution every day; and by inheriting blockchain properties, smart contracts offer immutability and distributed storage which is what helps them stand out in the crowd. Immutability and distributed storage help the smart contract to become secure and credible means for business transactions and agreements.