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Ethereum is the second-largest cryptocurrency and is a platform allowing blockchain apps to be built on it. To understand the nature of Ethereum blockchain, one must understand the concept of “smart contracts”.
Invented in 1994, a smart contract is a digital contract stored on the blockchain and executed automatically when specific conditions are fulfilled. It entirely removes the requirement of intermediaries such as banks and other financial institutions. Note that the idea of Smart contracts was invented in 1994 by Nick Szabo but was introduced by Ethereum in a working form.
Keep in mind that a smart contract is actually an agreement between two parties and is mere in the form of computer code. Blockchain process the transactions in smart contracts, and hence, it is entirely decentralized and trustless.
The working of a smart contract is not much complicated. It involves a series of different conditional statements describing the possible scenarios of a transaction.
First of all, the contractual parties determine the terms of the contract and then the terms are translated into a computer code describing the possible future transactions. This code is stored in the blockchain and gets replicated among the participants. The code is then executed by all the computers in the blockchain network.
The transaction is executed once verified by all the participants of the network.
Smart contracts hold many benefits because of their autonomous, trustless and secured nature. Both the seller and the buyer can create a smart contract through which the deal can be automated once the buyer pays the amount to the seller. Let's discuss the top 5 uses cases of a smart contract:
When we connect to different services on the internet, we often unknowingly share our identity with those companies. But, with smart contracts, we do not really need to share the true identity to verify the transactions, which is an essential aspect of smart contracts.
Smart contracts provide us with the required automation and decentralization, which makes them essential for the economy. Apart from the above-mentioned use cases, these can be useful in many ways, including trading activities, storage of records, insurance, governmental operations and many more such activities.
We can entirely avoid the requirement of a middle person if the smart contracts are used through absolute potential.