The most revolutionary technology since the advent of the Internet has been called. It can dramatically change our daily lives. With the potential to replace all intermediaries and agencies.
To clearly understand what is blockchain and what the benefits are, it is important to know how monetary transactions currently work. Although cash still plays a critical role, over the years we are moving from cash to digital payment.
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What Exactly Is Blockchain Technology?
“Blockchain technology provides a way for people or authorities who don’t trust each other to agree on a common digital story. A common digital history is important because digital currency and transactions are, in theory, easy to copy. Blockchain technology solves this problem without the need for a trusted intermediary or agency. “
Perhaps too abstract if you get this immediately on your choice. Let’s go back to the example of Maria who wants to transfer 5 euros to Juan. Who will verify that Maria does not secretly grant those 5 euros to another person as well? It has taken years before a better solution and alternative to expensive banks appeared, but finally, blockchain technology has arrived.
The blockchain ensures that the € 5 transaction is automatically added to a global ledger where all transactions are kept. Subsequently, it is also verified if this transaction is valid. There is no need for an intermediary to follow up, everything is done automatically by the blockchain and the computers that keep it running (miners). But how exactly does this work?
Blockchain Transaction: Explained With an Example
Going back to the previous example but altering the delivery method, Maria sends Juan the 5 euros through the blockchain. This is presented online as a “block” (or block). This block contains all the information about the transaction, such as the value (5 euros), the time it was sent, who it was sent to, who it was sent to, and so on.
Blockchain: Beyond Money
At the moment, Bitcoin is by far the largest and best-known blockchain app, however Ethereum, number 2 right now, is on track to overcome that edge. Ethereum is mainly known because it focuses not only on blockchain as a transaction tool but also on the configuration of smart contracts. But what exactly is a smart contract?
Definition Of Smart Contract
To start, here is the definition of what a smart contract is:
A smart contract is a programmed contract whose agreements are registered in code on the blockchain. The contract is automatically executed without the need for trust in the intermediate parties. These quotes can always be viewed, but can never be adjusted again.
These contracts are drawn up and programmed by programmers and we do not have a contract with Smart contracts, but with a digital contract consisting of computer code. This code contains all the information about the contract: who is it valid for, when should it be executed, when has this agreement been registered, etc.
Advantages Of A Smart Contract
What advantages do smart contracts have over normal contracts?
- Autonomy: the agreement is entered alone. You do not have to rely on a lawyer, bank, broker or another intermediary for the contract to be executed. This makes it impossible for a third party to manipulate the contract. The contract is automatically administered and executed by the network.
- Security: the smart contract is protected by cryptography. It is almost impossible to hack the contract.
- Trust: The contract is tracked on the shared network. Therefore, it is impossible for the contract to be lost. There are also no third parties involved who want to manipulate the contract.
- Speed: smart contracts are fully automated. Acts that normally cost a lot of paperwork don’t have to be done to a great extent and this saves a lot of work and time. In addition, smart contracts are constantly optimized, so it will cost less and less time.
- Backup: because it is impossible to get rid of the smart contract with all the members of the blockchain.
- Accuracy: As a smart contract is mainly machine work, it has few problems, unlike human error.
- Savings: smart contracts are much cheaper because no intermediate parts are needed. For example, you don’t have to pay a lawyer or a notary to write it.
Of course, a smart contract not only has advantages, but it is also important to consider the disadvantages that it entails.
Disadvantages Of A Smart Contract
- Adjustment is impossible: one of the biggest advantages of a smart contract is also the biggest disadvantage. If you change your mind about a rental agreement, it is very difficult to adjust.
- The code must take everything into account: with a contract, there are always “ifs and buts” present. In “normal” language, this is difficult to obtain on paper, much less in the programming language. Therefore, it is (still) very sensitive to errors.
- The third does not completely disappear: even though a third is no longer needed, it does not completely disappear, but it mainly has a different function. Mainly, the demand for programmers who can prepare these contracts will increase more and the demand for good programmers is already through the roof.
As we can imagine, blockchain technology is expected to have a major impact on our daily lives. It has the potential to completely replace banks, notaries, attorneys, and many other intermediaries and parties. The last time people were so positive about a technology was when the Internet was on the rise and we know how much influence it has had and continues to have.
We can understand that the blockchain is a data structure in which the information is grouped together called blocks. These blocks are stored following a timeline and in encrypted form on computers known as nodes. This information is kept safe in them, it cannot be deleted or modified.
Also Read: A Deeper Look Into Blockchain