What Is a Smart Contract? Smart Contracts Explained for Beginners

  • Vera Thornpike
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    Don’t know what smart contracts are? Learn about the nuts and bolts of smart contract technology: its origin, advantages, peculiarities and applications

What Is a Smart Contract? Smart Contracts Explained for Beginners
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Since blockchain was invented, it has served many useful purposes, including the creation of smart contracts. This is an outstanding technology, but not so many people understand what it is, and how it functions. Are you in the dark about the idea of a smart contract blockchain? This ultimate guide is a must-read.

Without further ado, let’s start.

What is a smart contract?

25 years ago, Nick Szabo, a crypto enthusiast, discovered that decentralized ledgers might serve for the implementation of so-called digital ‘smart contracts’. These contracts exist in the form of a computer code and can run over multiple nodes. Devices controlling the blockchain could be used to supervise a smart contract. Consequently, that would facilitate transactions, fund transfers, and the delivery of services and goods.

For better understanding, you could refer to the smart contract definition given by Wikipedia. Seem too complicated? In layman’s terms, blockchain smart contracts are pieces of computer code that include certain contractual clauses that can self-execute and self-enforce. Like any other decentralized ledger, smart contracts make data totally safe – it’s impossible to forge or change. Many cryptocurrencies started implementing this technology, and the most commonly used variation is the Ethereum smart contract.

Digital contract in action

How do smart contracts work?

A smart contract does not remind one of its paper analog. Yes, it can also be applied to order services and products, perform currency exchanges, or buy/sell property. However, unlike the stacks of traditional documents, a blockchain smart contract executes itself – it comes into force automatically as soon as particular conditions are met.

If you want smart contracts blockchain explained in clearer terms, check out this use case:

To comprehend the principle of how blockchain contracts function, imagine the function of a penny-in-the-slot machine. You decide to buy a cappuccino and insert coins into the slot. Once you press the corresponding button, the machine instantly performs your order. Blockchain contracts do a similar thing. They automatically execute some actions upon particular conditions triggering them.

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Key benefits

Blockchain and smart contracts are revolutionary technologies that have brought about a myriad of opportunities and advantages. So, what exactly makes smart contracts useful for us? The list of benefits is mile-long:

1.    The accuracy of data. When people handle paper contracts, there’s always a risk of human error. Smart contracts ensure the accuracy of data: the details of the terms won’t be altered by mistake. The omission of conditions can cause transaction errors, but automatic contracts exclude this risk.

2.   Straightforward, clear communication. Smart contracts should be accurate and detailed – when everything is explicit, following conditions is simple. Therefore, smart contracts facilitate communication, and participants have a total understanding of conditions and events.

3.   Total transparency. Digital contracts’ details are displayed to all concerned participants. No conditions can be changed once such contract once it was activated. That excludes the threat of data forgery, and all operations are visible for concerned parties.

4.   Excellent speed. Since digital contracts run their code on the Internet, they can perform transactions with an exceptional speed, which saves hours or even days for businesses.

5.   It’s a paper-free process. Good news for haters of bureaucracy and lovers of nature. With smart contracts, there is no need for manual document processing. Businesses are getting more and more concerned about their environmental impact, and going digital is the easiest way to go green and cut down on paperwork.

6.   Great efficiency. Due to their high cost and 100% precision, smart contracts are very efficient and can process a lot of transactions per one unit of time. Again, that eliminates the need of third parties.

7.    Exceptional security. Automated digital contracts leverage the most advanced levels of encryption currently developed, and set the standard for modern cryptocurrencies. That turns smart contracts into one of the most reliable things on the web.

8.   Data integrity. Since every record in smart contracts contains details about transactions, this is a great solution for data storage and backup. Once you use some information in a smart contract, it is added forever and used for further records. In case of data damage or loss, it can be retrieved in a jiffy.

9.   It’s economically beneficial. What is smart contracts’ main advantage for institutional users? Automatic contracts exclude the need for middlemen, which results in lower expenses.

10.  It is trustworthy. Smart contracts are totally transparent because no information can be changed once it’s established. That excludes the risk of manipulations and errors. The parties agree to follow the contract’s rules and regulations – the rest is done by the code.

No drawbacks so far?

Like any innovation, smart contracts’ blockchain system isn’t devoid of disadvantages – the coin has two sides. Some of its benefits pose difficulties:

A smart contract is an innovative technology that addresses a wide range of problems.

→ Users are not familiar with the technology and are afraid of using it. Decentralized ledgers appear to be too complicated.

Once data is registered, records are irreversible.

→ If a user has suddenly changed his mind about contract conditions, it would be technically difficult to correct it. Besides, such changes pose the risk of mistakes and make the smart contract less safe.

Use of code excludes the risk of human errors.

→ But there is always the risk of errors at the stage of coding – the code is written by people. First, they can write the code to serve their malicious purposes. Secondly, eventual mistakes put the whole system in danger.

No need for third-party agents.

→ Middlemen don’t disappear entirely – they just need to change their role. For instance, there’s a need for IT-savvy lawyers. Programmers of smart contracts will also need to consult people.

Spheres of application

Smart contracts have enough potential to revolutionize many industries. Use cases are found in:

1.    Insurance. Companies automate their insurance policies by transforming them into smart contracts. Under certain events, the claims process is triggered immediately.

2.   Content & copyright. Smart contracts are used to register ownership of content (images, music, texts, video, etc) and transfer rights automatically. Fees and royalties for content usage are delivered instantly and transparently. That establishes trust in true ownership.

Smart contracts automate copyright fee payments

3.   IoT. Smart contracts help to store data obtained from devices, transfer it via the Internet, track delivery, record possession of devices, and so on.

4.   Banking. Cryptocurrency smart contracts allow for performing fast, cheap, and transparent transaction. That helps to cut back on transfer expenses.

Aside from that, smart contracts are being used in telecommunication, art, education, e-government, energy, and many other spheres.

The types of smart contracts – from simple to complicated

Smart contract examples

Now with technology of smart contracts explained, you may wonder if it is being used anywhere already. Yes, smart contracts are gradually being implemented by some companies. The following examples prove that.

How do smart contracts work in particular cases?

AXA, the French airline, utilizes blockchain for flight insurance. In case of delays, users with the proprietary application are notified about compensation options. The amount of insurance and compensation depend on the triggering event.

Insurance payments are automatically activated by smart contracts

Propy is a real estate agency that performs operations with digital contracts. It allows users to sell and purchase property offers and negotiate over them. Both parties can participate in the smart contract and buyers can reserve the properly by paying $5,000 to the escrow. Third-party payment processors can be involved to make transactions legitimate, and local authorities are present as well to make all protocols.

Populous uses digital contracts for invoice issuing. The role of technology is the elimination of risks, people’s mistakes, and document duplication. As soon as an invoice and its terms are settled in the system, users order it and transactions are performed via the digital contract.

DAO is another case in point. This project leverages the most complicated form of code – decentralized autonomous organizations. DAO serves to store and manage registries (documents, certificates, etc).

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Ethereum smart contract: the backbone

Ethereum smart contracts are the most widespread. This code was invented by Vitalik Buterin in 2013, and published two years later. Turing-complete virtual machine runs the codes: it simulates a PC using its own logic. That makes the Ethereum contract way more advanced than Bitcoin, which uses simple mechanisms for transactions.

In its essence, a smart contract is a piece of code

So, what is a smart contract Ethereum? This is a code written in the Solidity language. It’s close to JavaScript, the code executed in the Ethereum virtual machine for creating contracts.  

Why do companies trust Ethereum with their infrastructure?

●   It’s the most commonly used tech of its kind, the ancestor of other blockchain contracts.

●   Solidity is comprehensible and can be mastered by experienced programmers.

●   Ethereum leverages the ETH cryptocurrency, which is often used as an inner currency.

●   When it comes to the versatility of smart contracts, Ethereum is an absolute leader. It can be applied literally in any sphere without limitations.

●   Ethereum allows for creating decentralized applications (dApps) that make data safe and transparent.

Today, over 1,300 dApps are created or being developed on the basis of this tech.

Ethereum smart contract examples include:

1.    IOST (The Internet of Services) – a byproduct of Ethereum that provides tools and the environment for the creation of decentralized applications. Being built on top of the Ether blockchain, it allows for excluding intermediaries.

2.   MEvU is a decentralized P2P betting software. No matter what you stake on – Ethereum makes users confident that their wagers are totally safe. This application was created to prevent unfair gaming.

3.   CryptoKitties is one of first apps using smart contract Ethereum technology. This game allowed using digital “collectibles” stored in the blockchain – users breed their kitties using Ether tokens to run a digital contract. Sound like nothing serious, but this app has shown the potency of Buterin’s creation.

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Also, let’s not forget that Ethereum has a huge network of supporters who would potentially use the smart contracts. The Enterprise Ethereum Alliance unites some Fortune 500 enterprises, such as Intel and Microsoft, as well as numerous startups.

Bottom line

Now that you’re aware of what are smart contracts, you can imagine how much potential there is to be fulfilled. Digital contract technology has caused a stir in the crypto community and opened a legion of possibilities for small and large companies, regardless of their specification.

Smart contracts blockchain is in its infancy: not many companies understand what it is and realize its benefits. The number of enterprises actually implementing it is even lower. However, in the following decade, we are likely to see massive leveraging of this tech in various niches.

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Is Litecoin a Good Investment in 2019? Is It Safe to Invest in LTC?

Is Litecoin a Good Investment in 2019? Is It Safe to Invest in LTC?
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Each cryptocurrency has its own positive features and unique peculiarities that allow it to develop and grow steadily. Among all representatives of the market, Litecoin stands alone. The project successfully combines the fundamental factors by which it can claim continued growth in the capitalization rating.

The forecast for 2019 clearly indicates that its most important distinctive details will surely help it move forward, imposing serious competition to the rest of altcoins.

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Features and principles of functioning

Appeared in 2011, the project immediately attracted the attention of users. Its creator, Charlie Lee, has focused on protecting his own cryptocurrency from possible future problems. So, unlike its older brother Bitcoin, Litecoin was initially ready for scalability. LTC cryptocurrency is in permanent operation due to a large number of copies of the program, whose source code was published a week before the start of the plan. The client guarantees security, and its new version has SegWit support.

Litecoin is endowed with a whole list of features.

  • Chain of blocks. This allows you to process a much higher volume of transactions compared to its “big brother”, Bitcoin. It is achieved by increasing the frequency of generation of new blocks, which gives a chance to maintain a larger volume of ongoing operations without modification and, if necessary, change it in the future.

  • Wallet encryption. Encryption allows you to protect yourself from fraudsters. Thanks to this feature, you have to enter a password every time a cryptocurrency is spent. The user also has the ability to view the transactions and account balance. Encryption protects against various viruses that can steal a wallet password and coins.

  • Reward. At the moment, miners get 25 coins for each confirmed block. Following statistics, the number of coins is halved every 4 years.

  • Mining. The mining algorithm of Litecoin is similar to the algorithm of the most famous cryptocurrency, Bitcoin. The main difference lies in the intensive exploitation of RAM during the mining of LTC. Therefore, it is advisable to use ordinary computers with GPU instead of machines with a powerful specialized CPU, for which development becomes quite problematic. The maximum supply of coins is 84 million, and this is almost four times the corresponding number of Bitcoin.

It can also be noted that Litecoin is written in the C ++ programming language. Among the supported operating systems are Windows, Mac OS X and Linux, and many others.

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Relationship to Bitcoin

Despite the strikingly close relationship with Bitcoin, which must be taken into account when analyzing the feasibility of investing in Litecoin for 2019, it is worth noting that the distinctive features of cryptocurrency should be its main development. At the same time, the most important unique features are:

  • More organized, centralized money management

  • High transaction speed

  • Low commission for transactions

  • Ease of making transfers

Charlie Lee stressed that it is Litecoin who is obliged to take the place of the currency that the majority of users will use. At the same time, the existing simplicity, speed and availability of transactions should contribute to the achievement of this goal. In this case, the prospects for the growth of crypto-finance will impress even the most optimistic people.

Differences from Bitcoin

Although the Bitcoin code is at the heart of Litecoin, there are still differences, and in some cases significant. One can distinguish the main ones:

  • More efficient use of a computer’s central processor (CPU) than a video card (GPU), which is fundamentally different from the main cryptocurrency.

  • Due to the increased block generation rate, the transaction is rather short-term and takes no more than 150 seconds.

  • The opportunity of mining in wallet in the SOLO mode or a pool.

  • Mining complexity is recalculated much faster than of Bitcoin’s one.

  • The emission is four times the BTC emission and makes up 84 million coins.

Similarities with Bitcoin

On the other hand, there are also some similar features with the main cryptocurrency:

  • Mining is performed in the same way, albeit using different functions.

  • There is no external control due to the decentralized type of network.

  • Both cryptocurrencies have a limited supply of coins.

  • The anonymity of both wallet owners and miners. Complete freedom of disposal of funds on the wallet.

  • A transaction cannot be undone.

Thus, it can be said that differences from Bitcoin make Litecoin a distinctive digital currency capable of expressing itself in the future.

What about disadvantages?

However, negative factors also exist:

  • With the creation of ASIC-miners, it is more difficult for ordinary users to mine cryptocurrency, and power is concentrated in the hands of large companies.

  • The failure of the LitePay service dealt a serious blow to the popularity of the virtual coin. The developers planned to create a system that had different integration with Visa. Despite the active work and the investment of a large amount, the project was not able to start. In the company, no one could explain what the money was spent. The scandal undermined the credibility of the digital coin.

  • Interdictions at the level of state authorities. Many states cannot decide on the status of digital money. Laws are either not released or are in development process. Only a small number of countries have completely legalized cryptocurrencies.

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How to invest in Litecoin

The easiest answer is to do it through exchanges.

Most investors and traders purchase Litecoin for US dollars or BTC (Bitcoin). Since different trading platforms have different trading or purchasing power, be sure to check whether your exchange supports transactions in US dollars or BTC for LTC.

LTC logo
‘Litecoin with man using a tablet computer‘ Image by 123rf

As a rule, the best option is to use a large trading platform, such as Binance (where you can exchange BTC for LTC) or Coinbase (to use a credit or debit card in US dollars).

However, since the cryptocurrency market is a large and, moreover, unregulated industry, it should not be viewed as the same type of investment opportunity as shares of stocks, bonds, or other securities. In fact, traders and investors should consider lots of factors when investing (especially given the volatility of digital assets in recent months).

Ways to earn Litecoin

Besides investing, there also other options to get LTC:

  • Mining. Litecoin is still in its heyday, as was once Bitcoin. With the help of the computing power of a personal computer, it is still possible to actually generate new coins.

  • Cloud mining. The client rents the computing power that Litecoin uses to generate the coins. However, this is a controversial decision. After all, this practice means that landlords of personal computers get more profit than the mining of Litecoin itself.

  • Litecoin cranes. Cranes are advertising sites where a user must enter a captcha and receive a small amount. It is difficult to call it a serious earning as for the whole day you can get only a couple of dollars at best.

Comparing all options, we can say that active mining remains the main method of obtaining LTC.

Technical analysis features for 2019

Since the bottom of Litecoin marked by Charlie Lee has already been passed, you can pay attention to the prospects for further development of the project. As of April 17, 2019, the cryptocurrency chart looks the following way:

 Litecoin chart
Image by Tradingview

It is important to pay attention to the level of $80 – it can be considered as an important support zone, consolidating at which can open the way to growth. Given the damage caused by the protracted fall, it is crucial to clarify that before the beginning of the active growth phase Litecoin should (just like other representatives of the cryptocurrency market), go through the recovery stage. As a rule, it is expressed in a prolonged neutral-positive movement.

The first half of 2019, in the wake of the shocks experienced by market participants, may become a consolidation period. The transition to the bullish movement can be supported by plans of entering the industry of Bitcoin ETF, the opening of the Bakkt platform and a number of other events that can attract serious investment flows.

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Selling coins for the community’s benefit

Charlie Lee, the creator of Litecoin, sold all his LTC to avoid accusations about the impact on the rate of the coin. This action was intended to make Litecoin an even more decentralized currency. And, despite the fact that after the sale of coins, the Litecoin exchange rate fell, in the long term, such a decision by the creator of cryptocurrency can bring him multiple benefits.

“For a currency to really be … a worldwide decentralized currency, you can’t have … a real leader who’s trying to control things, so to make it more decentralized, eventually I would step away,” said Charlie Lee.

Litecoin showed its record maximum at the moment in December 2017, when one coin cost $374. After its creator sold all of its assets, the price of the altcoin plummeted, and Lee was subjected to unflattering criticism from users. Many experts also called this move frankly unsuccessful. However, such an ambiguous act can really become the basis for creating the most decentralized digital currency.

In any case, this suggests that Litecoin has a strong developer, strategist, and leader who has a clear motivation and strategy for action. Charlie Lee is engaged in the development of his project, regardless of the value of the currency, and it definitely has a good effect on loyalty to its product from users.

Litecoin forecast for 2019: What analysts say

In the first six weeks of 2019, LTC’s rate went up to a new high, where it is currently trading at around $79.

From August 8, the miners' remuneration will fall from 25 to 12.5 LTC. The reduction in mining income will lead to a weakening of interest in mining of the cryptocurrency. In this situation, the fall in the supply of coins is expected to be approximately double.

According to analysts, the rate of LTC will rise approximately until the beginning of August, when the project will reduce the reward for the mining of coins. At the moment, the cryptocurrency is in 6th place in the rating of the largest digital assets – its rate exceeds $75 with a market capitalization slightly above $ 4.8 billion.

Tom Lee, CEO of Fundstrat Global, is confident that by the end of the year, the rate of the coin may grow by 640%.

Forbes logo
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Forbes analyst Billy Bambro said that the 6th largest market capitalization of Litecoin cryptocurrency (LTC) will be ahead of XRP by the end of the year and will take 3rd place.

Although cryptocurrency prices are still far from its previous highs, LTC has managed to double its rate since the beginning of 2019.

Bambro believes LTC pricing is a response to the active efforts of the Litecoin Foundation and developers to improve coin security and privacy, in addition to choosing several well-known partners.

The eToro analyst team, led by Mati Greenspan, conducted a serious study of Litecoin. According to its report, the current cost of LTC is significantly underestimated.

The experts note that Litecoin has good network scalability compared to Bitcoin, fast and low-cost transactions and ongoing technological improvements by the Charlie Lee team: atomic swap, Lightning Network, SegWit.

Thus, when making an analytical forecast for Litecoin for 2019, experts take into account all the factors that contribute and increase the popularity of a crypto asset in the future, and also expand its attractiveness in the eyes of investors and the public.

These include:

  • Litecoin functionality → recognition of real practical use

  • Litecoin's technical superiority → faster transaction speed, lower cost, and easy scalability using Segwit and Lightning Network technologies

  • Litecoin decentralization and representativeness → high user confidence and excellent online rating

Among the factors that led to the growth of Litecoin are Microsoft’s plans to create a platform for decentralized processing and storage of digital identification data based on blockchain technology. And Litecoin has become one of those ecosystems that the company considers potentially suitable as the basis of this large-scale project.

These and other advantages of the Litecoin network find a positive response in Litecoin’s forecasts for 2019, and analysts predict a permanent increase in the price of  the cryptocurrency in the May-July period.

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So, what is the decision?

Over the years, Litecoin consistently follows Bitcoin, keeping a little distance from it. The stability of the project is complemented by an important advantage – the coin appeared much earlier than other coins in the capitalization rating. The presence of history allows you to create a “safety cushion” in the form of trust, which is still rare on the cryptocurrency market. Accordingly, Litecoin may well be considered as a good option for investment.

All in all, Litecoin is worth investing in. The top management of the project is actively working on improvements that allow maintaining high positions of “digital silver” in the capitalization rating. In addition, it is likely that in the near future the bear market will completely end, passing the green light to the bulls. This makes investing in the cryptocurrency promising.

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