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What Is a Smart Contract? Smart Contracts Explained for Beginners

  • Vera Thornpike
    📚 WikiCoin

    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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Blockchain Developer Salaries. Top Job Offers of Blockchain Companies

  • Eric Croix
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    Are you fascinated by Bitcoin and Ethereum? Would you like to take part in the development of Web 3.0 and the payment systems of the future? Then you may also be wondering how much you will be paid for such work. Tune in to find this out!


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The blockchain sphere was sort of under the radar since the introduction of Bitcoin until finally Ethereum’s ERC20 standard appeared and gave birth to thousands of startups in 2017. The ICO craze led to a notorious crypto bubble, which drove up the demand for quality developers. Innovative technology, low competition, and startling salaries attracted many of the engineers from other spheres to the blockchain space. As they were building new networks and dApps, the infamous crypto burst of 2018 occurred and some of the companies started to rapidly lose the funds they raised.

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After the dust settled, the surviving startups realized that the only competitive advantage they can have in the future is only a real working product. The times when people paid millions of dollars just for a white paper are gone. Hence, to make it through hard times and eventually prosper, crypto companies need experienced engineers even more. In addition, large enterprises like IBM and Google realized the new trend and are now making the competition even tighter. Unlike the freshly appeared startups, these behemoths have plenty of cash in their pockets to pay a premium for good specialists.

Considering that the blockchain sphere is still in its infancy and there is enough room to grow professionally and financially, engineers around the world are still looking into entering the space. There are also people who never touched a terminal but were attracted to the crypto market during the latest bull cycle and want to start their professional paths within the industry. For all of them, it will be useful to know the size of a paycheck to aim for. Therefore, in this article, we will present you with an overview of the job market for blockchain engineers. Let’s get going!

Where to look for a job?

Traditional job listing boards

Traditional aggregators

For our first step, we took the most popular website for job search overall, which is Indeed.com and also a resource that is used by startups to post their listings – AngelList. We also included LinkedIn, as it’s by far the most used social network for professionals. The blockchain-related openings on these resources soared significantly (in some cases more than 4 times) from 2016.

Specialized aggregators

Specialized aggregators

The new industry inspired a new type of job board. Currently, there are several crypto-oriented resources where one is able to find a job in a crypto startup. Among such service providers are Blocktribe, Cryptojobslist, Blockace and a number of others.

Upwork

Upwork logo

For people, who are familiar with working remotely, Upwork is the go-to resource to find clientele. This is the most popular freelance website in the world and the paychecks there can be astonishing.

Company websites

IBM/VISA/Google logos

Some of the job postings for large (and some small) companies never leave company websites. Recruiters may be in a passive mode of searching for some positions, so it’s always useful to double check the ‘career’ section on websites.

How big of a paycheck to expect

Blockchain developers make 10 to 20% more than their non-blockchain peers. This is on par with AI software developers. For instance, if we talk about the most prominent place for software companies, Silicon Valley, a blockchain engineer’s salary there may reach $158k USD a year, while a hardware engineer’s salary will only be $135k USD. Switzerland companies in some cases offer even higher salaries that may go up to $180k USD a year, but you have to consider that the taxes and prices there are quite high too.

Median salaries

If we review the market as a whole, the average salary for software engineers specializing in blockchain is $114k USD. The range of salaries goes between $50k and $134k USD a year for a full-time job. For freelancers, the hourly rates start from $15 and continue up to $300 USD.

As we discussed in our article about the most popular languages in blockchain development, there are new ones like Solidity and Simplicity that are just starting to get traction. Enterprises with their products are also more inclined to pay higher amounts of money to those, who already have narrow specialization, such as Hyperledger composers.

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Enterprises vs startups

It’s important to distinguish between young companies and well-developed enterprises. Startups are looking to recruit the best professionals out there as they influence the company’s image. People heading there will receive more responsibility, freedom of making decisions and room for professional growth. On the flipside, the salary range is in the lower bracket of $50k to $70k USD. However, in the long run, financial rewards can be much higher for some devs, as they may be offered equity in the company or certain allocation of tokens that have a chance to skyrocket.

Startup vs Enterprise

For those, who are looking for more secure positions, enterprises represent a better choice. Starting salaries for junior developers can be from $70k to $80k USD and senior devs usually start getting from $100k to $120k USD. The drawbacks could include a limited set of tasks, the need to report more to seniors and not so many promotion prospects. In addition, enterprises will be able to provide better social compensation and benefits.

Top offers

  • Senior Managing Consultant at IBM ($122k-$179k USD/year)

IBM is one of the leaders in software development with a great legacy of hardware development. With Hyperledger and Sawtooth, IBM strives to capture a significant share of the developing blockchain market. The position they offer pays well and requires an appropriate level of experience, at least 5 years of programming and half a year in blockchain development.

  • Blockchain SI Partner Development Manager at Microsoft ($109k-$172k USD/year)

Considering the size of Microsoft and their involvement in cloud and blockchain solutions based on their Azure platform, there is no wonder that it makes it to the top of our list. Except for advanced programming skills and knowledge of the proprietary software, this job will require the perfect candidate to have a background in business communication and management experience.

  • Blockchain Engineer at Visa ($110-$140k USD/year)

Visa, like any global payment system, feels the competition from cryptocurrencies the most and tries to get the best talent to evolve quickly. A developer joining this company should consider making an emphasis on Java and Golang, as Visa requires two-year experience with these languages. Expertise in other spheres of software development will also be a plus along with specialization in scalable products.

  • Blockchain Developer at Blocksmith ($45k-$65k USD/year)

Here we step onto the startup grounds. Blockchain offers outsourcing services related to the blockchain to other startups and enterprises. In their job posing, Blocksmith highlight willingness to learn and share knowledge as the core requirements. Unlike enterprises like Visa and IBM, they value personality more than tech expertise. In addition, the person who gets hired will be eligible for equity share after working within the company for more than 6 months.

  • Senior C++ Blockchain Developer at Atlas City ($90k USD/year)

Atlas City is another startup that is focused on helping other businesses to cut costs and boost efficiency. The team looks for a person with decent knowledge of blockchains, which is apparent by the requirement of knowing C++, a language Bitcoin was built with. Among other requirements worth considering is the knowledge of Linux and back-end scripting. The salary for a startup is rather high and there is a neat bonus of being eligible equity.

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The bottom line

To sum up, the blockchain sphere with its incredible volatility and instability is still a technical environment that is set to disrupt our world and transform it completely. Despite rallies and crashes on the market, the business side of blockchain has been rumbling since its inception.

This field is definitely challenging because there are many undiscovered territories, and the infrastructure is not always clear. However, anyone with exceptional ambitions and libertarian views will feel comfortable in the epicenter of the blockchain development buzz. Thankfully, at this point in time, there is no shortage of opportunities, and the level of experience varies greatly from company to company. In some cases, personality comes before knowledge. If you feel uncomfortable working at the office, you will be glad to find out that there are not only many freelance opportunities but also remote offerings from startups and enterprises.

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When it comes to payment, like in any workplace it will depend on a number of variables. First and foremost, you will have to choose between working in a recently initiated startup or an enterprise with a long history of operation. Second, your development experience along with the knowledge of specific languages will play an important role. Third, if you want to get a higher position, be prepared to learn or prove some managerial skills. Finally, your personality and willingness to learn new things in such a fast-paced environment will also be evaluated by hiring parties. In any case, you can safely consider that your payroll will be a little bit higher than the average for developers in other fields. After all, the demand for the workforce in the blockchain is high and the supply is low – it’s time to ride this wave!

Image by U.Today image archive.

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