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You might be familiar with Bitcoin, which is one of the first protocols to utilize the revolutionary blockchain technology. The Bitcoin Whitepaper, authored by the pseudonymous Satoshi Nakamoto, described how Bitcoin could facilitate peer-to-peer transactions within a decentralized network using cryptography. This gave rise to censorship-resistant finance and presented Bitcoin as a superior digital store of value, often referred to as digital gold. There is a fixed amount of Bitcoin, similar to the scarcity of gold. You can learn more about this in the Bitcoin Whitepaper.
A few years after Bitcoin's creation, Vitalik Buterin and others founded Ethereum, which builds upon the blockchain infrastructure, but with additional capabilities. With Ethereum, you can create decentralized transactions, organizations, and agreements without a centralized intermediary. This was achieved through the addition of smart contracts.
Though the concept of smart contracts was originally conceived in 1994 by Nick Szabo, Ethereum made it a reality.
Smart contracts are a set of instructions executed in a decentralized way without the need for a centralized or third party intermediary.
Smart Contract functionality is the primary difference between blockchains like Ethereum and Bitcoin. Technically Bitcoin does have smart contracts but they're intentionally turing incomplete.
Almost every interaction or transaction in our lives involves some form of agreement or contract. For instance, purchasing a chair involves a contract to buy lumber, assemble it, and sell the finished product. Your electricity supply is also based on an agreement between you and the electric company. When you get an oil change for your car, you're promised a service in exchange for money.
Almost everything we do in modern life relates to an agreement or contract in some way.To make it more relatable, think of contracts and agreements as promises. Traditional contracts, however, require trust between parties, and this doesn’t always work in favor of honesty and fairness.
Lets consider some real world examples of where trust leverages agreements can go wrong and why blockchain technology and smart contracts mitigates these risks.
In the 80s and 90s, McDonald’s Monopoly game promised customers a chance to win money through game cards obtained with purchases. However, it turned out that the game was rigged by insiders who manipulated the system for their gain. Essentially, McDonald’s failed to keep its promise.
This example demonstrates that relying on trust within agreements can lead to fraudulent activities and broken promises.
With smart contracts, we can eliminate the need for trust. A smart contract is an agreement or a set of instructions that are deployed on a decentralized blockchain. Once deployed, it cannot be altered, it automatically executes, and everyone can see its terms.
Imagine if McDonald’s Monopoly game was operated on a blockchain through a smart contract. The fraudulent activities would have been impossible due to the immutable, decentralized, and transparent nature of smart contracts.
Traditional banks have sometimes failed to keep the promise of safeguarding people's money, as seen during the Great Depression. Blockchain and smart contracts can ensure transparency and execute automated solvency checks, preventing the bank from becoming insolvent.
The core of blockchain and smart contracts lies in creating a trustless system where agreements are transparent, unchangeable, and executed without human intervention. This technology holds the potential to revolutionize industries and everyday agreements by ensuring honesty and fairness.
Centralized bodies, like traditional exchanges, have the power to restrict access to financial markets. This was evident when Robinhood restricted trading on certain assets in 2021. With decentralized exchanges like Uniswap, there is no central authority that can alter or limit market access. This introduces fairness and openness to the financial markets.
Traditional Agreements: Require trust in a centralized entity.
Smart Contracts: Transparent, decentralized, and tamper-proof.
In a scenario where you have to choose, smart contracts are an obvious choice as they cannot be manipulated or altered in anyone's favor.
Smart contracts are the solution to minimizing the reliance on trust based systems that have historically failed us time and time again.
You might be familiar with Bitcoin, which is one of the first protocols to utilize the revolutionary blockchain technology. The Bitcoin Whitepaper, authored by the pseudonymous Satoshi Nakamoto, described how Bitcoin could facilitate peer-to-peer transactions within a decentralized network using cryptography. This gave rise to censorship-resistant finance and presented Bitcoin as a superior digital store of value, often referred to as digital gold. There is a fixed amount of Bitcoin, similar to the scarcity of gold. You can learn more about this in the Bitcoin Whitepaper.
A few years after Bitcoin's creation, Vitalik Buterin and others founded Ethereum, which builds upon the blockchain infrastructure, but with additional capabilities. With Ethereum, you can create decentralized transactions, organizations, and agreements without a centralized intermediary. This was achieved through the addition of smart contracts.
Though the concept of smart contracts was originally conceived in 1994 by Nick Szabo, Ethereum made it a reality.
Smart contracts are a set of instructions executed in a decentralized way without the need for a centralized or third party intermediary.
Smart Contract functionality is the primary difference between blockchains like Ethereum and Bitcoin. Technically Bitcoin does have smart contracts but they're intentionally turing incomplete.
Almost every interaction or transaction in our lives involves some form of agreement or contract. For instance, purchasing a chair involves a contract to buy lumber, assemble it, and sell the finished product. Your electricity supply is also based on an agreement between you and the electric company. When you get an oil change for your car, you're promised a service in exchange for money.
Almost everything we do in modern life relates to an agreement or contract in some way.To make it more relatable, think of contracts and agreements as promises. Traditional contracts, however, require trust between parties, and this doesn’t always work in favor of honesty and fairness.
Lets consider some real world examples of where trust leverages agreements can go wrong and why blockchain technology and smart contracts mitigates these risks.
In the 80s and 90s, McDonald’s Monopoly game promised customers a chance to win money through game cards obtained with purchases. However, it turned out that the game was rigged by insiders who manipulated the system for their gain. Essentially, McDonald’s failed to keep its promise.
This example demonstrates that relying on trust within agreements can lead to fraudulent activities and broken promises.
With smart contracts, we can eliminate the need for trust. A smart contract is an agreement or a set of instructions that are deployed on a decentralized blockchain. Once deployed, it cannot be altered, it automatically executes, and everyone can see its terms.
Imagine if McDonald’s Monopoly game was operated on a blockchain through a smart contract. The fraudulent activities would have been impossible due to the immutable, decentralized, and transparent nature of smart contracts.
Traditional banks have sometimes failed to keep the promise of safeguarding people's money, as seen during the Great Depression. Blockchain and smart contracts can ensure transparency and execute automated solvency checks, preventing the bank from becoming insolvent.
The core of blockchain and smart contracts lies in creating a trustless system where agreements are transparent, unchangeable, and executed without human intervention. This technology holds the potential to revolutionize industries and everyday agreements by ensuring honesty and fairness.
Centralized bodies, like traditional exchanges, have the power to restrict access to financial markets. This was evident when Robinhood restricted trading on certain assets in 2021. With decentralized exchanges like Uniswap, there is no central authority that can alter or limit market access. This introduces fairness and openness to the financial markets.
Traditional Agreements: Require trust in a centralized entity.
Smart Contracts: Transparent, decentralized, and tamper-proof.
In a scenario where you have to choose, smart contracts are an obvious choice as they cannot be manipulated or altered in anyone's favor.
Smart contracts are the solution to minimizing the reliance on trust based systems that have historically failed us time and time again.
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