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11Sep 2018 - News

How Do Smart Contracts Work on Ethereum?

At the heart of the potentially massive application of the Ethereum blockchain, lies what is known as the Ethereum Virtual Machine (EVM). This is the decentralized, computational brain of the system that generates what are known as smart contracts.

Smart contracts are intrinsic to the chain’s ability to provide a trustless and completely decentralized system network. They are like “mini apps” that are entered into and run upon the Ethereum blockchain.

Ethereum smart contracts are self-enforcing, which means that they work one way, and one way only. There is no possibility of manipulating the system or entering corrupted or false data. Importantly, while there has been a recent highly technical debate about this, it is also impossible to go back and tamper with past data on the blockchain. This makes it an exceedingly efficient, immutable ledger.

Multiple industries – indeed almost any business in the world – stand to gain from the application of such a system. It allows machines to automate endless processes, resulting in higher profits and overall business fitness. Just ten years ago, such a suggestion would have necessitated human involvement or oversight. In 2018, digital intelligence has become embedded as a trusted part of life.

The Best Policeman Ever

Several online work portals nowadays offer an escrow system. What the term implies is that party A contracts party B for goods or services through party C, who holds party A’s payment “in escrow.” Payment is released to party B upon fulfillment of their obligations.

Smart contracts are escrow-in-waiting. They are undeniable snippets of truth and tenure of funds, and in the event that anything other than the correct information is entered upon the “pages” of the contract, it will not fulfill the terms of the deal. No human trust required.

A good hypothetical example comes from within the legacy banking space. Looking at current payment protocols like SWIFT and even PayPal, all of these solutions involve third parties and cost the consumer each step of the way. These companies are not only superfluous on the Ethereum network, but the blockchain can settle contracts quickly and simultaneously without it being anyone’s “job” to effect or oversee such payments.

Ethereum Is Changing The World

Looking at commercial application, such a system of smart contracts applied globally immediately frees millions from mundane office work. That intellectual capital and human energy can be better applied elsewhere, especially since the company is now more profitable than before. The cost-savings and efficiencies inherent to blockchain for business are potentially enormous.

Some note that a different social aspect looms in the prospect of eliminating millions of current roles in business, and indeed, any peopled system. While automation does immediately eliminate many roles, that capital is precisely what will enable a company’s further digitization and overall growth.

Additionally, looking through a social lens, as a species we’re shifting our faith onto machine intelligence. There, we don’t need to rely on their integrity anymore in this day and age. It’s a barely-mentioned aspect of the emerging cryptosphere that we have come to trust machine intelligence completely. It’s a step away from trusting ourselves, of course, since we build them, but the old consumer issues of crashing machines and other tech failures have largely disappeared. If not from people’s lives, at least as far as we trust to professional systems.

There are other aspects to human behavior that will need to be guarded against in the blockchain revolution. That said, in such a fundamentally decentralized, egalitarian system, the best in us is almost inbuilt. We’re likely to keep blockchain better, so that we can cut out the central authority, the middleman, and have more money. We’re now able to move and do a host of things faster and better than ever before – and the speed and efficiency just keeps increasing.

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