What is a Smart Contract in Blockchain?
What is a Smart Contract on Blockchain?
An often asked question in the crypto world is, "What is a smart contract in blockchain?" Why are lawyers and contracts involved in the blockchain? This video tutorial will cover basic aspects of smart contracts, what they are, how they work, and why.
What is a smart contract in blockchain? We are doing a lot of work on the Ethereum blockchain So we are going to start with a theory on blockchain from our perspective of what goes on with smart contracts. If you haven't seen some of the earlier blockchain video tutorials we've done, we described blockchains as a network.
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The Ethereum blockchain, as this world computer is a network of about 8400 nodes. The current Ethereum network, these nodes are making sure that everything is written to the blockchain, the ledger's that are in the blockchain. The nodes are in essence, recording each transaction that happens everywhere across the Ethereum blockchain,and across that entire network.
If something happens on this part of the network, every node records all of those transactions. So if somebody were to try to run another transaction on another node, because all those nodes had replicated, you'd be able to find the same transactions. So it's a uniform network of truth. But one of the things that's happened specifically with a theory, a theory was built to be this world computer, as I mentioned earlier, and a world computer means that you can run some decentralized applications, or Dapps.
Dapps can run on the Ethereum network, but they're not necessarily running on the nodes. They're running self contained across this network. Access a particular node, it accesses the Ethereum network. These programs that run most of the time are self executing rules.
They are small building blocks that can be stacked one on top of another. These self executing rules are what we call smart contracts. In short, on a blockchain, a smart contract, is a computer program that's running on a decentralized part of the Ethereum network.
What does that mean in the general scheme of things? It means that just these people and organizations can write and deploy, send the contract, the smart contract off to the Ethereum network, and it can run decentralized, without any corporate or centralized control. The smart contract program just runs. If there's a problem it needs to be updated. They have to kill that program and put up another. You can't update it, you can't change it.
That's one of the reasons that people when they make a smart contract and deploy to the blockchain spend a lot of time testing it. A lot of time is spent having an audit, because when they put it out there it's flying, it's free, and it's running. So a smart contracts self executing rules are the beautiful part about working on the Ethereum blockchain.
Let's say they sent you to Ethereum units every first of the month. That smart contract will be those self executing rules. The smart contracts could also be more advanced like a lending protocol. A lending protocol that could enable you to put up collateral to go borrow funds, or capital to go do something with it. It will also detect the amount and the value of your collateral in your crypto wallet. If the amount or the collateral in your crypto wallet dropped below a certain level, the self executing contract would need to go liquidate the assets at that point before it becomes something that can't be covered. This is to make sure all the people who have loaned money into that protocol can be safe. Those a self executing rules. Those are not being run by somebody.
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