Blockchain is a distributed database suitable for developing decentralized applications (DApp) where data is being broadcasted to all the trustless entities which are part of the system.
Smart contract provides the ability to the Blockchain network to add a computing task. Smart contract can hold value, store data and encapsulate computer code which gets executed on each node in the Blockchain network. Smart contract emulates a legal contract and can be written using different languages on the Blockchain platform.
Difference between Paper Contracts and Smart Contracts
Smart Contract – A Smart contract is nothing but a smart legal contract or an agreement between parties that created an obligation to perform a particular duty. With the help of smart contracts, both the parties in Blockchain can put terms and conditions and assure trust in the enforceability of the contract and identity of other parties.
Smart contracts are written in a computer programming language instead of legal language on printed documents like Manual Paper contracts. It can also take information as an input, process it through the defined business rules or logic and consequences set out in the contracts and then, take on an action if required.
Smart contract eliminates the need of a third party between two individual parties.
The smart contract can be written to reflect any data-driven business logic such as a simple money transfer between two parties to process a loan for an end user including all the parties or more complex voting systems. Smart contracts forms the backend for DApp. They are used to implement the backend business login for DApp. Smart contracts can also be used for automation of processes.
Traditional Contracts – Traditional contracts are written in legal language on paper or printed documents mostly where we put rules that needs to be implemented between two parties. But traditional contracts don’t have the ability to automate tasks.
How the Smart Contract Works – Smart contracts contain a looping structure like if-else rules, repeatable, autonomous scripts which are stored into Blockchain at a particular address which we can get when smart contracts are deployed on Blockchain.
These contracts contain event and filter, so whenever any event happens to be defined in the smart contract, a transaction is sent to that address (the address which we get once we deploy a smart contract), and as per Blockchain concept, distributed virtual machine executes the script’s operation using the data sent with the transaction.
Storing Data in Smart Contracts
Blockchain is a decentralized database. We can use Blockchain as a data store. But Blockchain is quite different from a conventional database. Here in Blockchain, we can store data in data structures like arrays, lists, structures on which we can only perform read operation. Once the data is stored into Blockchain, it cannot be changed or deleted. Data which is entered into Blockchain will be fixed at a certain point of time. In Blockchain, we can store data into smart contracts, we can store data as a transaction input.
Let’s consider a case, where we are storing data into smart contracts – in this case, when we deploy a smart contract, bytecode will be going into Blockchain as the data of a transaction, which is completely immutable. When we call contract functions, contract parameters i.e. transactions and data associated with a transaction will be stored on Blockchain. Storing data onto Blockchain would require us to pay a certain amount in terms of Gas.
Languages for building a Smart Contract
The following is a list of languages used for developing smart contracts:
Ethereum – Solidity, Serpent
IBM Hyperledger – Golang, Java
The Future of Smart Contracts
The main purpose of the smart contracts is that it should allow people to do business with complete strangers without any need for a trusted third party or human involvement, over the internet.
With the help of smart contracts, Blockchain will assure that everybody is seeing the same thing without compromising trust from one party to another.