What is Smart Contract? Very Basic Understanding

[pkhutal]

Understanding Smart Contract for non technical person is impossible. I have worked on Simplest explanation for Students. Please do share your review

Let us start from What is “Contract”?
Basics of every Contract
1. PARTIES (1–1,1–N,N–N)
2. Variables
3. Conditions
4. Agree Sign PARTIES
https://image.slidesharecdn.com/whatissmartcontractsechai002-180407121842/95/explaining-what-is-smart-contracts-2-638.jpg?cb=1523157610

Let us take example Design “Logo”
Most of us have visited FreeLancer website where Merchants/Clients post their requirement and respective community bid for the project.
Here are the few variables that they agree upon before they start to work together.

1. No. of PARTIES: 2 (A–B)
2. Variables
     - No. of Design Option
     - Advance Amount (P1)
     - After Submitting Option (P2)
     - After Completion (P3)
     - No of times Changes
     - Time Period (First option and Every Changes)
3. Conditions
     - Release Advance on Sign (Release P1)
     - Get No. of Options (Release P2)
     - Select One - Ask for Changes
     - Finalize (Release P3)
     - Cancel Contract
4. Agree Sign of PARTIES
https://image.slidesharecdn.com/whatissmartcontractsechai002-180407121842/95/explaining-what-is-smart-contracts-3-638.jpg?cb=1523157610


Now what is the Real Problem?
We all know most of the projects go in conflict/disputes. Why Contracts have disputes? Here are the 2 reasons for it.
1. Ambiguous Elements
     - Lots of Changes
     - Dont Like Colors
     - Unforeseen events

2.Non – Ambiguous
     - No. of Days
     - Money - Design Option
https://image.slidesharecdn.com/whatissmartcontractsechai002-180407121842/95/explaining-what-is-smart-contracts-4-638.jpg?cb=1523157610


What is Major Missing?
If everything goes well, then everything is perfect. But the problem arises in case of Disputes. So we need Third Party:
ENFORCER of CONTRACT or VERIFIER to judge the Dispute based on the available data.

Here comes the Ethereum, Smart Contracts.
When you don’t have THIRD PARTY Verifier. Both will Push Variables and get Next Contract Condition executed. But Criteria is Both Should have same Code on their Server.
Problem : If there are only 2 SERVERS. It can be easily fraud by A/B Parties by Hacking or DDoS Attack. They will do this for their own Benefit.
Solution : A & B Party have to Broadcast Variables to ETH Network. Entire Network will have the Same Code. More than 51% should Agree on Broadcasted Values, and Code will execute next Condition.  
Central Authority has Power to Change Condition, Variable or Stop Network. Distributed Authority Conditions are consistent, Variables need to be Broadcasted and Verified by Multiple Servers.
People Who have contributed their Servers needs Financial Incentive to Run and Verify Contracts. They are rewarded GAS in ETH Amount of Code to be executed per Contract decides GAS incentive.
https://image.slidesharecdn.com/whatissmartcontractsechai002-180407121842/95/explaining-what-is-smart-contracts-10-638.jpg?cb=1523157610

Crypto Currency works in the following way.
Example :
1. Send Transaction Between A-B : It is done by Crypto : Bitcoin.
2. FreeLancer.com (It will have milestones and conditions) : It is done by Crypto : Ethereum Smart Contracts.
https://image.slidesharecdn.com/whatissmartcontractsechai002-180407121842/95/explaining-what-is-smart-contracts-11-638.jpg?cb=1523157610



 

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[nc50lc]

Understanding Smart Contract for non technical person is impossible. I have worked on Simplest explanation for Students. Please do share your review

Then, this shouldn't be here in the "Technical" Discussion board.

It's good, but the term "Smart Contract" is Ethereum's thinggy, so this should be in the Altcoin Discussion Board instead.  

[Safebit.io]

You have mentioned the "dispute" issue but didn't address it.

Contracts, in general, are a set of rules to follow. When everything goes well, everyone walks away happy. The trouble (and the real purpose of a contract) becomes relevant once there's a dispute. The big problem with smart contracts today is either foreseen or unforeseen conflicts. How can those be mediated?

[buwaytress]

Understanding Smart Contract for non technical person is impossible. I have worked on Simplest explanation for Students. Please do share your review

Then, this shouldn't be here in the "Technical" Discussion board.

It's good, but the term "Smart Contract" is Ethereum's thinggy, so this should be in the Altcoin Discussion Board instead.  

Smart contracts may be Ethereum's thingy, but it's not exclusive to that... one of my very earliest posts in this forum was because I was curious about Bitcoin and smart contracts, and someone pointed me towards projects (can't recall which) that already successfully used smart contracts on bitcoin. I admit I never looked deeper, but it at least made me aware that smart contracts based on Bitcoin's blockchain wasn't just theoretically possible, it was already implementable even then.

One thing I really wanted to use (which I still want to but haven't found) is escrow. Which I guess is everyone's natural first instinct to want to use smart contracts for. On this matter, does anybody know any smart contract for Bitcoin escrow? I see on Google Particl.io looks like it USED to do it, but it's not clear to me their current platform still does...

[TheQuin]

Smart contracts may be Ethereum's thingy, but it's not exclusive to that... one of my very earliest posts in this forum was because I was curious about Bitcoin and smart contracts, and someone pointed me towards projects (can't recall which) that already successfully used smart contracts on bitcoin.

That's the Omni Layer https://www.omnilayer.org/

It's used for Tether and other things and I *think* it was around before Ethereum and ERC20 tokens came along.

[buwaytress]

Smart contracts may be Ethereum's thingy, but it's not exclusive to that... one of my very earliest posts in this forum was because I was curious about Bitcoin and smart contracts, and someone pointed me towards projects (can't recall which) that already successfully used smart contracts on bitcoin.

That's the Omni Layer https://www.omnilayer.org/

It's used for Tether and other things and I *think* it was around before Ethereum and ERC20 tokens came along.

Thanks! This reminds me a lot about counterwallet, at least in the way assets are created on the Bitcoin blockchain (and the decentralized exchange). Used the CounterDEX myself a few times with quite some hopes that it'd pick up but it never really flew. I still even have a significant amount of assets on it actually, not sure if I should be embarrassed or proud of that...

Anyone else find it strange that these types of layer projects don't seem to move on much? Or is that all happening outside of this forum?

[cellard]

The simplified way I would use to explain someone that is not too technical, is to have them imagine a set of rules which are put on hold until said rules are meet, and there is no person guarding this set of rules until they are meet, they are set on hold in a decentralized way, so you don't require this third party, which is the whole point of smart contracts.

If the person is smart they will of course point at what happens if there was a coding error in the smart contract, which would resolve in two ways:

1) Dealing with it (code is law)
2) Hiring a good lawyer and ending up in big trouble (which is why I think smart contracts are a big fail, since code is not really law, if you get the power of the state and powerful lawyers on your ass you should be worried if you are the programmer of a smart contract that ends in millions worth of loses)

Im very skeptic of smart contracts in general, specially when they get too complex. Bitcoin is enough, I would rather deal with contracts the traditional way.

[angry_runner]

you was surprised but Smartcontracts exist even in Bitcoin network (not so powerful as Ethereum).
By the way Ethereum Smartcontracts it is a huge bounty hunting Also Ethereum Smartcontracts have a lots of holes and not so good for the business.

[mark_smt]

 A smart contract is a computer protocol intended to digitally facilitate, verify, or enforce the negotiation or performance of a contract. Smart contracts allow the performance of credible transactions without third parties. Every Blockchain needs a tool for auditing its smart contracts now almost every crypto company having their own blockchain is using Smart Contracts to verify and validate all the transactions.

[trupero_uno]

Your sharing of Smart Contract with as said Very Basic Understanding is useful moreover to those who know nothing about technical part of crypto space specaill y in Ethereum, but most of token now based on this smart contract. Your continue sharing later for this part will be more useful.

[andrew1carlssin]

much more basic understanding

it is easier if you breakdown into

turing complete
turing not complete

what is a turing machine ?

visual Turing Machine

https://www.youtube.com/watch?v=E3keLeMwfHY

[tan7ra]

Smart contracts helps you digitally exchange something of value in a transparent, conflict free way while making sure that we will not be needing the services of a middleman to facilitate the transfer.

These transactions are generally trackable, irreversible and provides you with features like autonomy, trust, backup, safety, speed, savings and  accuracy.

Where can you use smart contracts? - pretty much everywhere from Financial services, Healthcare, Insurance to Supply Chain, Real Estate and Automobiles.

[shiroocrypto]

One sentence to explain these:

Technical Person
If the blockchain is your database, the smart contract is analogous to a stored procedure in the database

Non Technical Person
If the blockchain is your mobile phone, the smart contract is the apps on the phone which makes use of the mobile phone features to give you added value

[xIIImaL]

One sentence to explain these:

Technical Person
If the blockchain is your database, the smart contract is analogous to a stored procedure in the database

Non Technical Person
If the blockchain is your mobile phone, the smart contract is the apps on the phone which makes use of the mobile phone features to give you added value

You and newbie op. You share the perfect answer about the smart contract project. There are various technology we need to use for creating it. You guys missed it. If you are doing project for Hyperledger or ethereum network.
Mostly format you are following is same.
But tools such as node, NPM installation and etc will be changed on it.

[LeGaulois]

Smart contracts may be Ethereum's thingy, but it's not exclusive to that...

It's not an Ethereum thingy if you consider outside the crypto world. In fact, the smart contract exists since over 20 or 25 years now, it's not a new technology. The man who invented it is the man who invented one of the first cryptocurrency "Bit Gold" as well (before Bitcoin). I never remember his name (Nick something) He basically wanted to use a cryptographic protocol to improve contracts. A lot of people believe Ethereum is the father of smart contracts which is totally wrong.

[Ishiro5]

Just a random thought on smart contracts, for larger societal and far reaching economic issues applications, are we not at some point going to be needing trust centers or that kind of stuff that act as backups probably having a government side to it should in case...

[Darerando]

In addition a smart contract is a code running inside the computer system, top at block chain containing a set of rules under which the parties to that smart contract agree to interact with each other.

[karinaloren]

Smart contracts may be Ethereum's thingy, but it's not exclusive to that...

It's not an Ethereum thingy if you consider outside the crypto world. In fact, the smart contract exists since over 20 or 25 years now, it's not a new technology. The man who invented it is the man who invented one of the first cryptocurrency "Bit Gold" as well (before Bitcoin). I never remember his name (Nick something) He basically wanted to use a cryptographic protocol to improve contracts. A lot of people believe Ethereum is the father of smart contracts which is totally wrong.

Nick Szabo. I' ve lust read the article about him... Theoretically I almost understand what smart-contract means but practically....I can't even imagine where how to see them... Or the are hidden under transactions... and we can't  find them at all... where are they?

[margarita_free]

As i understand, it is something like connecting investor and his  wallet with trader...
Traders’ consideration is reserved in a Smart Contract, in advance, and it is automatically paid upon reaching the target profit set in a percent of the amount transferred in trust management, or upon expiration of the Smart Contract term...

[saturn.network]

Hello! Recently we wrote a breakdown of how Ethereum smart contracts work. I think it will really help you understand:

https://rados.io/how-do-ethereum-smart-contracts-work/

[gabbie2010]

Smart contract is a process whereby codes are stored in a blockchain to ensure trustful transactions.
Smart contract will read and verify the entire source code before agreement between the parties involved.
This will be executed once and deployed to the blockchain where it cannot be altered by anybody hence transaction is performed without any intermediary charging a huge fee.

[aitrading]

I found interesting article about it on Medium https://medium.com/swarmdotmarket/what-smart-contracts-mean-for-the-future-of-business-bee84dc629a3

[payperblock]

Smart contract projects are needed in all sectors, we are yet to see more of that in Legal industries, combined with artificial intelligence.

[rivkavender]

this is an important topic everyone should know about. Smart contracts are the future

[vit05]

RSK is working to implement smart contracts with Bitcoin. It will be the only one that will also reward the miners in bitcoins using merge-mining. An interesting fact is that they do not have a pre-mined token.

https://www.rsk.co

[pkhutal]

You have mentioned the "dispute" issue but didn't address it.

Contracts, in general, are a set of rules to follow. When everything goes well, everyone walks away happy. The trouble (and the real purpose of a contract) becomes relevant once there's a dispute. The big problem with smart contracts today is either foreseen or unforeseen conflicts. How can those be mediated?

I agree dispute is largest elephant in room, which is unaddressed. We pay highest to lawyers to make contracts so they can find element of disputes in conditions and variables.

Disputes can rise in variables and conditions between 1 or N parties. Dispute also need to take in account time frame, non-tangable and perceptionable problems. Eg. Logo for one client can be monogram for another.

Every contract has sample frames to explain things in detail and explaining obviousness in Clarity and again and again. Condition needs to be explained with all test in time ideas.
Law of Land ,morality, conflicting court and locations like constraints should be cosidered as well.

I am also working on non-deterministic states of Smart Contract. Will share you the details soon.

Thanks!

[jackjackfly]

Your description is still to difficult for a common user. Won 't it be better to explain just in few sentances. Something like :"A set of rules which controls the way tokens be distributed, a code which has rules for tokens" etc Would be easier for non technical based users

[TheQuin]

Would be easier for non technical based users

This is the "Bitcoin > Development & Technical Discussion" board so it is appropriate to assume that anyone reading has some basic technical knowledge.

[ahmad21]

Your description is still to difficult for a common user. Won 't it be better to explain just in few sentances. Something like :"A set of rules which controls the way tokens be distributed, a code which has rules for tokens" etc Would be easier for non technical based users

Smart contract is a computer program which is designed to facilitate, verify or implement the performance of a particular contract. They allow the implementation of the transaction without the involvement of third parties. The basic motive of smart contracts is to provide more security than what is available in traditional contracts and reduce the time, work and costs related to the contracts.

This is the very simple explanation. Actually the reality is that only token development is not the idea of smart contract so it can't be taken in that way. Its basically a contract only which is used for development of tokens now a days.

[BEX]

If you want to better understand whether smart contracts are usable in our daily lifes, I would suggest this article...https://www.blockchains-expert.com/en/are-smart-contracts-ready-for-mass-adoption/

[pkhutal]

You have mentioned the "dispute" issue but didn't address it.

Contracts, in general, are a set of rules to follow. When everything goes well, everyone walks away happy. The trouble (and the real purpose of a contract) becomes relevant once there's a dispute. The big problem with smart contracts today is either foreseen or unforeseen conflicts. How can those be mediated?

This looks promising :

https://medium.com/kleros/kleros-a-decentralized-court-system-for-the-internet-abridged-1e415c04604a

[Samarkand]

You have mentioned the "dispute" issue but didn't address it.

Contracts, in general, are a set of rules to follow. When everything goes well, everyone walks away happy. The trouble (and the real purpose of a contract) becomes relevant once there's a dispute. The big problem with smart contracts today is either foreseen or unforeseen conflicts. How can those be mediated?

This looks promising :

https://medium.com/kleros/kleros-a-decentralized-court-system-for-the-internet-abridged-1e415c04604a

This looks like another project where the founders mainly intend to enrich themselves.

Why are they already running a token sale when they have nothing to show apart from
a whitepaper, a Medium article and a small amount of code at Github?

A quote from the Medium article:

When the party decides to send the case to arbitration, the contract in plain English
(or the natural language chosen) and all relevant pieces of evidence are sent to Kleros secured by public key cryptography.

This doesn´t sound particularly decentralized to me.

Besides, I highly doubt that this is a good application of a decentralized system. Court systems
are handling huge amounts of highly sensitive information, not many people will be interested in providing
evidence to anonymous online jurors.

These guys should rather contribute to Bitcoin or one of the related projects (2nd-layer solutions, wallet
software...) instead of wasting time on a project like this that is never going to work. But then they probably
wouldn´t have the need to run a token sale...

[etherixdevs]

In my opinion if we use smart contracts there is no dispute at all.
Just a very basic simple example: If i rent you my house, and the electronic key opens the door only if you paid me, there is no dispute at all if you do not pay me, you will never enter into my house.
I suggest you to read this easy article to understand a little more
https://www.coindesk.com/information/ethereum-smart-contracts-work/
I found it interesting

[lianghwajou]

A contract can be thought of as a piece of paper that specifies how all parties involved can interact with one another. For example, a sales contract will specify the agreement between a buyer and seller covering the payment and delivery of goods. A smart contract is a computer program that implements the contract. The rules or the agreement of the contract are written in computer code so all parties can only interact with one another  according to the rules. The computer code for a smart contract is normally available to public so people can examine and understand precisely how the contract will work.

[pkhutal]

You have mentioned the "dispute" issue but didn't address it.

Contracts, in general, are a set of rules to follow. When everything goes well, everyone walks away happy. The trouble (and the real purpose of a contract) becomes relevant once there's a dispute. The big problem with smart contracts today is either foreseen or unforeseen conflicts. How can those be mediated?

This looks promising :

https://medium.com/kleros/kleros-a-decentralized-court-system-for-the-internet-abridged-1e415c04604a

This looks like another project where the founders mainly intend to enrich themselves.

Why are they already running a token sale when they have nothing to show apart from
a whitepaper, a Medium article and a small amount of code at Github?

A quote from the Medium article:

When the party decides to send the case to arbitration, the contract in plain English
(or the natural language chosen) and all relevant pieces of evidence are sent to Kleros secured by public key cryptography.

This doesn´t sound particularly decentralized to me.

Besides, I highly doubt that this is a good application of a decentralized system. Court systems
are handling huge amounts of highly sensitive information, not many people will be interested in providing
evidence to anonymous online jurors.

These guys should rather contribute to Bitcoin or one of the related projects (2nd-layer solutions, wallet
software...) instead of wasting time on a project like this that is never going to work. But then they probably
wouldn´t have the need to run a token sale...

I agree, but this is good in case of "Small Claim Arbitration".

In the early 1960s, 11.5% of cases in American federal courts went to trial. In 2002, the number had fallen to just 1.8%. The decline is not the result of fewer disputes, but the consequence of the growing use of alternative processes to deal with problems (Katsh and Rabinovich-Einy 2017, p. 14).