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/