Did you know that crowd funding on a site like Gofundme.com will take 5% of every donation that you receive? Don’t worry, there’s a new sheriff in town. Smart Contracts are the new way to crowd source for fundraising that makes sure you get the full amount donated, without the middle man. The Smart Contract uses embedded code to create a reliable place for money to be stored until all parameters are accomplished.
Let’s have a look at a hypothetical example to help visualize it better. Say you are trying to collect money to fix your coffee machine in your company; you could create a Smart Contract that would collect 5 Euros from each employee. Depending on the parameters of your contract, until all the money is collected equally, the contract will not initiate and the coffee store will not be contacted. Smart Contracts can have as many parameters as you would like, so the opportunities are endless!
How does it Work?
- It uses a technology known as blockchain which is a continuously growing list of records, called blocks, which are linked and secured using cryptography.
- To make sure that the previous block is legitimate, each block contains a unique hash to identify and validate.
- A Smart Contract runs on said blockchain so that everyone involved in the block has access to it which makes it decentralized for ease of use and work more efficiently.
- Think of it as a piece of software that stores rules for negotiating the terms of the contract, automatically verifies the contract and then executes the agreed terms.
An Example of Smart Contracts in the Real World
Smart Contracts could be a simple solution to elections for security and validity. If one Smart Contract was given to each citizen for one vote and one vote only, then the risk of an external or double vote would be eliminated. An added benefit of the Smart Contract is that it would allow for easy voting which could be done from home or on your mobile device.
“There are certainly other processes and industries that could greatly benefit from what this emerging technology has to offer. Blockchain-backed voting mechanisms could help increase voter participation and decrease hacking and voter fraud, while moving the world toward an electronic voting system” (spireprotocol).
Potential Draw-Backs and Questions of Smart Contracts
Although there are many good things that can come of these contracts, like any new technology, smart contracts still have some flaws. Once the contract is written and published to the blockchain, there is no way of changing or rewriting the code to overwrite mistakes. This is part of the security of the contract, but at the same time if a flaw is exploited, it is impossible to fix it. Another flaw is that as time goes on, there will be more and more Smart Contracts on the blockchain because they can never be destroyed. We will be using more data than we need and the blockchain will become bloated which means slower verification times.