There has been hype about Blockchain and smart contracts, however, most people seem not to understand a thing about Blockchain technology, what a smart contract is and how it could be used.

We have decided to give you a gentle and straightforward introduction to Blockchain technology.

What is Blockchain and how does it work?

The Blockchain is a decentralized distributed ledger, it is a computer network which has an identical copy of the database and changing its state (records) by a common agreement based on pure mathematics.

It means that there is no need for a central agent or server to trust. It is the technological base for cryptocurrencies such as Bitcoin, Hyperledger, and Ethereum.


Bitcoin vs Ethereum

These are the two most popular Blockchain networks, Bitcoin on its part has been the most dominant cryptocurrency for a long time, with no plan to stop anytime soon.

Comparing the two, Bitcoin was created with the intention to bypass government regulations, providing an online payment system without an intermediary to confirm the transactions.

Ethereum is another cryptocurrency project which has much greater potentials and possibilities.

Smart contracts were introduced by Ethereum as a way to perform actions by the rules defined in a contract.

In simple terms, Bitcoin and Ethereum is a platform for decentralized currency. Ethereum provide engine for applications which can run without the need of a trusted third party i.e a form of central server.

Personally, I see Ethereum as a global computer to which everyone can have access to.

Smart contracts

This is a piece of code stored on the Blockchain network (on each participant database).

It explicitly defines the conditions to which all parties using the contract agrees to. If the required conditions are met, certain preset actions are executed.

Smarts contracts are stored on every computer on the network, it must be executed by the computers on the network and get to the same results. This assures all users that the outcome is correct.


Sounds complicated? It’s not.

Let’s simplify the concept of smart contracts with an example. Using the logistic industry and assuming you want to send a box of goods to John your friend.

You trust John, but you don’t trust the guy in charge of transporting the box of goods, Sam. On the other hand, Sam as well has his doubts as he is not sure you will pay him.

To have the box get to your friend John, you have to sign an agreement with Tom that you will pay for the shipment in a few days after delivery. This method entails a third party, legal papers, contracts, which are scanned, printed and signed.

Can this process be simplified? Yes! We can achieve that with the help of smart contracts. The rules of this agreement will be defined in codes.

You make the payment to smart contract on the day of loading, it holds the payment till when shipment delivery is confirmed by John. Automatically, the payment is released and money is transferred to Sam.

Consider this further, what if a GPS tracker can be attached to the box? We would simply eliminate John from the process and just have the payment released automatically when location rule is met.

Smart contracts open up a lot of possibilities for a new form of decentralized businesses and remove the need for expensive third parties.

This technology is being worked on by many new startups, big enterprises are not left out as it is being tested in closed networks to collaborate with each other directly without the need of an intermediary.