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How Do Ethereum Smart Contracts Work?


Nov 14, 2017 Posted /  12750 Views


How Do Ethereum Smart Contracts Work?

Ample buzz has been generated by Blockchain-based smart contracts, even in recent times as they could ultimately build completely autonomous organizations, allow self-regulated peer-to-peer insurance models, and simplify the leasing of all internet-connected-things.

In this article, we`re going to explore how smart contracts work. Here, we offer a brief primer on the theme, then parallels the coding, storage and execution of smart contracts on Bitcoin and Ethereum, and eventually the two permissionless blockchain protocols, achieving scale so far. Around smart contracts, there are plenty of healthy scepticism still exists, but ARK Invest has faith in Bitcoin and Ethereum be instrumental in authenticating the potential of this budding innovation.

Smart Contracts - Primer

Coded logic is referred as a smart contract that transfers digital assets - once triggered by essential events. Seems, similar to a series of “IF, THEN” statements, in which the “ifs” are conditions that are required to met to trigger the “thens.” Within blockchain technology, the idea fits well. The reason behind - blockchains provide an assurance of future execution, in a decentralized way, when the smart contract logic is marked within a block.

Often, the term of the smart contract creates a mental image of complexity in people’s minds, which is disingenuous – believed by ARK. This misleading further clarify - why Mike Hearn, an early investor in the Bitcoin space, termed smart contracts a misleading term in a November 2013 conversation on the matter. The term conditional payments were preferred by him. Thus, ARK favours to broaden the term to conditional transactions in order to seizure the idea – More than the transfer of money for goods and services, this technology can facilitate.

Through a blockchain, conditional transactions executed are computationally exclusive. This is because of the reason - each computer associated with the network required to implement the same logic for updating the state of the blockchain.

In simple words, whenever a smart contract activates, the same task every computer has to perform, utilizing considerable resources while making the process inefficient - when linked to parallel processing architectures. Through a blockchain, you can't expect every conditional transaction will be appropriate for execution - only those are allowed to use cases that demand a distributed and secure nature of shared ledger. Like sharding, formerly new sophisticated solutions are implemented which is expected to enhance parallelize computing tasks and storage conditional transactions may lead to being less computationally expensive to the network, additional broadening the scope of applications.

Smart Contracts- Coding

In the 1990s, when Nick Szabo conceived the concept, Ethereum spread the idea of smart contracts. While the statement is still misleading that Bitcoin can’t simplify the same range of functionality. In programming languages, Ethereum currently has more flexibility and it can be used - because at the time of design: the developers keenly in mind that the two blockchain platforms can put up the same smart contract functionality.

Written in C++ its source code, the coding for Bitcoin applications often befalls at a granular layer, creating it a least anticipated sandbox for a lot of new-age web and application developers. Within Ethereum, the high-level languages readily available through make smart contracts reachable to most developers. Geth can be considered an example that is available to Ethereum developers and is implemented in Go – an open source programming language that is easy-to-learn - Google GOOG released in 2009.

As the founders hated the complexity of C++, Go was created in part. Whereas ARK believes - it is “difficult” and “impossible” and confuses people - regard to encoding complex smart contracts in Bitcoin. No doubt, to encode complex smart contracts in Bitcoin seems to be more difficult, but it doesn`t mean - it is impossible.

Smart Contracts - Storage and Execution

In terms of storage and execution of smart contracts, Bitcoin and Ethereum differ which clarified to us during conversations with relevant parties at COALA`s NYU Blockchain Workshops. With Ethereum, we will initiate - as it was designed specifically with smart contracts in mind and is easier to understand - though into bitcoin transactions - smart contracts are cleverly layered.

Through a transaction to the network that includes a payload containing the logic of the contract - load smart contracts use Ethereum into its blockchain. No transaction is sent to a particular address. Infect, the “smart contract payload,” is recognized by the nodes processing the transaction on the network and generate a smart contract address.

Blockchain explorer sites like Ether.Camp enables you to explore the underlying logic and interactions for smart contracts. After uploaded to the blockchain, the underlying logic of smart contract can be stimulated - Sending to its address a contract with the prerequisites necessary to trigger it. Triggering a smart contract may result in the transfer of another transaction, triggering another contract, theoretically ad infinitum.

In Bitcoin smart contracts, each transaction undergo a data structure comprises of inputs and outputs – Can be seen in a Bitcoin block explorer. For sending bitcoin, operators need to provide certain inputs that meet predetermined requirements in order to prove that - they own. Further, they attain the authority to send the bitcoin - they claim to own. In order to trigger the release of bitcoin, users are allowed to create contract transactions, requiring a more complex set of inputs. A multi-signature transaction is an accurate example of more complex inputs, which involves more than one entity to sign off - on the launch of bitcoin, proving useful in escrow states where possibly two of three parties vouches for a transfer.

The complexity of operations is surprising that can be created from the mixture of simple operators. The flexibility of Bitcoin’s scripting system will increase with the advent of Segregated Witness (SegWit). The scripting system is thus responsible for producing the logic entrenched within Bitcoin transactions - creating the scripting system more dynamic and also the transaction types to be more dynamic as well.

Moreover, Rootstock is functioning on creating a simple to use smart contracts platform atop Bitcoin. Using the Bitcoin network, there are many ways available to construct and execute a smart contract.


Applancer is an open platform for discussion on all things like Blockchain , Cryptocurrency and Ico news updates. As such, the opinions expressed in this article are the author's own and do not necessarily reflect the view of Applancer .

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Tags: blockchain bitcoin Ethereum Bitcoin network Blockchain Workshop Smart Contracts

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