SMART CONTRACT BASIC PRINCIPLES

Etheruem

 

With an extensive experience as an electrical/software/coding engineer along with having a diverse financial background, Thomas Wettermann’s areas of interests include Machine Learning (ML), artificial intelligence (AI), and Financial Technology (FinTech). For the past three years, Thomas Wettermann has focused on the underlying technologies that support and promote all phases of cryptocurrency ecosystems.

 

Bitcoin, Ethereum and Cardano are currently the three largest cryptocurrencies in the world by market cap. While Bitcoin and Ethereum in combination hold an overwhelming majority market value of the present cryptocurrency market value, the purposes behind the design and evolution of Ethereum is drastically different than Bitcoin. As just one example of the differences between these two ecosystems, unlike Bitcoin, there is no limit to the number of Ethereum cryptocurrencies (ETHs) that can be created.

 

Fundamentally, Ethereum is a blockchain platform with its own cryptocurrency. This cryptocurrency is called Ether (ETH) or Ethereum.

 

Similar to the construct of Bitcoin, Ethereum is a blockchain network. As such, Ethereum is a decentralized public ledger. Much like Bitcon, the decentralized public ledger of Ethereum relies upon neutral parties to verify and record Ethereum based transactions. The network's users can create, publish, monetize, and use applications on the Ethereum platform. The Ethereum Ether cryptocurrency may be used as payment.

 

The code and the agreements contained within the Ethereum ecosystem exist across a distributed, decentralized blockchain network. There is no third party required to execute or regulate these smart contracts. Rather, it is the code that controls the execution, and transactions are trackable and irreversible.

 

As such, Ethereum was created to enable developers to build and publish smart contracts and distributed applications (dApps).

 

For example, a smart contract is a self-executing contract. With this self-executing contract, the terms of the contract between a first party (e.g., a buyer) and a second party (e.g., a seller) are captured directly within the written lines of code. Smart contracts permit trusted transactions and agreements to be carried out among remote, anonymous parties without the need for a third party oversight such as a central authority, a legal system, or any other type of external enforcement mechanism.

 

An exemplary Ethereum based self-executing contract may involve a life insurance contract. Say, for example, a life insurance policy that has its terms of the policy encoded into a smart contract. In the event of a passing, a notarized death certificate would be provided as the input trigger for the smart contract to release the payment to the named beneficiaries.

 

Smart Contract

All smart contracts residing on the Ethereum blockchain have certain similar traits.

 

For example, because smart contracts are coded into the blockchain, they have a status. This status or “state” is shared amongst every single blockchain node across the entire network. So, each node running this blockchain has a copy of the present status of every single smart contract residing on the blockchain.

 

Importantly, these smart contracts are also immutable: that is, they cannot be altered. Although there are ways to extend them or replace parts — if such action has been foreseen by the developers — there is no way to secretively manipulate the content of a smart contract without drawing the attention of the network.

 

In addition, the logic of a smart contract cannot be distorted. With a smart contract, there is simply no room for interpretation of the terms of the agreement. That is why these coded agreements are referred to as a “contracts”. They act like an agreement between parties, but one which needs no third party to initiate, interpret or oversee the results of the contract. This is because the output of this smart contract is produced from the input deterministically.

 

Right now, the demand for Ethereum and its programmability to initiate smart contracts remains strong. For example, according to the Wall Street Journal, more than 7 million new accounts that hold Ethereum balances were created in the first four months of 2021, bringing the total up to more than 55 million. And smart contract transactions totaled $1.5 trillion in the first quarter, more than the previous seven quarters combined. Assuming the use cases continue to grow, that demand could remain for a while. In 2021, Ethereum - the world’s second largest cryptocurrency by market cap - has risen more than 360%. And since the pandemic induced stock market bottomed late last March, Ethereum is up an astonishing 2,200%.

 

All the views expressed on this site are those of Thomas Wettermann and do not represent the opinions of any entity whatsoever with which Thomas Wettermann has been, is currently, or will be affiliated.

 

Trading digital financial assets such as cryptocurrencies can carry a high level of risk, and may not be suitable for all investors. Before deciding to invest, purchase, and/or trade cryptocurrency you should carefully consider your investment objectives, level of experience, adversity to risk and volatilities. The possibility exists that you may sustain a loss of some or all of your initial investment and therefore you should not invest money that you cannot afford to lose. You should be aware of all the risks associated with cryptocurrency trading, and seek advice from a qualified and independent financial advisor. Thomas Wettermann is not an independent financial advisor.

 

Any opinions, news, research, analyses, prices, or other information contained on this website is provided as general market commentary of Thomas Wettermann, and does not constitute investment advice. Thomas Wettermann will not accept liability for any loss or damage, including without limitation to, any loss of profit, which may arise directly or indirectly from use of or reliance on such information. All opinions expressed on this site are owned by Thomas Wettermann and should never be considered as advice in any form.