Smart Contracts: The Best Kept Secrets About What They Are

smart contracts

Everything You Need to Know About Smart Contracts

In a recent presentation at the World Blockchain Summit in Mauritius (August 1st 2019), Suyash Sumaroo, Technical Director at CryptoFish introduced the concept of smart contracts to attendees. The purpose of the presentation was to demystify the concept and help the audience better understand the role smart contracts could play in a society with some simple examples and use cases.

What are Smart Contracts?

Smart contracts are lines of code that are uploaded to the blockchain, they are held on the blockchain and kept valid. They can be called upon, verified and also enable a set of events of steps to carry out a task or return a result. Instead of having a third party such as an authority or middle man to verify or enable the contract the smart contract relies on cryptographic processes to enforce or trigger the contract.

Screenshot 2019 08 02 at 12.56.51Suyash explained to the audience

“One need not over-complicate the term smart contract, it is simply lines of code similar to instructions. In everyday life, these could be as simple as a calculation that returns an outcome or answer. In a more complex smart contract, you could have a road traffic network that controls traffic flow by triggering traffic lights according to sensor feedback”

Some other use cases of smart contracts include (but not limited to):

– Document Authentication
– Multi-party authorization of transactions (multi-signature transaction or contracts)
– Anti-counterfeiting
– Intellectual Property Right protection
– Value transfer without an intermediary
– Management of processes or physical outcomes via  the internet of things (IOT) such as crop spraying
– Digital Tokens

Smart Contracts have the following potential benefits:

– Lowering of costs as there are no intermediaries
– Transparent and auditable
– Automatic Processes
– Increased Redundancy through decentralization

What are Tokens?

One of the most commonly used smarts contracts today are Tokens. Tokens are units of account on a blockchain such as Ethereum. They are digital tokens that have a use or value depending on what their purpose is intended to be. At their core, the smart contract will determine various parameters that set forth the properties of the tokens, such as total supply, circulating supply, name, decimals, and Symbol are all baked into the actual code of the contract (in its simplest form).

There are various standards for Tokens, depending on which blockchain they are native and the type of use case for the token itself. The most famous of these standards is the ERC20 token, made famous via the ICO mania that took place in the last half of 2017. Since then there have been several new Token standards released on Ethereum such as:

1. ERC – 1400/1411
2. ERC – 1462
3. ERC – 1600
4. ST – 20
5. ERC – 721
6. ERC – 22.

What is an STO?

STO stands for “Security Token Offering”, it is merely a different version of an ICO (Initial Coin Offering) token or coin. It usually represents an underlying investment made by someone in a crowd sale or venture funding raise, such as a share, bond, fund or REIT (Real Estate Investment Trust). In the same way, a share certificate can be issued on a PDF or in the physical form of a Token in the case of an STO would represent the proof of ownership of the underlying security, the difference here being that the validity thereof is recorded on a blockchain.

In this way, STO’s bring the new digital blockchain world and the legacy financial world together. Many companies are looking to STOs now as an alternative way of raising capital whilst being compliant with regulations as the actual STO smart contracts do have the ability to have certain features baked in that, allowing for oversight by regulators and thus are seen as the more viable route to fundraising over the more cavalier ICO versions.

Screenshot 2019 08 02 at 12.57.33Talking to the Financiers in the room Suyash explained:

“Regulators are added to the loop when dealing with the STO tokens, they would have the ability to reverse a non-compliant transaction or make an investor whole in case of an error or theft. In this way, STOs are seen as more investor-friendly and regulators around the world will be more receptive to them”

The world is changing at a breakneck pace and the digital revolution is upon us. Have you read up on blockchain, cryptocurrency, and Bitcoin? Head on over to our Learning portal and get the low down on how these concepts are shaping the future world we will live in.

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