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Three Common Misconceptions About Smart Contracts - Bits On Blocks
Three Common Misconceptions About Smart Contracts - Bits On Blocks
Three Common Misconceptions About Smart Contracts - Bits On Blocks
smart contracts
Posted on March 7, 2017 by antonylewis2015
This is not true. Just like you put money into a vending machine to make it
vend, with public blockchains you need to pay to run the contract. With a
blockchain such as Ethereum, you initiate a smart contract by paying it ETH
(Ether, Ethereums native cryptocurrency) this is the digital equivalent of
putting money into a vending machine.
So, far from self-executing, smart contracts dont run unless someone
initiates them. And when they do run, they dont run themselves
somewhere in the cloud they run simultaneously on all machines
participating in validating the blockchain. In public blockchains, that is a lot
of computers (currently there are about 6000 Bitcoin validators according to
Bitnodes, and about 8,000 Ethereum validators according to Ethernodes).
With the same code and the same inputs, the network comes to a
consensus about the results of the code.
In reality, weve been able to automate processes ever since weve had
computers. If you read something and come to the conclusion that you need
smart contracts to automate trivial logic like make a payment based on a
share price on a particular date, you have been misled. Financial market
trading businesses at investment banks have been making automatic
payments based on share prices or other data for many years now.
What about the disruption? Can smart contracts replace the need to trust a
third party? Yes for some functions such as basic fund escrow, a
transparent program can be set up that can make payments based on
certain criteria being met. Participants would audit and trust the code,
instead of trusting (and paying) a third party. And as the technology
matures, more uses for smart contracts will be found. But there are other
parties to consider: who would be running the code, and who would be
feeding in the business-critical criteria?
Upshot: Currently, businesses agree on deals in prose (human language),
perhaps capturing it in a legal contract, and then independently write their
own computer code to automate the logic. Smart contracts on a distributed
ledger can support these business agreements between multiple parties.
Smart contracts replicate the automated business logic across the
participants, ensuring a closer alignment of understanding, a smaller chance
of disagreement, and more robust results.