Hi everyone! Welcome to this weeks post on Bit Education. Every Thursday I’ll be sending out a quick, education-packed newsletter containing:

• Either an article about either blockchain technology or cryptocurrency

• Articles or posts that I think would be useful to your learning

• A though provoking excerpt from a book I’m reading

These are informative posts, meaning there will be certain spots where you might not be familiar with the content. I suggest that you do external reading from the links that I will at the end of each post.

By signing up you also get instant access to weekly posts, and access to my private community where we share ideas and posts everyday.

How to best use this post.

1. Take notes while you read the post. I challenge you to discuss the ideas outside the newsletter with friends and family.

2. Read the extra links provided, and apply the information from those posts to come to your own conclusion.

3. Truly digest the book quote. Reflect on how it can apply to your life.

Post

In 1994 Nick Szabo, coined the term ‘smart contract’, he wrote an introduction to the concept. He wrote that a smart contract is a computerised transaction protocol that executes the terms of a contract. It is objective, satisfies common contract conditions, minimised exception, and the need for trusted intermediaries. In effect this would lower fraud loss, arbitration and enforcement costs.

Before we dive into smart contracts it is important to understand what a contract is. Contracts are agreements, trust is a fundamental part of a traditional contract, there is a need for trusted individuals to follow through the contract outcomes. For example:

Alice and Bob are having a bicycle race. Let's say Alice bets Bob $10 that she will win the race. Bob is confident he'll be the winner and agrees to the bet. In the end, Alice finishes the race well ahead of Bob and is the clear winner. But Bob refuses to pay out on the bet, claiming Alice must have cheated.

Smart contracts digitise agreements turning them into code. These agreements automatically execute when the terms are met. There is no need to wait for a human to execute the result. Smart contracts remove the need for trust.

Human factor is one of the fundamental flaws of traditional contracts, as two people could have different interpretations of an agreement. Smart contracts remove the possibility of different interpretations because they execute precisely based on the conditions in the code.

Auditing and tracking is made easier by smart contracts because they exist on a public blockchain. Anyone can track asset transfers, or other related information, and also use that contract themselves.

Transactions are tied publicly to unique cryptographic addresses, not your real identity, so you can remain anonymous.

So, now we know that smart contracts are computer programs that exist on a public blockchain, that execute automatically. You can track their transactions, and use them anonymously. All that is great! But what can they be used for? In the following articles we will discuss some of their many use cases.

Further Reading

Book Excerpt

“To pursue the impossible is madness: and it is impossible for men not to act in character” - Marcus Aurelius, Meditations

Coming Soon

• Proof-of-Stake, Ethereum’s Consensus Mechanism

• Smart Contracts 101

• Introduction to dapps (Decentralised Applications)

Want more blockchain and cryptocurrency articles? Feel free to join Bit Education.