Blockchain Series -4

In the last week's blog, we covered the P2P networks in DLT (Distributed Ledger Technology) and explained how this decentralized system creates the basis for blockchain technologies. We have also stated how transactions are recorded through these ledgers. This week, we will concentrate even more on this transaction process and the major element of any transfer: Smart contracts.

Let’s imagine that you are going to purchase something, and you just decided to use eft for your transfer. How would you validate this money transfer? You probably wouldn't need to think about that since your bank as a third-party authority would check that for you and do the transfer. However, in case of abnormal conditions, they would evaluate the request, they could give you a call, and do the refund if needed. In the meantime, both you and the bank would be using their personnel, time, and sometimes money for this matter. That’s where smart contracts can ease your load.

Smart contracts are a type of encrypted system which executes the decision-making process of the transactions. So who monitors the transaction process? Smart contract itself, which means, encryption! They are rule-based systems and developed by blockchain developers. So under which conditions that particular transaction can be made is already encrypted and ready to be used in digital. So how do they work in the process?

When there is a transaction request between two nodes in the blockchain network, pre-encrypted smart contracts take this request and checks the conditions in line with their rule-base. If the conditions for that particular transaction are verified, then the money is transferred, if not, then they know what to do! Because the constraints for each case of the process are already defined and corresponding outputs are preset.

Now think about all the paperwork you face in any industry. Wouldn’t that be better to have this kind of automation which is also safer? Especially international companies with high business deal rates can save personnel costs by using smart contracts. This will not only increase the reliability of the process but also speed it up. We will have a look at many other sectors and how smart contracts can be used in them in the upcoming weeks.

Intrigued to know what comes next? Stay tuned at Archi’s Blogs for the next week’s entry!