If you have the slightest idea of Bitcoin and the Blockchain, you might beaware of smart contracts. While their existence cannot be set to be new, they've only recently got popularized.
The concept of smart contracts takes us back to 1994 when Nick Szabo gave the term smart contracts. This meant a framework wherein the contract was executed without the need of a 3rd party website. However, it was only until blockchain arrived that the full possibilities of its use cases, including smart contracts, got attention.
Smart contracts got so much popularity because they notified the need for 3rd parties. In the conventional format, the exchange of currencies was followed by a lot of protocol that demanded people to wait for the transaction to be executed; however, in the case of smart contracts, once the condition of the contract is met, the transaction is automatically executed.
Understanding more about smart contracts
In simple terms, this is a pre-programmed contract having the pre-decided conditions agreed upon for both the interacting parties. This contract is prepared on the blockchain and has all the terms and conditions, including the payment mode and payment time. And so smart contracts prove to be a great time saver.
Smart contracts are developed on Ethereum and find multiple applications across the different industries. Whether it is real estate or education, or healthcare, the developers are working on delving deeper into the use cases of smart contracts.
Technical aspects of smart contracts
It is a digital agreement, and the software code of this contract is saved across the different nodes on the Bitcoin (BSV) Blockchain network. The one who created this contract also mentioned the rules, which agree with both the parties. After the contract gets entered onto the ledger, it becomes permanently stored at that particular location. Hence, changing the terms and conditions won’t be feasible.
There is no governing authority, and hence, these contracts work stringently in adherence to the conditions mentioned in the system.
The script supports the smart contract on bitcoin. It allows establishing the criteria to spend Bitcoin. It locks the specific amount of Bitcoin to the Scripts. The user has to fulfil these criteria for the transaction to be executed.
Types of Bitcoin Smart Contracts
Pay-to-Public-Key-Hash (P2PKH)- With this contractor, the script sends Bitcoin to the user who has the private key. Coming to the technical aspect, then this contractor established a specific requirement. You would require ECDSA signature to spend Bitcoin. The sign must be same as hash specified in the script. This is the simplest Bitcoin smart contract, while there are complex ones. These will be mentioned below.
Multi-Signature Scripts- In this type of contract, you would need multiple signatures based on the number of users. It works on a multisig script. The Bitcoin is locked to the script and can only be spent if there are the right number of signature providers. Let's explain it with this example, say, there is a set-up of 2-of-3. To execute this contract, you would need 2 signs from 3 different public keys.
Pay-to-Script-Hash (P2SH)- The next type of Bitcoin smart contract is Pay-to-Script-Hash. This was included as part of the SegWit upgrade to include P2WSH. P2SH and P2WSH both ensure that Bitcoin is transmitted to the script's hash.It reduces the cost of sending Bitcoin to the complex smart contract and ensures greater privacy.
Concluding thoughts
Unlike the earlier times today, Bitcoin has multiple use cases, and Bitcoin smart contracts are one such example. With the updates and upgrades in these smart contracts, there has been a continuous interest of traders and investors who believe Bitcoin to be the future currency. If you are also willing to invest in Bitcoin, register yourself on an authentic platform and start trading today.
There are other platforms as well, but if you are a new entrant in the crypto world, a deep digging into the different crypto platform will be beneficial.
Bitcoin and cryptocurrencies, are presently the most popular investment options. Hence, if you want to diversify your portfolio and explore the other options, you can consider crypto investment as one of the reallygood move.
