smart contracts are very popular
nowadays but what are they and what
problems do they solve the term smart
contract was first used by Nick Szabo in
1997 long before Bitcoin was created he
is a computer scientist lost collar and
cryptographer so I'll spare you his
exact words but in simple terms he
wanted to use a distributed ledger to
store contracts now smart contracts are
just like contracts in the real world
the only difference is that they are
completely digital in fact a smart
contract is actually a tiny computer
program that is stored inside of a
blockchain
let's take a look at an example to
understand how smart contracts work you
probably are familiar with Kickstarter
the large fundraising platform product
teams can go to Kickstarter create a
project set a funding goal and start
collecting money from others who believe
in the idea Kickstarter is essentially a
third party that sits in between product
teams and supporters this means that
both of them need to trust Kickstarter
to handle their money correctly if the
project gets successfully funded the
project team expects Kickstarter to give
them their money on the other hand
supporters want their money to go to the
project if it was funded or to get a
refund when it hasn't reached its goals
both the product team and its supporters
have to trust Kickstarter but with smart
contracts we can build a similar system
that doesn't require a third party like
Kickstarter so let's create a smart
contract for this we can program the
smart contract so that it holds all the
received funds until a certain goal is
reached the supporters of a project can
now transfer their money through the
smart contract if the project gets fully
funded the contract automatically passes
the money to the creator of the project
and if the project fails to meet these
goals then the money automatically goes
back to the supporters pretty awesome
right and because smart contracts are
stored inside a blockchain everything is
completely distributed with this
technique
no one is in control of the money but
wait a minute why should we trust the
smart contract
well because smart contracts are stored
on a blockchain they inherit some
interesting properties they are
immutable and they are distributed being
immutable means that once a smart
contract is created it can never be
changed again
so no one can go behind your back and
tamper with the code of your contract
and being distributed means that the
output of your contract is validated by
everyone on the network so a single
person cannot force the contract to
release the funds because other people
on the network will spot this attempt
and mark it as invalid tampering with
smart contracts becomes almost
impossible smart contracts can be
applied to many different things not
just on crowdfunding banks for example
could use it to issue loans or to offer
automatic payments insurance companies
could use it to process certain claims
and postal companies could use it for
payment on delivery and so on and so on
so now you might wonder where and how
can I use smart contracts well right now
there are a handful of blockchains who
support smart contracts but the biggest
one is aetherium it was specifically
created and designed to support smart
contracts smart contracts can be
programmed in a special programming
language called solidity this language
was specifically created for aetherium
and uses a syntax that resembles java
scripts it's also worth noting that
Bitcoin also has support for smart
contracts although it's a lot more
limited compared to a theory so now you
know what smart contracts are and what
problems they solve I hope you enjoyed
this video and if you did hit the like
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thank you very much for watching
you