Smart Contracts for Dummies
If you still don’t get what the heck a Smart Contract is…
Ok, you know a bit about Bitcoin (see: Explain Bitcoin Like I’m Five). You’ve been seeing the blockchain on the news.
But what’s this new Ethereum thing? Apparently it’s this new crypto-currency you can use to build “smart contracts”. Sounds impressive. So, uh… what are they again? (Spoiler: They’re not that smart. And they’re not really contracts!)
Instead of a one line definition, let’s try to get an intuition. First, we’ll revisit the blockchain and the word “trust”. Then, we’ll talk about the word “contract”. Understanding both words is the secret.
Part I: What we mean by “Trust(less)”
Most of the time, when we think Bitcoin (or Ethereum), we have a mental image of, well…coins.
Aren’t these crypto-currencies after all? Isn’t that the whole point? In our minds we see objects — digital gold, or silver (or tulips for the skeptics). Things we pass around.
Because these images are easy to understand, we forget a bit about that thing that’s underneath it all. So, I say we start thinking about this in a different way.
Ugh, really? Digital rocks?
Actually, rocks are pretty useful.
We have this idiom in the english language that goes something like this: “set it in stone.”
“I’ve reviewed the contract Bob. Looks good. Let’s set this in stone!”
“Don’t get too excited Alice, nothing’s in stone yet.”
“This is God. I’ve written my 10 commandments on these two stone tablets. You know. Just in case ya’ll start getting any funny ideas.”
This metaphor continues to have meaning in a modern world because in the physical (ancient) world, stone had some interesting properties:
When you carve something on stone there is a physical finality and permanence to it. You can’t make changes just like that.
If you try to “erase” something later on, it’ll be obvious. Any changes you make to it are quite transparent and tamper proof (provable).
These rules apply equally to all. Stone is neutral. It obeys the laws of physics, not men. It doesn’t care if you’re a powerful king or a peasant — it behaves exactly the same for everyone.
Because of all these properties, we have a pretty high level of trust in stone.
I mean — there’s a reason why we never say “let’s set this agreement in sand.” Stone is the kind of thing I can point to in the future for evidence. Stone equals solid proof — not just any material will do!
The Economist agrees!
When it comes down to it, a blockchain is really just the above: a kind of material that, through a special mix of cryptography and decentralization, has the properties of permanence, transparency, and neutrality — whatever you put on it.
Whether it’s a list of how many apples you sent to Joe. Or the words “I love Jenny.” It doesn’t matter. When you put it on a blockchain — it’s on.
Setting something on a blockchain is like setting something in stone. It makes trust easier.
Except now we can do it digitally. And that’s pretty special.
Thinking about a blockchain as a piece of stone you can write things on (instead of a piece of currency) also helps us understand its broad potential. Which leads us to…contracts!
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