What are Smart Contracts?
The best way to describe smart contracts is to compare the technology to a vending machine. Ordinarily, you would go to a lawyer or a notary, pay them, and wait while you get the document. With smart contracts, you simply drop a bitcoin into the vending machine (i.e. ledger), and your escrow, driver’s license, or whatever drops into your account. More so, smart contracts not only define the rules and penalties around an agreement in the same way that a traditional contract does, but also automatically enforce those obligations.
Example
Suppose you rent an apartment from me. You can do this through the blockchain by paying in cryptocurrency. You get a receipt which is held in our virtual contract; I give you the digital entry key which comes to you by a specified date. If the key doesn’t come on time, the blockchain releases a refund. If I send the key before the rental date, the function holds it releasing both the fee and key to you and me respectively when the date arrives. The system works on the If-Then premise and is witnessed by hundreds of people, so you can expect a faultless delivery. If I give you the key, I’m sure to be paid. If you send a certain amount in bitcoins, you receive the key. The document is automatically cancelled after the time, and the code cannot be interfered by either of us without the other knowing, since all participants are simultaneously alerted.
You can use smart contracts for all sort of situations that range from financial derivatives to insurance premiums, breach contracts, property law, credit enforcement, financial services, legal processes and crowd funding agreements.
TRANSCRIPTION
okay guys we talk about smart contracts
but I do want its first state a
disclaimer disclaimer number one I’m not
a coder developer okay so I’m not
talking about the logic silly here I’m
not talking about programming language
such as solidity and disclaimer – this
is a non-technical video so I’m trying
to die still and synthesize all this
technicality it’s a simple language that
everybody can understand so without
further ado now the disclaimer is out
there I shall begin so the million
dollar question what is a smart contract
well a smart contract first of all
should not be called a smart contract I
think at least right now this current
state should it should just be called a
contract see a smart contract is nothing
more than certain computer code built
within to the blockchain cryptocurrency
network that computers or the nodes
execute and that once the computers the
nodes execute this contract they update
the ledger so if you guys are familiar I
love working on analogies or contrast
where you can actually build your
knowledge based on some pre-existing
notion such as a schema so for example
when we talk about smart contracts let’s
first relate to something that you might
be well aware of already so in marketing
terms we use something called automation
where certain tasks are executed once
something is reached or once something
is triggered so for example in email
marketing when somebody goes to your
funnel certain laws exist where if a
person enters our email diversity van
they receive email one if they open up
email one to receive email two if they
open up email – they receive email three
so what this refers to is I FTP if this
then that logic so that’s what smart
contract is in a nutshell is if this den
doubt logic so if if we created this
code online on the blockchain and the
law states that if a person puts in
money into this contract then that will
execute a next action that next action
will then send maybe a digital contract
to somebody’s email and that person will
get this contract let me sign off and
then that trigger will go back to the
smart contract code on the blockchain
then execute something else so if in a
nutshell it’s a domino series where you
need a pre-existing event to trigger the
next event the
example when it comes to real life is a
vending machine I put in a dollar that
is the first trigger that triggers the
option for me to type in a code I type
in you know b6 that that trigger of me
typing in b6 execute you know a bag of
chips falling from the vending machine
so that’s what a smart contract is in a
nutshell it’s if this then that logic
programmed onto the blockchain and run
by all the computers and knows on that
system which automatically then updates
the transparent ledger that everybody
can see okay I hope you understood that
if I got anything mistaken please
comment below so let’s kind of continue
beyond that because what’s the big deal
so what it’s a pretty written code on
the blockchain that can execute a bunch
of different actions such as keeping
money in it on an escrow or executing a
contract to buy something so I’m going
to give you examples of why this might
be really amazing when it comes to
real-life examples and let’s talk about
two examples that probably everybody has
gone through or three examples that
everybody has gone through in one form
or the other one number one is buying a
car number two is buying a house number
three is say renting a condo renting a
house number one you wanna buy a car how
does that work well either you go online
you find a car you go to the dealership
and you guys going to haggle for the
price you get a price you got to go to a
bank and the bank is going to draw the
bank’s going to track you maybe a
guaranteed check you take that guarantee
check back to the dealership they have
to clear that I check the check is
cleared you got to sign a bunch of
paperwork’s to ownership the title for
the car ownership and finally get the
car so the process takes a while maybe
takes a couple of days to execute now
imagine if you had that on a smart
contract where the actual car itself
let’s say a brand-new Tesla was uploaded
to the blockchain so the ownership of
the car or the details of the car how
much the car cost and asking offer for
the car is on the blockchain and then
you come around even online and for by
the way they do sell Tesla’s online so
that’s going to be something big in the
future where you can actually buy cars
online so you go online you see this
Tesla and you’re like wow this is
amazing all the details are there it’s
it’s on the blockchain so you know the
information is correct and they’re
offering let’s say $40,000 for the car
so the traditional way as I just mention
is going to the bank going through this
process signing paperwork going back and
forth and taking a while however what
you can do is since it’s on the
blockchain they have a smart contract in
place where you can actually execute or
order in real time so they’re offering
$40,000 what you’re going to do is you
can buy a den in there you can pay by
crypto but it’s going to be flawless you
won’t have to like you don’t need to
even have crypto you’re going to have a
come to a point where you’re going to
have your fee at bank account attached
with token that token represents a
crypto so it’s going to be done in real
time and then you can buy that car right
away the ownership the information
everything about it is executed on that
smart contract you now hold the
information or you now hold the
ownership of that car a digital identity
on the blockchain ledger now every
single node every single computer part
of that blockchain ecosystem
automatically updates the ledger so
everybody now knows on a network that
that car was just sold to you so
everything is updated so that’s one
really cool thing so imagine like the
whole car industry how that’s going to
be revolutionized so number two is say
buying a house or buying a condo the old
way is you know you go there you put a
bid you got to put a deposit down then
you get the ownership paper then you got
to go check it the ownership is legit
you better go a lawyer and pay the
lawyer to sign off to make sure there’s
no liens against the house and make sure
that this is the actual authentic
ownership paper of the house and you got
to go back and you’ve got to go banged
in terms we’ll get a mortgage so the
whole process is very long very
convoluted now imagine instead of – same
thing like the car where the house
originally was uploaded to the
blockchain with the ownership confirmed
making sure there’s no liens against the
house full transparency
once you accept it how much of the
mortgages left everything every single
process that we need to go through today
to buy a house is already on the
blockchain then I come around I want to
buy the house for a million dollars I
put my 5% deposit these are betoken or
crypto online automatically the smart
contract executes that opens up now the
information for me to see the whole
history of the house it double checks
everything I don’t need to go to a
lawyer I don’t need to know third party
verification is verified already on
there then I can actually make my
purchase in real time now what’s cool
about this if we’re thinking more out
there in the future
is imagine now 10 of us want to buy
piece of property so now we can actually
do like multi equity buys with in a
house on a smart contract that executes
everything towards us and this is it has
exponential effect that’s one of the
other amazing cool things our smart
contract is multi-purpose buying a Multi
signature bind where even if I want to
sell something I can sell one third of
something but for us to so the whole
piece of the pie or this property all
three of us who are legal owners have to
sign off of it automatically on it smart
contract and so finally number three is
a rank so whether you are a tenant or
landlord there’s always problems on both
ends doesn’t matter what party you’re
talking to now imagine if your landlord
you know you have a lot of and I’ve gone
to this process myself you have a lot of
issues with collecting money from some
people it’s just fact the reality by
first up sometimes as a tenant your
landlord is this guard which treats you
like easily dilemma or slum in the
place is horrible so there’s issues on
both end
imagine you are landlord and as opposed
to trying to collect say it check every
month or in cash every month or maybe
have it on visa etc imagine having your
your contract your actual monthly rental
contract on a smart contract where it
automatically takes a token or crypto
off of that tenants of yours into your
own digital wallet and what’s cool about
this is as a tenant that pays on time
with the smart contract especially on
the blockchain you can actually create
something called digital identity with
social credibility so the more that that
individual is trustworthy paying on time
being a good tenant their social credit
Rises and if their social credit is good
that is a lot of leverage that
individual can get better credit or or
get better loans that individual might
even get a reduced cost when it comes to
rent because you know he has never
faulted or she has never faulted on any
rent for the last two three years so
there’s a lot of possibilities when it
comes to these comes through the smart
contracts that way so to kind of
summarize in a nutshell a smart contract
is just an agreement between couple of
multi parties online that can be
automatically executed on a transparent
blockchain using weather tokens or
cryptocurrencies and you can actually
involve multi parties all at one time so
just imagine any type of
you’ve done in your life physically
offline and just picture that now
uploaded and implemented on the
blockchain so that’s it that’s pretty
much a smart contract in a nutshell and
like I said before I’m just trying to
condense the technicalities or the the
big high level of thinking’s into a
small concept over here I know I
probably butchered some ideas over here
about remember I’m trying to make it
simple if you did notice anything that
didn’t make sense to you leave a comment
below this video and like always guys if
you want me to make more videos leave a
comment on suggestions for the next
videos and have a great day
peace