Smart contract and smart contract oracles
- 2. WHAT’S SMART CONTRACT “Trust is the fundamental currency of Commerce”, hence the need for Smart Contracts in Digital Economy, welcome to Smart Contracts!!! Why is Trust the fundamental currency of Commerce? For you to understand Smart Contract, you need to first of all Understand Traditional Contracts. Traditional Contract is a legally binding agreement between two parties, with a third party/ agent or middle man acting as an witness, guarantor or an escrow.
- 3. What the Buzz is Smart Contract? Smart Contracts are the Building Blocks for Decentralized and Digital Free Markets and Economy. Smart Contracts are coded transaction protocols that executes the terms of an agreement (contract), when the terms of the contract called Consensus are met. They run on the blockchain, they are stored on Public database/s (Public Blockchain) and cannot be changed when deployed (Highly Immutable). They are self-enforceable, self-executing, legally binding (Code Law) digital representation of a traditional contract, designed to facilitate, transactions between parties.
- 4. The transactions that happen in a smart contract are processed by the blockchain, which means they can be sent Automatically without a third party but the transactions can only happen when the conditions in the agreement (Consensus) are met, hence issues with trust are eliminated since there is no third party or agent. Rather than relying on a middleman (a lawyer, agent, or broker) to facilitate the performance of a contract, two parties can create a self-executing digital agreement (contract) that’s stored on a shared network (Blockchain), which is Highly Immutable.
- 5. In traditional contract, a seller’s asset is held by an agent (the lawyer, broker, escrow agent, etc.) until the seller is paid by the buyer and the agent can verify the transaction. Only then is the asset released and most times the verification process can take days, weeks and in some cases months, but with smart contracts, verification happens in real time (in seconds), when the terms of the contract, called Consensus are met, the contract automatically transfers assets between parties, whether money, stocks, or anything else of value as specified by the terms of the contract. Smart Contract is the heart of on-chain (Internal) activities, without it the DeFi, NFT’s, DAO, Metaverse and the rest wouldn’t be possible on the blockchain.
- 6. Advantages of smart contracts over Traditional Contracts So what’s the Uniqueness of Smart Contract? • Efficiency: Transactions take place as soon as the terms of the contract are fulfilled. it can’t take days, weeks or months for assets to be moved after a contract is signed. There’s no lengthy verification process. At a minimum, this means larger and more complex agreements will take less time to execute, allowing companies to move more quickly. • Trustworthiness: Smart contracts are encrypted, by Cryptography and stored on a Shared (Decentralized) blockchain that’s controlled by the parties themselves. There’s no need to trust a third party to hold assets or ensure the terms of the agreement are executed. It’s practically impossible for information to be lost, since the ledger is replicated in full time across many different nodes on the blockchain.
- 7. • Transparency: Smart contracts operates on code law based on the consensus protocol built into it. The consensus protocol encrypted into them helps to increase.
- 8. Factors to consider when designing/writing smart contracts The goal of smart contract is to enforce trust, security and reduce cost, thus in designing or writing your smart contracts you should make sure that they are: • Secured: Security is of paramount in Smart Contract. If your smart contract is secured then it can be trusted. • Cost Efficient: Smart Contract runs on the blockchain and requires gas. Design your smart contracts to use less gas, and thus lower transaction costs. • Trust: A well designed smart contract satisfy the common contractual conditions, boost • confidentiality and lowers fraud loss.
- 9. SMART CONTRACT ORACLES What are Smart Contract Oracles? One of the limitation with smart contracts is that they cannot access external data which might be required to control the execution of the transaction protocol or business logic, hence the need for Oracles. Oracles are the interface, suites or gateways used to get (Request or Receive) External Data (off-chain data) by the smart contracts. Oracles are important component of the smart contract ecosystem.
- 10. Oracles operate on behalf of smart contracts predominately by: 1. Retrieving and delivering off-chain (external) data to smart contracts used in Decentralized Applications (DApps), Decentralized Finance (DeFi) applications etc. 2. Writing data from smart contracts to external systems 3. Executing off-chain computations
- 11. How Does Smart Contract Oracles Work When a smart contract requires off-chain (external) data, it submits a request in a transaction to the oracle’s contract. The oracle is an off-chain application that monitors the transactions sent to its contract, hence when it detects a new request, it is responsible for executing all necessary steps to come up with an answer. This can include fetching external world data, doing computations and more. The oracle then submits its response to the smart contract, again in the form of a transaction.
- 12. Types of Smart Contract Oracles Based on architecture, design and use, there are two main types of blockchain Smart contract oracles, depending on the way that they allow blockchains to interact with the real world: Based on Input and Output Interface or Gateways Based on the input and the output interface or Gateways to and from the blockchain we have: • Inbound oracles: They provide data from the external world to blockchain and smart contracts ie they enhance Inputs to the blockchain networks • Outbound oracles: They provide smart contracts with the ability to send data to the outside world ie they enhanced Outputs from the blockchain networks.
- 13. Based on Data source Then Depending on the data sources, we can distinguish oracles into: • Software Oracles: They handle information data coming from the internet (e.g. asset prices from websites). • Hardware Oracles: They are used when smart contracts need information directly from the physical world (e.g. IoT sensors and devices). • Consensus-Based Oracles: They get their data from human consensus. For example, to avoid market manipulation, prediction markets implement a rating system where different users vote on the outcome in question and their weighted-by-rating average is transmitted to the enquiring smart contract.
- 14. In summary: Trust is the fundamental currency of Commerce, hence the need for Smart Contracts in Digital Economy. Smart Contracts are self-enforceable, self-executing, legally binding (Code Law) digital representation of a traditional contract, designed to facilitate, transactions between parties, when the Consensus protocols are met. The goal of smart contract is to enforce trust, security and reduce cost, thus in designing or writing your smart contracts you should make sure they are secured and cost efficient Oracles are the interface, suites or gateways used to get (Request or Receive) External Data (off-chain data) by the smart contracts. Oracles are important component of the smart contract ecosystem.