The blockchain thesis is revolutionary in terms of re-imagining how we move data, and it laid the foundation for a system where individuals could trade between each other, without needing to rely on an intermediary. Bitcoin, as the first blockchain, utilizes only the essential functions of the framework. As with nearly every new idea, it has quickly been expanded upon and transformed into something entirely different. While the blockchain is the foundation, smart contracts and decentralized applications make up the real functionality of decentralized, encrypted data flow.
Contracts are simply agreements between two or more people, but contractual obligations and stipulations are usually set and enforced by an outside entity, such as a judge, lawyer or arbitrator. This ensures that both parties commit to their end, or otherwise dissolve the contract fairly. Nearly all business and government functions revolve around contracts, and an entire legal industry is devoted to processing legal contract documentation.
A smart contract is drawn up on the blockchain, and automatically settles itself when all the conditions are met. Being on the blockchain grants each contract certain inherent values:
- Immutable – Once on the blockchain, a contract cannot be changed without consensus from the P2P network.
- Security – Using the cryptographic algorithm of the blockchain ensures only those with the private key have access to the contract.
- Deployment – Having a global network expands the number of people who can contract with each other, which is changing the way we do business.
These properties are necessary in order to make transactions between people all over the world, but the implications are much bigger. Smart contracts allow storing currencies, in escrow essentially, and can perform different tasks determined by the code. Since the blockchain is a public ledger verified over a distributed network, there is no need to trust in a third party to ensure that conditions are met.
Smart contracts enable people to use the blockchain as an application platform, like Android or Windows, giving cryptocurrencies and digital assets a means to provide value. Without this addition, Bitcoin and altcoins would have very limited capacity and function. The leading blockchain to use smart contracts as an app development backbone, is Ethereum.
Decentralized applications (DApps) are collections of smart contracts that work like a computer program. Input is received by an app, processed through one or more smart contracts and something is produced as a result. Ethereum nodes operate an Ethereum Virtual Machine (EVM) and dapps use this network to validate contracts. Some use cases for decentralized applications:
- File Storage
- Data Analysis
When applications entered the market on mobile devices and computers, developers immediately began creating apps for every conceivable niche. The cryptocurrency markets are no different. Every day more DApps are built on various blockchains, and the list of available coins is rapidly expanding. As with any new technology, creative innovations that adapt the blockchain to the real world are necessary for global adoption. As the past decade has shown, cryptocurrencies can withstand major crises and rebound enthusiastically. Mainstream use cases will help to strengthen that resiliency.
Any programmer can write a smart contract or build a DApp, and there are multiple blockchains to build upon. Ethereum uses a proprietary language called Solidity, but other platforms allow more common programming languages. Dapps are generally created in a staging environment, which enables them to make necessary changes without affecting user experience. Often, a beta testing period will encourage a small sample of participants to use the application and look for bugs. After testing is complete, the app is released to the public.