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<p><strong><em>Blockchain is a tool that allowed for the first time ever to organize and store information in a decentralized way. </em></strong></p>



<p>Rather than be managed by a third party, the data in a blockchain is distributed across numerous independent computers - network nodes that run the [tooltip content=" set of rules or procedures that govern the transfer of data between devices"] blockchain protocol [/tooltip]. This constantly updated data composes the so-called <strong>distributed ledger</strong> - the history of all transactions that have ever taken place on a particular network.<strong> </strong>The ledger, as well as the rules that determine transaction processing, are stored within network participants’ computers, making sure that neither the ledger, nor the rules cannot be changed centrally.<br></p>



<p>Such unique structure allows, also for the first time, to transfer digital assets from one owner to another in a decentralized fashion and without creating copies of the asset along the way.<br></p>



<p>It is called a blockchain because ledger updates (or transactions) are combined in a data structure called a block. Each block is timestamped and cryptographically bound to its predecessor, thus creating an immutable chain of blocks.&nbsp;</p>



<h2><a href="https://d.center/explore/blockchain-underlying-technologies" class="ek-link">Underlying technologies</a></h2>



<p> Blockchain functioning relies on a set of concepts and technologies from different domains, notably <strong>mathematics </strong>(such as algorithm complexity, one-way functions, elliptic curves and discrete logarithm problem), <strong>cryptography </strong>(asymmetric cryptography, digital signatures, cryptographic hash functions, digital linked time stamping and zero-knowledge proofs) and <strong>distributed computing</strong> (P2P). </p>



<h2><a href="https://d.center/explore/consensus-protocol" class="ek-link">Consensus</a></h2>



<p>New transactions, i.e. ledger updates, are gathered in blocks and added to the blockchain according to a mechanism called <strong>consensus </strong>(meaning that all network nodes agree with these updates). Network nodes who add new blocks to the blockchain are remunerated in newly created coins and/or transaction fees as an incentive to keep the blockchain going.</p>



<h2><a href="https://d.center/explore/blockchain-functions" class="ek-link">Blockchain functions&nbsp;</a></h2>



<p>The main role of a blockchain is to serve as a <strong>transactions recording ledger</strong>. Bitcoin blockchain was the first blockchain ever and it is a public record of Bitcoin transactions in a chronological order. Over time, however, more and more applications appeared, allowing the execution of more complex conditions directly on the blockchain via <strong>smart contracts</strong>, for example by issuing additional cryptoassets other than the native coins - <strong>tokens</strong>.</p>



<h2><a href="https://d.center/explore/blockchain-governance" class="ek-link">Blockchain governance</a></h2>



<p>Blockchain is a new and constantly evolving technology, therefore it has to deal with constant upgrades and mutations. The way these upgrades are agreed upon by the network nodes, users and the larger cryptocurrency community is called the governance. It plays an important role in blockchain's vitality and often sparkles fervent debates.</p>

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<p><strong><em>What is blockchain used for ? Its unique characteristics allow storing and transferring data, running programs and creating tokens in a decentralized way.</em></strong></p>



<h2>Storing and transferring cryptocurrency&nbsp;</h2>



<p>The first blockchain, <a href="https://d.center/explore/bitcoin" class="ek-link">Bitcoin</a>, was created as a foundation to an inherently independent currency, therefore its main function was to assure that the <strong>transactions</strong> flow was handled fairly, securely and without any trusted third party. This goal was achieved by setting up a trustless <a href="https://d.center/explore/p2p-network" class="ek-link">peer-to-peer network</a>, where each node keeps a copy of the transaction ledger (the blockchain) on their computer, so that no central authority can modify it. The network is incentivized to properly update the ledger with new transactions, keeping the blockchain going. Also, along with cryptocurrency virtually any data can be stored and transferred within the blockchain.</p>



<h2>Smart contracts&nbsp;</h2>



<p>Blockchain is a system so ingenuous, that people naturally start wondering if it could be used for other purposes. It appeared that the <strong>smart contracts</strong> (sets of computerized rules executed when predetermined conditions are met), which lie at the heart of the blockchain protocol, can also be used to program things other than transaction conditions. In fact <strong>smart contracts can be programmed for a variety of life situations </strong><em>(see <a href="https://d.center/explore/blockchain-use-cases" class="ek-link">Blockchain use cases)</a></em>, for example by setting an automated payment to an insurance policy holder in case their plane has been delayed (smart contract by AXA on <strong><a href="https://d.center/explore/ethereum" class="ek-link">Ethereum </a></strong>blockchain). The smart contract is given information from the flight status database, and if it sees the data satisfying the conditions of the insurance policy, it automatically triggers the payment (in crypto) to the insured party. Once the smart contract is deployed to the blockchain, it runs autonomously and cannot be changed, relieving both the insurance and the policyholder from unnecessary paperwork and assuring the policyholder they will get their payment (the insurance cannot stop it from happening even if it tried to).&nbsp;</p>



<h2>Tokens</h2>



<p>Smart contracts can also be a useful tool to create <strong><a href="https://d.center/en/explore/tokens-2" class="ek-link">tokens</a></strong><a href="https://d.center/en/explore/tokens-2" class="ek-link"> </a>- digital representations of any given value. Very easy to create, <strong>tokens only carry a value their issuer has assigned to them</strong>: it can be linked to an asset, a right, a service... For example a company willing to raise money could assign the right to use its services to a certain number of tokens that it will issue and sell to its (future) clients. Once created, tokens enjoy the simplicity and independence of circulation provided by the blockchain.</p>



<p>Every blockchain nowadays supports these three features, either naturally (as Ethereum, which was conceived to), or via updates or external developments, such as additional layers built on top of the main blockchain (colored coins, Lightning network, Liquid sidechain on Bitcoin ...)<br></p>

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<p><strong><em>Smart contracts have opened the blockchain to a plethora of different use cases, enabling DApps and token creation.</em></strong></p>



<p>Smart contract is a concept of a digital contract specified in 1994 by an American lawyer, programmer and cryptography specialist Nick Szabo. He proposed to embed contractual clauses into a computer program in order to minimize mistakes and reduce trusted third party intervention. Such protocol would allow the application of pre-approved rules without intermediaries.</p>



<h2>Bitcoin smart contracts</h2>



<p><a href="https://d.center/en/explore/bitcoin" class="ek-link">Bitcoin </a>creation gave the concept of smart contracts a practical application: registered on the blockchain, they define the rules of transaction execution (e.g. Alice can send 1 bitcoin to Bob <em>only if</em> she possesses the related private key and has enough funds). Transactions can also contain smart contracts with more conditions, for example Alice can send 1 bitcoin to Bob <em>only if</em> Charlie co-signs the transaction. </p>



<p>Bitcoin showed the blockchain’s efficiency in implementing smart contracts and helped consider other use cases than an independent digital money. However, Bitcoin was written in a limited functionality language <em>Script</em>, which ensured its robustness, but made it unsuitable to support complex smart contracts. This naturally led to searching for new solutions.</p>



<h2>Ethereum smart contracts</h2>



<p><a href="https://d.center/en/explore/ethereum" class="ek-link">Ethereum </a>creation marked a new era of smart contracts. Written with <em>Solidity</em>, a <span class='tooltip-box'>
     Turing-complete 
    <span class='tooltip-text'>that can perform any computation</span>
  </span> language, Ethereum smart contracts allowed much more creativity. A code with self-executing qualities embedded into a blockchain could now help create applications in numerous fields, such as finance, gaming, art, supply chain to name a few. Today the majority of the new blockchains act as <a href="https://d.center/en/explore/smart-contract-platforms" class="ek-link">smart contract platforms</a> allowing the implementation of complex smart contracts, often in a specific language, but sometimes also using more general ones like <em>Rust </em>for example. </p>



<h2>DApps</h2>



<p>Smart contracts on a blockchain are used by decentralized applications, or DApps, which are called so because their execution is not controlled by any person or organization. DApp users initiate a transaction sent to a smart contract’s address, which triggers its execution, the result being stored on a blockchain. Such mechanism makes DApps more secure than traditional applications: <strong>executed on a blockchain network instead of a private server, the probability of an unsolicited third party intervention is greatly reduced</strong>. </p>



<div class="wp-block-image"><figure class="aligncenter"><img src="https://lh4.googleusercontent.com/GegSxv0MWaEiU_TWa7jU4sWfeqtVXNbTaWUsSxCBfBbA3vMEd2xLoF_ToBbv6vA_Vk3O8CHD_K_9pVvugtt9GKShpUA637omlSiwKm8m9uiBWkCL8joW04fzGmD46fL2DDvamO0A" alt=""/></figure></div>



<h2>Tokens</h2>



<p>Another important function of smart contracts is programming <strong><a href="https://d.center/en/explore/tokens-2" class="ek-link">tokens</a></strong><a href="https://d.center/en/explore/tokens-2" class="ek-link"> </a>- digital units registered on a blockchain representing a value or a right determined and assigned to them upon their creation. Made really easy with Ethereum standardization, token emission is available to anyone, allowing to tokenize virtually every product, value or right. Once tokenized, they become a part of the crypto economy, enjoying the security and the simplicity of blockchain transfers.</p>



<h2>Smart contracts in practice</h2>



<p>Smart contracts’ potential use cases are many. New DApps are constantly being created on different blockchains, with 3 sectors standing out as particularly dynamic: the <a href="https://d.center/en/explore/defi" class="ek-link">DeFi</a>, or decentralized finance (Aave, Uniswap...), and two sectors using the NFTs - gaming and art.</p>



<p>Among other sectors using smart contracts we can name</p>



<ul><li>sports betting platforms&nbsp;</li><li>marketplaces&nbsp;</li><li>insurance&nbsp;</li><li>supply chain</li><li>digital identity</li><li>certification and authentication</li><li>fundraising via token emission, or ICO</li></ul>



<p>Smart contracts often need information from outside the blockchain (an asset rate, winner of a sports game, an insured event…) The programs that gather and redistribute such information are called <strong>Oracles</strong> and are usually agreed upon by the parties of the contract.<br></p>



<p><em>Further read: </em><a href="https://web.archive.org/web/20011102030833/http://szabo.best.vwh.net:80/smart.contracts.html " class="ek-link"><em>Nick Szabo on Smart Contracts</em></a><br></p>