Understanding Smart Contracts
One of the most innovative things about the blockchain is the decentralization aspect. Undoubtedly, a decentralized system, that is shared across the whole network fosters transparency and enhances security. But, how does the transparency and security of a transaction is ensured?
The magic is called a smart contract, and it is believed that this technology can replace middlemen. How? A smart contract helps users transact in a transparent, conflict-free manner while avoiding the services of a centralized institution such as a bank.
A smart contract’s purpose is to facilitate a transaction quicker, cheaper and safer. The best way to describe this technology is to imagine a vending machine. Let’s say you want to pay for a subscription. A smart contract would be created with the parameters of the transaction. Then you release the cryptocurrency on the ledger (vending machine) and the service or product tied to the smart contract is released automatically. With our current systems, you must go to a lawyer or notary, pay high fees and wait to get the documentation. With smart contracts, the rules and penalties around an agreement are enhanced and an agreement only goes through when both parties take the determined action.
The idea appeared first in 1993 and the first to coin it was computer scientist and cryptographer, Nick Szabo. He is using the vending machine example, and he outlines how users would create a contract, push the data to the contract and the latter executes the command. The technology behind a smart contract can manage the agreement between users.
The concept is much older than the idea of the cryptocurrency, but the blockchain technology seems to be the catalyst for its implementation. There are some downsides to a smart contract, and one of them is the difficulty when dealing with payment mechanisms. As the crypto space evolves, payment protocols need to adapt to the changing environment. The push action of a smart contract is seen as infeasible and inflexible.
PumaPay saw smart contracts from a different lens and reversed the traditional push action of a smart contract to a pull (PullContract). The PullContract represents a unique architecture of smart contracts that allows merchants to pull funds from their customer’s account given certain parameters, agreed by both parties, are met. Users can still push their cryptos, but the innovation here is at the other end of the transaction.
So, the crypto space is inventing more and more, and the starting technologies are always the solid base for a better update or product. In the end, a smart contract was built to ensure the security of a transaction with no exorbitant costs of a middleman and with the safety of the blockchain. But technology is an incremental process, and the idea got improved, revamped, and PumaPay’s PullContract is the new cool kid around the block.