So, I wanted to delve a bit deeper into blockchains. What makes them so unique? Why do they hold so much promise for the circular economy?
A blockchain is a series of blocks. Each block in a blockchain has some fundamental properties. Each block has:
An index (position on the blockchain)
A number transactions
A unique key called hash identifies its position and the count of transactions. A hash is akin to a unique signature, like a fingerprint, that can be used to identify that block.
A hash for the previous block in the chain
Each block as a unit contains more sub-units called transactions. A transaction:
Represents actions such as depositing, withdrawing, or making a payment
Has an index in the block (because a block can many transactions)
Can have a fee required to process that transaction
An associated value
Contain other attributes such as “a sender” of payment and receiver of payment
Has a unique key called the hash
A Smart Contract is like a particular type of transaction. A smart contract:
Comprises of a set of if/else statement
Generates or executes an action if a set of conditions is met. An example may be to pay money after goods are delivered
Is code that executes on the blockchain
The intent of a smart contract is to eliminate middlemen, i.e., to ensure that two people or businesses can work directly without needing an intermediary, which would otherwise be required due to a lack of trust.
For example, if person A wants to buy a pair of shoes directly from person B. Should person A pay person B first? Should person B send the pair of shoes to person A first? What if person A still needs to get the pair of shoes after paying? Or person B does not get the payment after sending the shoe? In such a situation, we have person C in the middle as an intermediary. With this revised situation, person A sends payment to person C. Likewise, person B sends the pair of shows to person C. Finally, person C facilitates or completes the exchange by sending payment to person B and the shoes to person A.
The smart contract replaces the role of the intermediaries like person C in a blockchain. As it is a piece of code, it can also include additional rules or conditions for the exchange or transaction to complete. This concept of smart contracts on a blockchain lies at the core of applying this unique technology in a circular economy.
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