What are smart contracts?
Smart contracts are automated agreements that run once the conditions are met. The contract is initiated between the contractor, creator, and the recipient. Automating the execution of the agreement, triggering the next action, self-executing workflow- all sorts of things can be done through smart contracts. Smart contracts for Bitcoin SV can automate tasks without any intermediary involvement. The Bitcoin SV Smart Contracts or smart work on the if-then statement gets executed once the conditions are met.
Smart contracts are written by developers as a code that exists in blockchain (distributed ledger). Developers use the Solidity programming language to develop contracts that are generally known as smart contracts.
What are Smart Contracts for Bitcoin SV?
Building web3 applications were earlier limited to Ethereum and other emerging blockchain. Bitcoin scripting language ensures powerful scripting. The Bitcoin SV smart contract is software code that is executed across all nodes in the Bitcoin SV blockchain network. When smart contracts are stored on the blockchain, they will remain permanently there and the code is impossible to change. Bitcoin ledger is responsible for storing and replicating the agreement, assuring that security and immutability are intact. Initially, bitcoin was only there to provide decentralized currency and had nothing to do with smart code functionality.
How to use Smart Contracts for Bitcoin SV?
Bitcoin SV smart contracts can do below things:
- Functions as multi-signature accounts. Spending of funds take place when a certain percentage of people agree.
- Facilitate management of agreement among multiple parties.
- Self-executes the process of sending data and receiving data.
- Rendering utility to other contracts.
Types of Smart Contracts for Bitcoin SV
By using a script, smart contracts in the Bitcoin SV blockchain can be written. The script is the language that enables writing smart contracts. Below are some of the common types of Bitcoin SV smart contracts.
P2PKH script is the most popular and commonly used Bitcoin blockchain transaction. The locking script on the Bitcoin network functions through private-public key pairs. P2PKH script allows sending bitcoin to the address so that only the owner can spend the bitcoin using a private key. The P2PKH functions in the below way.
- Firstly, the receiver generates a public and private key pair.
- Transform public key into hash.
- Turning hash into address.
- The receiver then sends the address to the sender.
- The sender sends Bitcoin to the address.
- The receiver can now access the fund using Bitcoin.
For transactions to occur, Multi-signature scripts require signatures from more than one party. The biggest advantage of Multi-Signature Scripts is that even if one party loses a private key, other parties do have access to the private key.
|Single Key Transactions||Multisig Transactions|
|Require a single Key for the transaction to execute||Require multiple keys for transactions to execute.|
|Loosing a private key leads to a single point of failure.||Even if one loses a single key, the hope of not losing funds is still there.|
|Centralized point of control and authority.||Control and authority are in the hands of multiple parties.|
|Safety solely depends on the owner.||Funds remain intact, even if the party loses keys.|
|Transaction speed is fast||Transaction speed is slow owing to the multiple keys involvement.|
Pay -To-Script-Hash is a special type of address that allows you to create addresses and spend based on the satisfaction of the script, provided by the sender. Unlike, paying for the public key hash, it pays for the hash digest of the redeeming script( script used to unlock bitcoin sent to P2SH address) on the chain. Also, P2SH allows to send transactions to script hash instead of public key addresses.
With P2SH, one can send Bitcoin to addresses that are secure in various ways. The recipient might require the signatures of several people or passwords or requirements that are unique.
The time-locked Bitcoin SV smart contract is a smart contract that permits the execution of smart contracts at a certain time. Restricting the spending of Bitcoin can be done until a specific time. Furthermore, one can use this to modify the spending requirements. For instance, within a specific period, it may require to obtain three signatures to spend Bitcoin. But, after the specific time limit, it may require obtaining just one signature.
Limitations of the Bitcoin network
The Bitcoin network has its own limitations such as slow transaction speed. Initially, the job of bitcoin was to process 7 transactions per second. But since the network started gaining popularity, fees, and transactions also started increasing. Also, the slow transaction speed and high fees were causing delays in the development of the Bitcoin network.
Another big concern was privacy. Though Bitcoin transactions are private, all transaction details are easily visible through buying history.
Solutions to overcome limitations
In November 2021, a Taproot update was released. It facilitates a new way of performing Bitcoin transactions by enhancing flexibility and privacy to process smart contracts. It allows batching together multiple signatures and transactions to speed up verifying transactions on the network. The taproot upgrade comprises three Bitcoin Improvement Proposals(BIPS)
- Schnorr Signatures( BIP 340)
- Taproot(BIP 341)
- Tapscript(BIP 342)
Bitcoin SV smart contracts on additional layers
In addition to executing smart contacts as regular Bitcoin transactions, one can use Bitcoin to power transactions on additional layers. One such kind is the Lightning network.
The second layer of technology allows off-chain transactions. It utilizes payment channels. Lightning payments are extremely fast as no recording of them takes place on the blockchain. The two-party multi-signature method allows parties to send and receive payments instantly with nearly no fees. The Lightning Network creates a smart contract between two parties. Furthermore, the coding of agreement rules takes place into the contract upon creation and are unalterable or broken.
Additional bitcoin layers
The most significant layers built on top of the blockchain are as follows:
Separate blockchains running parallel to the main blockchain are referred to as Sidechains. They have their own set of rules, purposes, and functionalities. Each sidechain has its independent blockchain network. There can be multiple side chains that can connect to the main chain.
The layer blockchain scaling solutions perform transactions outside the layer one network. Uploading of this data from transactions to layer two blockchain layer then occurs. This enhances security as the sole responsibility of keeping data secure lies with Layer 1 as data is on the base layer. This way rolleups can help in boosting throughput and reducing costs as there is no interference in the primary layer.
State Channels allow parties to engage directly on the blockchain network. The transactions are conducted without taking into consideration primary chains. State Channels use smart contracts and are not dependent on layer 1 blockchain for transaction verification. After getting through the transaction part, state channels ensure the storage of the resulting state on the primary layer.
In the nested blockchain, there are a few secondary chains along with the main chain. The primary chain is responsible for assigning tasks while taking control of parameters. And, the work of performing different transactions lies with secondary chains.
Also, referred to as the Application layer, it acts as a user interface to distinct blockchains that interact and communicate with each other.
Bitcoin is obstructing the world of finance by showcasing the way money can exist and function without the direct control of governments and banks. Through smart contracts for Bitcoin, developers create new types of decentralized applications and use cases. Also, Bitcoin SV as a smart contract platform provides a mechanism for contracts to be observable, verifiable, and enforceable.
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Last modified on June 26th, 2023 at 2:41 pm