The Ethereum blockchain has made smart contracts a reality. Each day there are thousands of calls being made to these contracts, with functions that vary from insurance calculations and token issuance to time locked transfers, simple escrows and so much more. Smart contracts have also been applied to Ethereum-based gambling sites, allowing anyone in the world to make a trustless bet against the house and in many cases, against other players. This form of gambling is far removed from the traditional experience; one where payouts can take days, winnings can be withheld, and unscrupulous actors can steal player funds.
What is a smart contract?
For those unfamiliar with smart contracts, the concept is fairly straightforward. On a high level, a smart contract is made up of lines of code which takes inputs and returns an output. The code that processes these transactions is set in stone and cannot be altered, so users interacting with it know exactly what to expect. The code is also publicly available on the Ethereum blockchain, and the contents can be audited to ensure that the contract operates in the way it’s advertised.
In the insurance market, a simple example would be insuring against a delayed flight:
User makes an Ether payment to the insurance contract on the Ethereum blockchain
Funds are held within the insurance contract
The insurance contract checks flight data from multiple sources to confirm whether the flight left on time
If the flight left without delay, the funds are sent to the insurer. If the flight was delayed, a payout is made based on the compensation outlined in a smart contract (i.e. higher payout for a longer delay)
With such a smart contract, there is no need