Last week, we decided to change the theme of the project to decentralized cryptocurrency exchange through the group’s discussion and communication with the professor. For this topic, we first had to think about the following questions:
- What is blockchain?
- How smart contracts work?
I had some discussion about what blockchain is in my blog a few weeks ago, and I will re-explain the concept of blockchain to make it easier to read. Literally, a blockchain is a chain of blocks, each of which contains a certain amount of data, with the blocks connected to each other by hashes. Blockchain is often interpreted as a “distributed ledger”, which means that the transaction information on the blockchain is not stored in any centralized space, but in multiple nodes in different places. Whenever a new block is created, the blockchain adds the block to each node through a consensus mechanism. These features of the blockchain mean that the data that exists on the blockchain cannot be easily corrupted and modified, thus eliminating the possibility of counterfeiting. It can be said that the blockchain is the platform on which our project relies.
Furthermore, to implement our project in a functional way, we must need to rely on smart contract technology. Smart contracts are automatically executed business automation applications that run on decentralized networks such as blockchains. Smart contracts run automatically when pre-defined conditions are met, and are typically used to automate the execution of protocols, allowing each participant to determine the outcome immediately without any intermediary to engage or time wasting [1]. Imagine if we want to buy a car online, we may need many steps and these steps may waste a lot of time due to the involvement of intermediaries. If we purchase a car through a smart contract, all these tedious steps will disappear and buying a car will be as easy as buying groceries on a regular basis. This is because smart contracts do not require a third party to perform validation to automatically perform the next step, and they are written in code, so there is no ambiguity due to words or language. In addition, smart contracts are transparent because everyone can see them and their use on the blockchain, and they are secure because they use cryptography to prevent people from making changes to the records. These advantages of smart contracts make it easy to rely on cumbersome third-party transactions, and greatly reduce the time wasted and the potential for error.
Smart contracts will be the most important foundation of our project. Only with smart contracts can we ensure that every transaction on a decentralized exchange is completely decentralized, free from any third-party control, and completely fair and transparent. In the coming week, we will go on to explore more about the development of decentralized exchanges, especially for the choice of blockchain.
References
https://decrypt.co/resources/smart-contracts
