A Bitcoin smart contract is an automatic agreement between two or more parties and is based upon predefined criteria without the involvement of any intermediary. Bitcoin has a scripting language which is known as Script. The user needs to have predefined criteria, which is done using scripting. Also, scripts have the specific amounts locked in there by the Bitcoin transactions. Talking about what is a Bitcoin Transaction?
In very simple words, when a person transfers the amount locked in the Bitcoin they own to another person, it is known as Bitcoin Transaction. For example, if a person named Mr. X transfers the amount designated to a particular Bitcoin he owns to Mr. Y, this is known as a Bitcoin transaction. A transaction has three aspects-
1) Inputs- Input is the Bitcoin address from where the Bitcoin will be spent.
2) Outputs- It is the Bitcoin address where the Bitcoin has to be sent
3) Amounts- The amount designated to the Bitcoin must be sent to the Bitcoin address.
The pay-to-public-key-hash (P2PKH) falls under the most popular scripts due to its simplicity in nature. It also has certain requirements that need to be considered before spending a Bitcoin. Coming to talk about the types of Bitcoin smart contracts, there are many as follows.
Types of Bitcoin smart contracts
· Advanced Bitcoin Smart contracts
As mentioned above, the most common Script is Pay-to-Public-Key-Hash. Although there are many other complex scripts, it has gained immense popularity because of their simplicity.
· Multi-signature scripts
Whereas in these scripts, they can require any number of signatures, unlike PTPKH.PTPKH requires a single signature, whereas multisig can require any number of signatures, and the design is known as m-of-n multi-sig. Another multisig that is very common is of the design 2 of 3 multisig.
· Pay-to-Script-Hash (P2SH)
The setup of this design is cost-effective as it reduces the cost of sending Bitcoin to a complex smart contract.
· Time locked Bitcoin transactions
Here, the transaction gets invalid after some time. Now the time here is certain.
For example, If a person has 5 signatures for a script to spend the locked amount before a certain time, after which only 2 signatures are required.
· Taproot and Bitcoin Smart contracts
The Bitcoin protocol has a certain change and enhancement to it through Taproot. And a tap root consists of three upgrade proposals to enhance the ring protocol.
Benefits of Taproot
· Utmost Assured Privacy
The feature of privacy in the Taproot is the most important benefit so far.
· Less space required
As compared to other outputs, less space is required by Taproot outputs. But because of the reason that they lock Bitcoin directly to a public key, they are expensive.
Benefits of smart contracts
· Speed and accuracy
There is speed and accuracy because of no involvement of a third party. The paperwork step has been eliminated because it is automated, saving up much time.
· Utmost Assured Security
All the records are encrypted, so it becomes impossible to hack them. Every record is connected to another, and it would be next to impossible to hack the entire chain.
There is no party involved because of which there are no extra charges as well as no delays.
As mentioned earlier, no third party is involved in the case of Bitcoin smart contracts, which ensures transparency, and altering any information for personal benefit does not exist.
There are many applications of smart contracts. Businesses get many benefits through it- The way it has built trust amongst the retailer and supplier, and it is making globalization possible.
Ethereum is a platform where a complex smart contract can happen easily, whereas Bitcoin only supports simple contracts. To get started, you need to choose a crypto trading platform; is one such platform used by businesses and investors widely when it comes to investing in Bitcoins and other forms of cryptocurrencies, Sign up here.
Smart contracts have to offer numerous stipulations to make their participant satisfied. But before that, the participants have to represent the transactions and are on the Blockchain.