Smart contracts are a computer protocol with the ability to execute the clauses of a contract. Ethereum, for example, includes a programming language that allows the creation of decentralized applications in order to record the different transactions carried out by an asset of a monetary, real estate, among others.

A smart contract is a program that is housed in a system that has no external control, and that automatically executes the terms of that contract. These contracts are agreements between two or more people, companies, or organizations, in which, once the conditions have been defined, they proceed to execute independently and automatically without the presence of any intermediary. The smart contract works like an “if-then” statement like any other program, but with the difference that it interacts with the actual assets involved.

What is a DLC smart contract?

The DLC smart contract is a discrete registration contract, allowing two or more parties to agree and sign a contract about a future event, for example placing a “bet” on who will be the winner in a soccer game to be held at a later date. Its main characteristic is that the program monitors that the agreements are fulfilled, executing automatically once the conditions of the contract are fulfilled. Once the contract is made, it only remains to wait for it to be “activated” according to the scheduled event, it is important to note that said event and its monitoring process will be controlled/managed by a series of oracles.

About oracles

An oracle is a program that verifies reliable information on the Internet to maintain a valid contract (acts as an intermediary between the parties involved). Once the details of the contract are finalized, the parties send the funds to a multi-signature address, after the deposit is made, the oracle signs the contract with the hash that points to the people who benefit from the contract, this hash allows the beneficiaries to withdraw the funds of the contract.

DLC and Bitcoin Contracts

DLC contracts have helped improve various processes and systems, for example, these contracts integrate oracles to Bitcoin and the Lightning Network. These types of contracts can be indistinguishable from a Lightning command, giving it more privacy. Likewise, DLC contracts allow the creation of DeFi applications in Bitcoin and on the Lightning network. The implementation of DLC contracts currently represents a breakthrough for Bitcoin, as they allow DeFi-style transactions in Bitcoin.

Bitcoin DLC contracts are backed by oracles

The oracles allow DLC contracts to make use of the information of the real world in Bitcoin and in the Lightning network since they function as a “bridge” of information between a chain of blocks and the outside world, that is, they are in charge to “pass” the required information, so that smart contracts can be executed according to agreements based on external parameters.

The Oracle: The intermediary of the future

The implementation of the oracle is necessary for the parties to respect the results and avoid conflicts, that is, the oracle represents the third part of the agreement, putting its signature for validity on certain information, without making judgments or deliberations about it. This implementation has been praised by various developers and people linked to the ecosystem, as a private, secure, and reliable way to execute smart contracts in Bitcoin.

What do you think about this topic? Did you already know about DLC smart contracts and oracles?

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