Bitcoin Smart Contracts are digital agreements. They are executed automatically and a predefined criterion guides them. Therefore, various kinds of smart contracts enable the scripting language of Bitcoin.
For example, the smart contract signifies that the fifth currency Bitcoin should be sent automatically from one user to the other after some amount of time. These kinds of contracts can be highly complex and consist of many conditional criteria. Furthermore, these can be as basic as needed in a digital signature for the expenditure of money.
How do Bitcoin Smart Contracts Work?
Firstly, the blockchain network of Bitcoin has support for a wide variety of smart contracts with the help of Script. The script lets users establish specific criteria for the expenditure of Bitcoin and specific amounts of this cryptocurrency are locked by Bitcoin transactions to all these scripts.
The criteria must be satisfied by a user to be able to spend the amount of Bitcoin which is locked to the script. All transactions involving Bitcoin, in this manner, are smart contracts.
For more than ten years, Script has been useful for empowering the network of Bitcoin. However, it does not let logical loops happen – which means that it is not Turing Complete. Due to this useful feature, the Bitcoin network gets security from attacks by Denial of Service (DoS), which has been a major problem in other virtual currency networks out there.
Types of Different Bitcoin Smart Contracts
Pay-to-Public-Key-Hash (P2PKH) is the most popular type of script in the Bitcoin network. This kind of script lets the transfer of Bitcoin to a Bitcoin address in such a way that only the corresponding private key owner is able to spend that currency.
P2PKH scripts, on a technical level, established the particular requirement to be able to spend Bitcoin. It is an ECDSA signature that must be offered by a user which needs to match the public key. Given the fact that only the person owning the private key (corresponding to the public key hash) can create a valid signature, the Bitcoin exclusively belongs to the private key owner. Read below to know about the important smart contracts of Bitcoin. Advanced Bitcoin Smart Contracts
Furthermore, the basic of Bitcoin smart contracts is the Pay-to-Public-Key-Hash. Its simplicity and utility make it one of the popular options. With the help of Bitcoin script, more complex smart contracts are possible as well. On additional layers, an unlimited number of more contracts are also possible.
P2PKH scripts need just one signature but any number of signatures can be required by multisig (multisignature) scripts. These scripts can belong optionally to any number of users out there.
Time-Locked Bitcoin Transactions
Moreover, it is also possible to time lock Bitcoin transactions which means that these can become valid only after a specific time period. These can also be used as part of locking scripts for altering Bitcoin spending requirements.
For instance, three signatures could be needed by a script for the expenditure of Bitcoin before a specific period of time; after which a single signature would be needed. Due to this reason, it is possible to have fallback options – which can ideally prevent cases of funds loss.
The Pay-to-Script-Hash (P2SH) standard was extended for the inclusion of P2WSH, as a component of the upgrade SegWit. This specific standard has made it possible to have arbitrarily complex scripts.
With the help of P2WSH and P2SH smart contracts, Bitcoin can be sent to any script hash. Due to this kind of design, the expenses of Bitcoin transfer to a complex smart contract can be minimized. Also, it is possible to get more amount of privacy until the expenditure of Bitcoin.
All the aforementioned smart contracts are executed on the blockchain network of Bitcoin as standard Bitcoin transactions. But it is also possible to spend Bitcoin and use it for powering smart contracts on the Lightning network and other additional layers. It is possible to get more privacy and efficiency with the help of Bitcoin Smart Contracts. Furthermore, nft-era.io helps in user-friendly and secure options for Bitcoin trading.