A smart contract in its generic term is a digitized agreement that automatically executes when a predetermined criterion is fulfilled. Bitcoin is one of the leading currencies that supports a variety of smart contracts to support multiple transactions.
Bitcoin went through a major upgrade to enable the crypto to handle more complex transactions with ease. These smart contracts provide crypto with the element of traceability and transparency. They are also irreversible, meaning that once started, users cannot stop the process.
Here's what you need to know about Bitcoin smart contracts.
How Does Bitcoin Support Smart Contracts?
Bitcoin smart contract support comes from its powerful programming language, Script.
Script enables users to establish a predetermined condition that has to be met for their transaction to process further. A user must satisfy the predetermined condition to unlock his BTC and send them for processing - the same as how smart contracts work for most other cryptocurrencies.
Types of Smart Contracts Supported By Bitcoin
Bitcoin supports a variety of smart contracts including:
Pay-to-Public-Key-Hash smart contract
The Pay-to-Public-Key-Hash smart contract, or P2PKH, is one of the most popular forms of smart contract. It enables Bitcoin to be sent to a Bitcoin address, with the condition that only the owner of the private key can access it.
Multi-signature scripts require a condition where users need to specify the number of signatures. For example, contract creators can mention a list of x public keys needed with a list of y which are equal to or less than x keys.
The Bitcoin sent by the user will only be unlocked and spent when x keys are provided, each of which conforms to one of y listed public keys. This is known as m-of-n multisig.
Time-Locked Bitcoin Transactions
Bitcoin transactions can be scheduled or time-locked, meaning they can be accepted after a predetermined amount of time passes.
These time locks can act as a locking script to change the way users can spend their BTC. For example, a condition such as x Bitcoin can be spent after 1 signature can be set up by users as a simple smart contract requirement.
Bitcoin's Taproot Upgrade
Bitcoin Taproot Upgrade is the latest ScriptPubKey that allows bitcoin to get unlocked via public key or merkelized alternative script tree. This enables users to spend the cryptocurrency in multiple ways.