## 4 Conceptualizing Blockchain Technology
### Smart Contracts  
In this section, the concept of smart contracts is introduced. We consider when the procedure of a debt compensation cycle should trigger a smart contract to make this compensation effective. To grasp the functioning of a blockchain, it is essential to comprehend the following four crucial concepts:  
* Shared ledger: An unalterable record of all network transactions accessible to all network participants. By having a shared ledger, transactions are recorded only once, eliminating the duplicative efforts prevalent in traditional business networks. * Permissions: As previously mentioned, blockchains can be either permissioned or permissionless. In a permissioned blockchain, each participant holds a distinct identity, which enables the implementation of policies to regulate network participation and access to transaction information. * Consensus: In a business network where the participants are familiar and trustworthy, transactions can be verified and recorded on the ledger through a consensus mechanism (an agreement). * A smart contract is a self-executing agreement or set of rules that govern a business transaction, which is stored on the blockchain and automatically executed as part of the transaction. The concept of smart contracts was first introduced in the 1990s, but it was not until the rise in cryptocurrencies and the implementation of blockchain technology that it became a reality. They play a crucial role in blockchain technology as they dictate and regulate the conduct of transactions. Unlike traditional contracts, smart contracts are integrated into a blockchain network, providing a secure and automated environment for execution. The transparency and self-executing nature of smart contracts is a major advantage; once deployed on the blockchain, they cannot be altered or halted. Furthermore, as mentionedpreviously, they are special programs stored on the blockchain, which is a neutral territory outside of any server. The main advantage of this approach is the absence of an intermediary; that is, when the code is deployed in the chain, it is automatically executed where the conditions are met. Thus, they define the agreements among multiple parties without an intermediary. Obviously, the testing phase of this approach is crucial since, for example, the system can incorrectly transfer money to some accounts. In general, these contracts are usually based on the Ethereum network since their integration is mature enough. Therefore, smart contracts are computer programs that automate the implementation of agreements among parties, eliminating the need for manual coordination or intervention [39; 40]. These agreements can be recorded and validated on a blockchain, which can then execute the contract automatically on the basis of predefined \"if-then\" instructions. For example, \"if\" a certain condition is met (such as paying for a rental car and short-term insurance), \"then\" certain actions are triggered (such as the car door unlocking, and payment being transferred). The blockchain's verification and recording process ensures that conflicts or errors are resolved and only one valid transaction is recorded (preventing double entries). In this way, these smart contracts can be used in a wide variety of scenarios. They can be used to carry out simple transactions with a set of requirements that are verifiable by the network, either within the blockchain itself or outside it using APIs. Today, the main application of this approach is for all kinds of financial products, from funds to call options to many others. For example, one can think of a way to manage things such as copyright for an image bank. Every time an image is used in any media, it will be automatically detected, and the author will be paid.