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How Distribution of Dividends via Smart Contracts is Done

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Overview

Today, we can use digital currencies to pay for goods and services. This is possible in both online and real-world situations. Also known as tokens, they are versatile and can be used for various processes. One of these is an investment. Just like traditional stocks, investors can purchase tokens for trading or holding purposes. They specifically invest in dividend tokens. Here is how they are distributed among investors by using smart contracts.

 

Purpose of Dividend Tokens

These are digital holders of value that indicate investment contracts in an organization. Investors that have dividend tokens can expect some passive income. This benefit can emerge due to various conditions such as an increase in the value of their holdings or profits from secondary trading. Whenever these activities occur, the organization splits its profits among the token holders through distribution. The Distribution of dividends via smart contracts is performed according to one's holdings.

 

Just like traditional stocks, dividend tokens have the potential for value appreciation. They experience growth by compound interest and also provide their holders with an opportunity to re-invest. Hence, investing in dividend tokens can be a highly rewarding decision. This distribution is performed using programs known as smart contracts. Notably, an investor in dividend tokens does not have to be one of the owners or directors in the overall cryptocurrency organization.

 

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How smart contracts are implemented in this situation

When developing some smart contracts for distributing dividends, you can choose to calculate everyone's share manually based on records of dividend ownership. You can also choose to program the smart contract such that it can automatically determine how many dividends to grant each holder.

 

Upon taking the manual route

When you decide to create the rules for distributing smart contracts manually, begin by arranging the correct dividend appropriation in a data file. After that, send this file to the chain. Each entry in the data file should contain details about the date and amount of money that each token holder should get.

 

While sending this data file, arrange it in a Merkle tree. Any other hashed medium is also appropriate. Having set it up in this way, proceed to send the root hash of the data file to the chain. The investors who desire to receive the dividends are required to send the hashes which accumulate up to the root. This will activate the smart contract to check for a confirmation that their payment is held within the Merkle tree. If confirmation is positive, the dividends are issued.

 

Upon using the automatic, programmed route

Begin by concluding the amount that every dividend holder should receive. However, do not send any data file to the chain. Simply sign a data load. In every recipient that you specify, sign a specific message. After that, put the messages within your distribution website.

 

The signature that you indicate will have 3 pieces of data. They are v, s, and r. Along with these is a hash. After posting, send the web address to the chain. Having done so, every user can send these data elements to the smart contract. It will analyze their individual signatures. After ascertaining authenticity, the smart contract will credit the dividend token holder with their correct balance.

 

Conclusion

Nowadays, investing in dividend tokens is lucrative. This is due to the gradual acceptance of digital currencies to handle payment processes. During the profit sharing process, smart contracts can be used to distribute tokens effectively among the investors.

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