Let's start with a little history. Most people don't know this but smart contracts actually date back to 1994 (Although the launch of Bitcoin in 2009 made smart contracts a technical reality, it was the Ethereum protocol that elevated the tech to a foundational element of blockchain) when they were first introduced by an early cryptographer named Nick Szabo. He described vending machine as
ancestors of smart contracts since they take payment and dispense products according to a displayed price without the need for a middleman.
In a similar sense, smart contracts receive payment through users with what is known as gas fees and transactions are self-executed through precomputer code when certain criterias are met.
They are digital contracts that are stored on the blockchain, and they are powered by blockchain technology. They are secure, transparent, and tamper-proof, which makes them ideal for use in business and finance.
Smart contracts can be used for a variety of purposes, such as booking appointments, processing payments, and signing contracts. They are also being used to create digital currencies and tokens.
In this article, I will explain what smart contracts are and how they work. I will also discuss the benefits of using them in business and finance, their use case as well. So sit tight and enjoy a roller coaster of knowledge.
PermalinkMeaning Of Smart Contracts
A smart contract is a computer protocol that allows two or more parties to agree on and execute a contract. In a more comprehensive form, simply put that the criterias are embedded in the code and once those criterias are met, the corresponding task or event is executed.
Smart contracts are executed by a computer program, and they are tamper-proof. This means that once the terms of the contract have been agreed to by all parties, the program will automatically execute them.
Smart contracts can be used for a wide variety of purposes, from verifying the identity of a party to contracting for the delivery of goods. They are particularly useful in industries that involve multiple parties, such as the insurance and banking industries.
PermalinkHow Do Smart Contracts Work?
A smart contract is a computer protocol that facilitates, verifies, or enforces the negotiation or performance of a contract.
They are executed using blockchain technology, which allows them to be self-executing and irreversible. This means that once the terms of a smart contract have been met, the contract will automatically be executed and the parties will be bound by its terms.
Smart contracts can be used for a wide range of purposes, from verifying the identity of participants to recording transactions. They are a secure and efficient way to conduct business online.
PermalinkThe Benefits of Using Smart Contracts
Smart contracts offer a number of benefits over traditional contracts.
1. More secure – because they are executed on a blockchain, smart contracts are tamper-proof and cannot be altered without the consent of all parties involved.
Faster and more efficient – because there is no need for third-party intermediaries, smart contracts can be executed quickly and without any delays.
More cost-effective – because there is no need for legal fees or notary services, smart contracts are more cost-effective than traditional contracts.
4. Easier to enforce – because smart contracts are self-executing, they are easier to enforce than traditional contracts.
5. Accuracy – Using smart contracts results in the elimination of errors that occur due to manual filling of numerous forms.
PermalinkLimitations of Smart Contracts
Smart contracts are a great way to streamline transactions, but there are limitations associated with using them
1.Difficult to change
It is nearly impossible to change the way a smart contract works, and fixing a code faultcan be a very daunting task. Considering the fact that it is time-consuming and expensive.
2. Possibility of loopholes
The idea of good faith states that partis will deal fairly and refrain from obtaining unethical benefits from a contract.
However,it is challenging to guarantee that the terms are followed in accordance with what was agreed upon when using smart contracts.
3. Third party
Although smart contracts seek to eliminate third-party involvement, it is not possible to eliminate them. Third parties assume different roles from the ones they take in traditional contracts. For example, lawyers will not be needed to prepare individual contracts; however, they will be needed by developers to understand the terms to create codes for smart contracts
4. Vague terms
Since contracts include terms that are not always understood, smart contracts are not always able to handle terms and conditions that are vague.
PermalinkHow to Create a Smart Contract
Now that you know what a smart contract is, let's take a look at how to create one.
First, you need to find a blockchain platform that supports smart contracts. There are several platforms to choose from, such as Ethereum and Hyperledger.
Second, you need to create an account on the platform and install the necessary software.
Once you have registered and logged in, you can start creating your contract. The process is relatively simple, and there are plenty of tutorials available online to help you get started.
Cause I'm nice and care about you, take a look at some tutorials to help you:
- Smart Contract Use Cases
One transaction type can only be utilized with a single smart contract: If one particular process happens, it is followed by another related process. However, the majority of dApps operate by combining multiple smart contracts to provide complex functionality. Numerous blockchain networks host thousands of dApps across a variety of industries, including finance, gaming, exchanges, and media, all of which employ smart contracts in various ways.
Smart contracts enable trading, investing, and interest on deposits and loans in the DeFi sector, which are generally only possible through conventional financial services organizations. Additionally, smart contracts can be created for trade, inventory tracking, prediction markets and betting, digital identities, legal contracts, online auctions, automated mortgages, and a variety of other use cases.
PermalinkThe wrap:
Smart contracts remove the need for intermediaries and contract enforcement. This greatly reduces cost and simplifies the contract negotiation process. With a smart contract, the code defines the mechanisms of the transaction and is the final arbiter of the terms. The immutability and irrevocability of the code in smart contracts is a strength, but comes with drawbacks. For example, if there is a bug in the code, there is no way to invalidate or change the smart contracts.
Smart contracts are autonomous, decentralized, and transparent. They are also irreversible and unmodifiable once deployed. This functionality has been utilized to make smart contracts the building blocks of hundreds of decentralized applications (dApps) and a major focal point of blockchain development in general.