A smart contractis a computerprotocol intended to digitally facilitate, verify, or enforce the negotiation or performance of a contract. Also known as crypto-contract, it allows us to share anything of value, among strangers in a conflict-free transparent way. First proposed by Nick Szabo in 1994, the interest in smart contract grew rapidly after the development of blockchain platform. With a smart contract, users can automate many solutions by writing on a blockchain to make things simple and efficient.
How Do Smart Contracts Work?
A smart contract is a self-operating computer program which uses a decentralized ledger, with self-executable digital contracts that later converted into codes and run on a blockchain. It contains a set of rules that constitute an agreement made between two or more parties. When these rules are met, the digital contract executes the transaction. It’s like a regular application that implements some business rules, only it uses a blockchain as a database. This means there is no need for a third party, like a bank, a broker or a government intermediary.
Fundamentally, the smart contract requires three integral part which are signatories of two or more parties, subject of the agreement and specific terms. The terms involved need to be mathematically described in full using an appropriate programming language in a smart contract’s environment. Various platforms like Ethereum, Bitcoin and Nxt have now used smart contracts to support and track monetary transactions in the digital currency world today. Other usages of smart contracts besides in trade finance are in keeping records of property ownership, mortgages, insurance and medical research where huge amounts of sensitive data can be kept secured and remain private to a third party as well as ensuring its complete transparency.
Advantages of Smart Contract
Processing speed – with the eradication of human involvement, smart contract increase the speed of business transaction as there will be no tedious manual processes.
Autonomy – smart contract has a decentralized nature that will eliminate third-party intermediaries as it has automated processes thus giving you full control of the agreement.
Safety – protected with complex cryptography, a smart contract will be very difficult to hack and will ensure the safety of your documents as data cannot be easily tampered with.
Accuracy – as with the elimination of human involvement in a smart contract, mistakes are less likely to occur in the data storage processes.
Savings – automated processes by network ensures cost saving as operational expenses and personnel monitoring are not needed.
Ultimately, the smart contract being an extremely young and new technology, is still prone to problems and vulnerability attacks as it is still in the developing phase. The codes used need to be error-free as in such cases, codes that contain bugs can be exploited by scammers thus putting the data stored at risk of being tampered by a third party.
Nevertheless, this technology will undoubtedly be perfected over time and might become an integral part of society.
What's Your Reaction?
A keen researcher who believes in enriching her knowledge. For Shuhada, the crypto world intrigues her sense and offers plenty of high delicious 'crypto cuisines'.