Before deeply understanding the smart contracts, let’s remember the meaning of the term ‘contract’. A contract is a legally enforceable agreement between two or more parties.
Smart Contracts (also self-executing contract, blockchain contract, digital contract) is a digital form of agreement stored in the blockchain, automatically-executed without the participation of intermediaries when certain conditions are met. Initially, the idea of smart contracts was published by Nick Szabo in 1997 at the example of automated vending machines.
For Example, you need to buy a product with a specific characteristic, a particular colour and quality. It means conditions or rules beyond a simple cryptocurrency money transfer protocols can run. Smart contract addresses need specific validation for blockchain applications.
The main idea of smart contracts is to eliminate the interpretation discrepancy of the contract terms by the parties. Smart Contracts are making able to trust instead of using the judicial system.
Smart contracts are based on blockchain technology the decentralized system of which allows users to manage transactions, transfer information, and material value without banks and intermediaries. Smart contracts follow only the instructions given to them. Between the nodes of the platform, the contract is distributed and copied multiple times. The contract is performed in accordance with the contract terms after the trigger happens. The program checks the implementation of the commitments automatically.
Still, the most common use of smart contracts is the simple transfer of cryptocurrency assets. But it’s possibilities wider:
You can use smart contracts in everyday life situations, but its greatest potential is in the financial sector. Smart contracts help solve the problem of mistrust between parties and partners. For example:
Innovative or revolutionary, it is also commercially useful or capable of solving actual legal problems.
|Paper version of documents||Virtual document|
|Based on law and legislation||Based on the code|
|Legal language||Computer language|
|Terms of the contract can be changed, rewritten or interpreted differently||Terms of the contract cannot be changed as it is encoded in the blockchain|
|The help of a notary, a lawyer and appeals to public services||Excluding the intervention of third parties|
|Not Anonymous, personal meeting of two parties required||Anonymous, without personal presence|
|Transactions are conducted in currency through banks||Conducted using cryptocurrency|
|Exchange of values occurs instantly||The exchange of values occurs with delays|
|There are no guarantees. Any law can be circumvented||Guaranteed security of the transaction|
|You can change the conditions||All conditions are strictly followed|
|The probability of fraud, bribery, bribery is very high||Scam and fraud excluded|
|Legal assistance is needed to draw up a regular contract||The smart contract is quite difficult to make yourself|
Why is it our future? Smart contracts are more flexible than a real contract, powerful feature, if properly designed and coded, will displace traditional legal contracts and improve the ability for two parties to ensure that contracts of all types can be better enforced and as a result in autonomous, efficient and transparent systems.