In this Smart Contract review, we will tell you everything you need to know about it – keep reading to find out more!
What Is a Smart Contract?
Smart contract technology has come to eliminate the need for people to “trust” each other with the help of Blockchain technology. A smart contract is a computer code that facilitates the execution of certain contractual agreements by eliminating the need to go through an intermediary. Smart contracts are closely linked to blockchain technology because the latter is the platform on which they are based. In other words, smart contracts are on the blockchain. There are countless applications based on smart contracts and many possible uses.
Delivery services are an example of a business where smart contracts could easily be applied. A smart contract would ensure that the money is sent to the delivery service only after the actual delivery of the package. No need to sign a traditional contract; the sender simply fills the smart contract with a cryptocurrency, and then the smart contract uses the currency (Bitcoin can be an example) to manage everything.
The first time, the smart contract idea was declared in 1994 by a cryptographer named Nick Szabo. The main purpose of this idea was to eliminate intermediaries in contracts.
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What Is the Difference Between Smart Contract and Traditional Contract?
To understand what a smart contract is, we must start from the traditional definition of the contract.
A traditional contract is an agreement by which any person, whether natural or juridical, undertakes, does, or does not do something with respect to someone. Legally, a contract is formed when an offer meets an acceptance.
Traditionally, this meeting is formal or informal, by meeting the contractors or putting them in the contract. It is therefore advisable to draft the contract in writing to formalize its terms and guarantee the legal obligations of the contracting parties.
The smart contract takes up all of these notions of the contract but results from a computer program registered in a blockchain in the same way as cryptocurrencies.
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The Components of Smart Contracts
Smart contracts are made up of integral components. Components such as:
Signatories: Signatories are the parties to a transaction who, by a digital signature, agree to approve the contract.
The subject of the contract: Anything that the contract is executed for the transaction, such as property, is called the subject of the contract. To execute transactions, smart contracts must have access to the subject of the contract.
Contract Terms: Smart contract terms are written in the solidity programming language. These terms and conditions include all that the parties must comply with. Such as discounts, rules, damages, and….
Oracle: Oracle is a system that provides external data to the smart contract. For example, if the contract is related to bitcoin, an oracle is defined to check the price of bitcoin per day in a Smart Contract.
Dedicated platform: The Smart contract needs a dedicated platform to run to distribute it among users. Once published on a proprietary system, these contracts run on a formal platform such as Ethereum.
How Are Smart Contracts Executed?
A smart contract performs what is written in its code from the moment specific conditions are met. This makes transactions transparent, tamper-proof, fast, and irreversible. Moreover, it does not require the presence of a central authority. It is simply a code that helps two parties to collaborate without an intermediary.
We have been talking about the concept of smart contracts for more than twenty years, but it was only with the arrival of the blockchain that we were able to use it on a large scale.
Smart contracts can be very convenient for exchanging money, goods, or other assets, which helps to streamline business processes and avoid waiting times for validation, tracing inventories, the automation of dividend payments, or the control of personal data. They can be used in finance, energy, real estate, healthcare, media, entertainment, and government.
The demand for smart contracts is expected to increase in correlation with the development of the Internet of Things (IoT). Moreover, smart contracts and ICOs are closely related, as these use smart contracts to facilitate the exchange of currency.
That said, smart contracts are still in their infancy and there are still many problems to address, starting with security. Imagine a smart contract that has significant security weaknesses but that cannot be corrected quickly… There are also issues of regulation and legal issues of smart contracts. Ethereum smart contracts are the most popular.
Advantages of Smart Contract
- Data Support: All documents are stored in the blockchain in several ways; Therefore, in case of loss of Smart Contract information, the original versions can be recovered.
- Transaction Security: smart contracts are encrypted, and encryption is what keeps documents safe from hacking. In fact, the possibility of hacking smart contracts is slight.
- Speed of Transactions: Smart contracts, with the help of computer protocols, perform their tasks automatically and save time by reducing various executive processes.
- Independence Of Users And Reduction Of Their Costs: As mentioned, with the implementation of smart contracts, the need for brokers and intermediaries have been eliminated. This, in addition to reducing users’ costs, helps them to approve the agreements themselves. This independence greatly reduces the risk of fraud.
- High Diversity: Smart contracts are applicable in a wide range and can be used to execute any type of transaction. It does not matter if you want to buy gold or pay your child’s tutor. You can use smart contracts for any type of contract.
- Accuracy of Transactions: The use of smart contracts eliminates the many errors that occur when filling out forms manually, and greatly increases the accuracy of the transaction.
Has this new idea not faced any restrictions since entering the blockchain platform? Definitely yes. In fact, every phenomenon in the crypto world has its advantages as well as its disadvantages.
Disadvantages of Smart Contract
- The relative presence of intermediaries: It has been said that smart contracts seek to eliminate intermediaries, but their elimination is absolutely impossible. The role of intermediaries in smart contracts is different from their role in traditional contracts. For example, you do not need a lawyer to set up individual contracts, but smart contract developers will need lawyers to better understand the terms and code for that contract.
- Unofficial: No government or organization recognizes or controls smart contracts. As a result, the validity of these contracts is still unclear. On the other side, in the future, laws may be enacted that conflict with the rules of smart contracts.
- Immutability: Changing smart contract processes is almost impossible. This feature, while providing high security, on the other side, causes any errors in the code, and time, and costs a lot of users. Since these contracts are coded by programmers, if they make a mistake, it is not possible to correct them and serious problems occur.
- High adjustment cost: Execution of Blockchain smart contracts can only be done by professional programmers, and beginners do not have the necessary ability to execute it. Professionals familiar with the coding, rules, and structure of the blockchain receive very high salaries for setting up each contract.
Hope the above information is helpful to you. In case of any doubts, please ask your questions in the comment section below.
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