What are smart contracts?

SMART CONTRACTS

A smart contract is an attribute of blockchain that raises a lot of questions in the minds of Crypto newbies. Surely you might be wondering what smart contracts are, how efficient they are, what makes them unique? how does it stand out from regular traditional contracts, and what are the benefits of using a smart contract.

In this article, I will be simplifying the workings of a smart contract

WHAT ARE SMART CONTRACTS

In essence, smart contracts are automated contracts between the contract maker and the beneficiary.

This agreement is encoded in code and baked into the blockchain, making it irreversible and irrevocable. They are typically used to automate the implementation of an agreement so that all parties are immediately certain of the outcome and no middlemen are required.

They can also automate a workflow so that it only begins when specific conditions are met

The prevailing system has been to sue an individual for refusing to perform his end of the contract. In a smart contract, third-party interference is not needed as the trust is in the codes and if a party refuses or fails to perform his own end of the bargain, the codes will automatically react according to the prior agreement of the parties.

A smart contract does not always represent a legally binding agreement. Some legal scholars contend that smart contracts are not legally binding agreements but rather tools for carrying out responsibilities derived from other contracts, such as those involving the transfer of tokens or cryptocurrencies or the automation of payment requirements through technology.

Furthermore, according to some academics, the imperative or declarative character of programming languages may have an effect on the legitimacy of smart contracts.

Smart contracts enforce agreements and ensure that each party performs his own end of the bargain.

EVOLUTION OF SMART CONTRACTS

Nick Szabo, who created the phrase, first advocated smart contracts in the early 1990s, defining them as “a set of promises, stated in digital form, including protocols within which the parties fulfil on these promises.”

The phrase was first used to describe items in the rights management service layer of the Stanford Infobus, a component of the Stanford Digital Library Project, in 1998.

HOW DOES A SMART CONTRACT WORK?

A smart contract is a way to transfer assets or currency in a program. This program executes the contracts based on the conditions defined in it. All these are done automatically by the program.

Let’s illustrate the workings of a smart contract in real life scenario using real estate.

Real estate has been adopting blockchain, so if you, in the future decide to buy a house from a blockchain-powered platform, they are many factors that must be dealt with during a real estate transaction e.g loan amounts, instalments, etc.

Say you decide to pay 40% upfront for the house and pay the rest in 3 instalments, the seller creates a smart contract based on these agreements. A contract can now be set in motion once both parties (seller and buyer) have come to an agreement and everything is documented correctly.

The title of the property is then transferred to the buyer once he has paid off the remaining amount and met all the other conditions. This is done automatically without the inclusion of a third party. So no legal fees are paid, and you can save time and resources in completing the whole deal.

COULD THIS BE A NEW WAY?

Recent developments have made smart contracts easy to use for persons who do not have any Idea about coding and web development. They have become easy to use for persons seeking to enter into trust-less transactions.

smart contracts bring to light a secure environment for contract execution. and prevents the disclosure of the contract’s specifics and other important information. Furthermore, no human or outside entity can interfere with how a smart contract is being executed, protecting it from hackers. All of the crucial information is encrypted to maintain security.

We may see a future where businesses will be run through smart contracts especially business transactions that are carried out on the internet. This may go a long way to reducing internet fraud.

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