Smart contracts are one of the most important byproducts of Blockchain technology when it comes to the impact they could have on our daily life
In this post, we are going to answer the basic questions that help to form an idea, what those contracts are about.
What are smart contracts?
A smart contract is basically a computer code on top of a blockchain which comes with a set of rules that bind the parties to interact with each other in a certain way. In case those pre-defined rules are met, the agreement is automatically enforced without the need for a middleman.
How do smart contracts work?
Smart contracts’ functioning is often compared with that of a vending machine, that has a pre-programmed set of rules for transactions. The person selects a product and inserts the coins. The machine then checks whether you inserted a the correct amount and, that being the case, ejects the product and change if necessary. Smart contracts operate similarly: you just drop a required amount of a cryptocurrency into the smart contract, and the goods you agreed upon drop into your account.
All the rules of the transaction and the penalties of not following them are by default pre-defined and enforced by the smart contracts. Smart contracts could be used to exchange money, property, shares or anything of value in general.
Similar to automatic vending machines that helped to expand the service to 24/7 and made human vendors obsolete, the smart contracts have the makings of setting lawyers and notaries aside and giving people more autonomy in their transactions in a transparent and conflict-free way.
Where can we use smart contracts?
A smart contract can formalize the relationships between people, institutions and the assets they own. Smart contract use cases range from simple to more complex. We can find examples of use cases in e-government, banking, insurance, energy, telecommunication, but also in the music & film industry, the art world, mobility, education etc.
As blockchains are considered faster, cheaper, and more secure than traditional systems, more and more banks and governments, who need the highest level of security, are turning to them. For example, for governments, smart contracts could provide an infinitely more secure system to vote online, that way hiking low voter turnouts, while banks use smart contracts to log change of ownership and transfer payments.
The fact is, blockchain and smart contracts have the potential to disrupt many industries.
What are the benefits of smart contracts?
- By automating the process through undeniable mathematical proof, smart contracts can reduce the reliance on lawyers, notaries or any other middleman.
- Smart contracts provide immutable and transparent registration.
- Smart contracts are stored on the blockchain which makes their content unchangeable and available to everyone.
- Smart contracts can result in lower transaction costs.
- Being self-verifying and self-executing, smart contracts guarantee a greater degree of security to all parties involved.
In conclusion, we might say, that the most interesting part of smart contracts is their capacity to really alter aspects of society in general. Smart contracts have the makings to provide a technical basis for all sorts of social changes.
It is the moment to start studying and get on board with the Blockchain Revolution!