In this article, we will explore the nature of smart contracts and their overall perspectives. If you are interested in cryptocurrencies and the digital world in any way, you will have most likely heard about such concepts as smart contracts. For those who are still new to the market – in simple terms, smart contracts are a new blockchain technology that makes it possible to automate the implementation of transactions without the direct participation of the parties. Experts and crypto enthusiasts are saying that smart contracts will completely change all spheres of the national economy and even the world. Is this truly so?
What Is a Smart Contract?
A smart contract is a computer program that automatically executes bilateral or multilateral agreements and allows control of the conditions specified there. Just like with real-life agreements, the terms of the contracts are determined by the interested parties. The program code is activated when both parties perform certain actions aimed at the execution of the contract. The main differences between a smart and a paper contract lie in the way they are written, the concept of compliance, and legal implications.
How Do Smart Contracts Work?
Smart contracts are created using programming languages, and are executed automatically. After analyzing the relevant information, the program performs certain operations in accordance with the terms of the concluded agreement.
When a digital agreement is executed, a so-called audit trail is formed. This makes it possible to identify the sequence of actions of the parties to the agreement. The computer contract is cryptographically protected from attacks by cybercriminals. Such contracts are usually used to perform transactions on the blockchain.
Smart contracts allow you to control and verify the recording of information automatically, without the need to monitor it manually. The terms of the agreement are formalized and translated into a programming language. A smart contract is open to all participants in the blockchain.There are multiple blockchains on which you can build smart contracts and they all have their pros or cons. For example, Ethereum smart contracts are public and open to everyone, while Hyperledger smart contracts can be permissioned and people can be assigned different levels of access.
Example Of How a Smart Contract Is Used
To better understand the concept, let’s consider an example of a practical use. A user visits an online marketplace looking for a service. They select somebody who would be willing to help them, and makes a payment, which is then locked by a smart contract. In accordance with the terms of the contract, the contractor will be able to receive money only if all the conditions of the agreement are met in terms of quality, i.e if a customer is satisfied with the work delivered. The result of that service can be evaluated by the customer in a special app. If the client gave a positive rating to the contractor, then the locked payment is transferred. The fee can be paid in cryptocurrencies or fiat currencies.
Benefits Of Smart Contracts
The use of smart contracts has a number of undeniable advantages, some of which include:
● Transparency: smart contracts are fully transparent to all parties, all of them will be able to view all the terms and conditions of such agreements.
● Efficiency: a smart contract is an efficient tool if you want to get things done quickly and without any miscommunication. The combination of accuracy, speed and automated function effectively completes the entire contract process without any interruption of the intermediary. Smart contracts can process a huge number of transactions with higher efficiency.
● No paper-work: smart contracts use the virtual world for all their processing and therefore they completely eliminate the use of paper. This is a significant contribution to the environment and to the whole world. They make both the real world and the business world better.
Smart Contracts On Ethereum
Smart contracts are usually implemented using Ethereum blockchain. To create your own smart contract on Ethereum, you are likely to need at least the basic knowledge of Solidity or Mutan programming languages. This will allow you to write code and comply the contract with the ERC-20 interface.
There are two levels for smart contracts. The first is the platform infrastructure (SCP), which allows you to manage digital agreements on the blockchain. The second layer is the smart contract management system (SCMS). The specified protocol is a graphical interface that facilitates user interaction with programs.
The created contract is executed inside the EVM. A small commission (“gas”) must be paid to fulfill the agreement. The EVM processes up to 15 transactions per second. The execution of the contract is carried out according to a decentralized scheme. The transaction is processed simultaneously in all nodes of the computer network.
If you don’t want to engage in smart contract development yourself, you can create one using various tools, for example, hyper ledger smart contracts. This will make your life easier, as you will still benefit from the perks offered by a smart contract while having professionals develop it for you.
Closing Thoughts
It is very likely that soon, smart contracts will be implemented in various fields. As a result of such technology, we will notice a global acceleration of transactions and business processes. The world economy will become more flexible, transparent and personalized. This means that if you want to stay on top of the evolving world, exploring smart contracts in more detail is something you should consider doing at an early stage.