UNDERSTANDING SMART CONTRACTS

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Introduction

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Smart contracts are now used in various fields for example the financial world in the trade clearing and settlement because it is cheaper(transaction cost) and it's more convenient.

Some even say it has the potential to phase out or cause sudden death to many different jobs and tasks, as the Smart contract aim to eliminate middlemen and reduce cost of transaction. It also seek to address one thing human use to justify their salaries: Accountability

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What are Smart Contracts?

A smart contract is a computer protocol intended to digitally facilitate, verify, or enforce the negotiation or performance of a contract. Smart contracts allow the performance of credible transactions without third parties.

They are blockchain program that self execute themself without the need for an intermediary or middleman.

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The term smart contract was first used sometime ago in 1994. It was coined by a scholar, computer scientist and cryptographer named Nick Szabo. He defined the principle on how smart contract should work but as at the time, there was no appropriate environment to realize them.

The term Smart contract has long been used before the emergence of blockchain and cryptocurrency. One crypto that makes use of the Smart contract is Ethereum. The Ethereum blockchain was created and built specifically for creating smart contracts.

The smart contract is just like any contract been used in the real world today. The difference is, it is a computer program masked in the blockchain which operates under certain conditions.

In today's world, Smart contract can however be used for several transaction outside of cryptocurrency, it can be used on anything transaction that involves deal making.

How do Smart Contract work?

The Smart Contract basic function is to execute instructions given to it automatically after a certain pre condition has been reached. Here is how it works

At first, assets and contract terms are coded and put into the block of a Blockchain. This contract is distributed and copied multiple times between the nodes of the platform. After the trigger happens, the contract is performed in accordance with the contract terms. The program checks the implementation of the commitments automatically.

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Advantages of Smart contract

1. Transparency: the smart contract offers transparency as all data and transaction are backed up across a massive network hundreds or thousands of times, and can be viewed and reviewed.

2. Reduction in transaction cost: the smart contract reduces or eliminates the need for an intermediary or middleman, thereby leading to cut and reduction in transaction cost.

3. Economy and speed in execution of transaction: Transaction using the smart contract are usual are fast, smooth and accurate. Once approvals are verified in real-time transaction will be completed as condition for the contract are been met.

4. Enchanced Privacy: The Smart contract offers privacy protection to parties involved. Also It is a very trusted and reliable system which has proven to maintain privacy for some time now.

5. Security: The smart contract are usually secured, well encrypted and distributed among nodes in the blockchain. So it will be for data to be lost or changed without your permission.

Disadvantages of Smart Contract

1. Human factor: A mistake can occur in the coding or in writing of the script to the smart contract by the developer. However, this is rare as matters involving agreements between parties are carefully checked and reviewed.

2. Uncertain legal status: Since the blockchain and smart contracts are not regulated by any government or regulatory body, they can be legal problems associated with implementing smart contracts in highly-regulated industries for example the financial sector, in which KYC is requirement to prevent money laundering. This could prove to an issue in the future, as it would be difficult to resolve any smart contract legal related issues.

Conclusion

As the smart contracts continue to get used in reputable business and organization, the security and privacy of smart contracts will become more standardized and trustworthy.

It's just a matter before businesses and industries fully incorporate the use of Smart contracts in their dealing because of the numerous benefits in transactions.

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References

• Reference 1
• Reference 2
• Reference 3

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