UNDERSTAND WHAT SMART CONTRACTS ARE AND WHY THEY ARE CALLED SMART!
What is smart about smart contracts?
Okay, let’s say you want to buy a nice watch from an online vendor, but you are too scared to pay this unknown vendor online, probably because of stories or personal experience. But this vendor too can’t trust you enough to send you the watch before you pay them.
This is the major problem that the smart contract solves.
Smart contracts are sets of programs that run when the conditions set by the creator are met. These actions could include releasing funds to the appropriate parties, registering a product, sending notifications, or issuing a ticket. The blockchain is updated when the transaction is completed. That means the transaction cannot be changed, and only parties who have been granted permission to see the results can see them.
Data on the blockchain ledger may be read and updated using these codes. Business logic may be converted into an executable program using smart contracts, which all blockchain network participants can agree upon and verify. The definition of assets that are exchanged between parties is part of business logic. It also includes the terms and conditions necessary for a transaction to be carried out. Businesses may automate business operations, audits, and significant volumes of manual processing and paperwork by turning these regulations into code on a blockchain.
Why exactly is it called “smart”?
They are smart because the computer does what it is asked to do when the condition is met. Smart contracts work by following simple if, else, and then statements that are written into code on a blockchain. Within a smart contract, there can be as many stipulations as needed to satisfy the participants that the task will be completed satisfactorily. To establish the terms, participants must determine how transactions and their data are represented on the blockchain, agree on the “if/when… then…” rules that govern those transactions, explore all possible exceptions, and define a framework for resolving disputes.
Then the smart contract can be programmed by a developer — although increasingly, organizations that use blockchain for business provide templates, web interfaces, and other online tools to simplify structuring smart contracts.
Each node in a blockchain network will check transactions to make sure the seller issued the shipment request and the customer made the payment. Both will be bound by a contract up until that point.
The goods are automatically dispatched to the buyer if the network determines that both requirements are met, and the seller receives the money in his account without the need for a middleman. The customer will be given a prompt refund if the other cargo is not received.
Consider another scenario where a network of auto dealers, insurers, and government authorities decide to utilize the blockchain to monitor vehicle ownership. For all cars to be joined to the network, the smart contract can demand that they have current registrations and vehicle identification numbers. The smart contract stipulates that when a car is sold, the money must be held in escrow until the new owner of the car has registered it with the appropriate authority. The money is automatically sent when the new registration is completed and the new owner is noted.
An escrow is just a legal arrangement in which a third party accepts and disburses funds or property on behalf of the principal parties to a transaction, with the payment subject to terms established by those parties.
speed, effectiveness, and precision
The contract is promptly carried out if a condition is satisfied. Smart contracts are digital and automated, so there is no paperwork to complete or time wasted fixing mistakes that frequently occur when documents are filled out manually.
Transparency and reliability
There is no need to worry about information being changed for personal gain because there is no third party involved and participants exchange encrypted records of transactions.
Because the blockchain transaction records are encrypted, they are incredibly difficult to hack. Additionally, hackers would need to alter the entire chain in order to change a single record on a distributed ledger since each record is linked to the records that came before and after it.
Smart contracts eliminate the need for middlemen to conduct transactions, and consequently, their time delays and expenses.
Benefits of Smart Contracts
The danger of other parties influencing the agreement is entirely eliminated by smart contracts because there are no brokers or other middlemen. Smart contracts also save money since there is no intermediary in the transaction.
Every document on the blockchain is duplicated several times, thus in the case of data loss, originals can always be found.
3. Safety Cryptography is employed in smart contracts to prevent tampering with all documents.
Smart contracts automate tasks using computer protocols, reducing the number of hours needed to complete various business processes.
Limitations of Smart Contracts
1. Difficult to alter
It is nearly impossible to change the way a smart contract works, and fixing a coding fault may be time-consuming and expensive.
2. Potential for loopholes
The idea of good faith states that parties will deal fairly and refrain from obtaining unethical gains from a contract. However, it is challenging to guarantee that the terms are followed in accordance with what was agreed upon when utilizing smart contracts.
3. Third Party
Even while smart contracts aim to do away with third parties, it is impossible to do so. In contrast to the functions they play in conventional contracts, third parties take on new responsibilities. For instance, attorneys won’t be required to draft individual contracts, but developers will still need them to comprehend the conditions when writing the programs for smart contracts.
Languages used in a smart contract
The advantages of each smart contract language are different. It’s interesting to note that the list also contains a language with significant promise but no official release. The key is to use the best tool for the job while taking into account your own tastes when picking a programming language for creating smart contracts.
What a smart contract code looks like
sources — BItcoinist
With so many benefits, it might be challenging to settle on a single smart contract programming language. It is also absurd to think that any programming language is the best solution for creating smart contracts.
Follow me on Twitter
UNDERSTAND WHAT SMART CONTRACTS ARE AND WHY THEY ARE CALLED SMART! was originally published in Coinmonks on Medium, where people are continuing the conversation by highlighting and responding to this story.