What is smart contract? Before we come into that, we must first understand that smart contract is based upon blockchain technology. So it is something new. It is going to revolutionise how various industries are going to work. Being a cost saver as it skip “middle men”. More secure also than traditional systems. It is gaining in popularity with many institutes.
Smart contract is first mentioned by Nick Szabo. He is a renowned cryptographer and computer scientist based in United States. In 1994, Nick realise that decentralised ledger can be use for smart contracts. It is also call as self-executing contracts, blockchain contracts or digital contracts.
Smart contraction can convert to computer codes. They are then store and replicate on the system. The system is supervise by the network of computers that run the blockchain. Smart contracts are self-executing contracts. They have terms of the agreement between buyer and seller. It is being directly written into lines of code. In a smart contract, there can be as many stipulations. It is needed to satisfy the participants. That task will be complete in a satisfactory manner. Participants to a blockchain platform must determine how transactions and their data are represent to them. Then agree on the rules that govern those transactions, explore all possible exceptions. After that define a framework for resolving disputes.
Smart contract can be implement in many industries. From insurance premium to legal processes. Then to property law to crowdfunding agreements to financial derivatives. It can simplifying and automating routine. Also for repetitive processes. These are things which people currently pay lawyers and banks sizable fees.
For easier understanding: suppose you rent a factory from me. You can get it through blockchain by paying in cryptocurrency. In our virtual contract, you get a receipt. By a specified date, I give you the digital entry key. It will comes to you. The blockchain will releases a refund if the key doesn’t come on time. If I send the key before the rental date, the function holds it releasing both the fee and key to you and me respectively. This is when the date arrives.
It can be witness by hundreds of people. So you can expect a faultless delivery when the system works. If you send a certain amount in bitcoins, you receive the key. I give you the key and I’m sure to be paid. The document is automatically canceled after that time. Which it means the code cannot be interfere by either of us.
This is without the other knowing since all participants are simultaneously alert. Interesting!