Are you a newbie in tech?
Or a regular experimenter?
Presumably you might be hearing of smart contracts for the first time.
This article would focus on explaining in the most simplest terms what you need to know about smart contract.
A BRIEF HISTORY OF SMART CONTRACT.
Nick Szabo introduced the conception of smart contract in 1994. He used the development of blockchain technology to automate client contracts.
In essence, smart contracts are blockchain-grounded machines programmed with rules.
Inventors demanded a way to create on the Blockchain without having logical limitations. This is where Ethereum comes by.
Ethereum launched in 2015 allowing developers to build smart contracts with a programming system called Solidity.
WHAT ARE SMART CONTRACTS?
smart contracts are pieces of computer software intended to execute automatically, control, or fairly applicable events according to the terms of a contract.
They are simply collections of canons that run on the Blockchain.
They are considered smart, due to their tone-executing nature.
HOW DO SMART CONTRACTS WORK?
smart contracts depend on blockchain for their viability and security. The data that are needed to inform the terms of the agreement gets bedded in a blockchain.
I'll explain this with a practical example
Let's say a travel insurance company is in a contract with an individual.
The first rule of the contract is that the policy holder gets a refund from his payment if the flight is canceled.
This rule can be bedded in a smart contract, which means the policyholder doesn't have to rely on the insurer for his refund.
When the flight is canceled the information gets added to the blockchain which initiates the rule in the smart contract
The policyholder is then automatically paid.
The internal components of a smart contract are called objects.
There are basically three objects in a smart contract;
The signatories; who are the parties involved in the smart contracts that use digital autographs to authorize or disapprove the contractual terms.
The subject of agreement or contract.
The specific terms.
ATTRIBUTES OF A SMART CONTRACT.
A smart contract is
decentralized (stored across all bumps in the network)
Inflexible ( it cannot be altered once it has been given to the Blockchain)
Open (anyone can view it and use it).
Every smart contract has a unique address called a contract address which is generated on distribution of contract data.
Smart contracts cannot be deleted by dereliction, and their interactions are unrecoverable.
Smart contracts work by following simple “if,when,then” statements that are written into command on a blockchain.
USES OF SMART CONTRACT
- Financial institutions:
Smart contracts can be used for lending, borrowing, trading, automatic payments, fiscal data recording, and numerous more.
- Digital Identification:
Smart contract provides a unique identity process in digital assets. It removes fake tokens and makes KYC easy-flowing.
- Government:
A blockchain-based digital government can guard data, streamline operations, and dwindle fraud, waste, and abuse while simultaneously perfecting trust and responsibility.
- Distribution Chain Management:
Smart contract automates supply chain with visibility and translucency leading to fewer frauds
- Healthcare
Smart contract helps cross-institutional visibility, automating data sharing, and ensuring privacy.
- Insurance:
Smart contract Automates claims and settles controversies with proof.
BENEFITS OF SMART CONTRACTS
- Effectiveness and Accuracy
Once a condition is met, the contract is executed with immediate effect.
Because smart contracts are digital and automated, there’s no physical paperwork and no time spent detecting errors that frequently result from manually filling in documents.
- Trust and translucency
With smart contracts there are no third party involved and records of all transactions are shared with the different parties, there's no need to question if information has been altered for individual benefits.
- Security
Blockchain sales records are encrypted, which makes them very hard to hack.
Cryptology keeps all the documents safe from infiltration.
Also, because each record is connected to the old and future records on a distributed ledger, hackers would have to alter the entire chain to change a single record.
- Savings
Smart contracts do not need brokers or other middle men to confirm the agreement; therefore, they exclude the risk of manipulation by third parties.
- Backup
All smart contract documents stored on blockchain are duplicated several times, thus in the case of any loss of data, the originals can be restored easily .
- Speed
Smart contract carries out task by using computer protocols which helps to save time
- Disintermediation
Smart contract enables parties to enter into agreements with a reduced dependence on middlemen.
- Transparency
Smart contract Creates a terrain of trust as it allows the information in the contract to be visible to all participants in the blockchain network.
LIMITATIONS OF SMART CONTRACT
- Insecure smart contracts
Anyone can develop whatever smart contract they want as long as they pay the gas fee.
smart contract containing security fault may be run by developers without them knowing.
If hackers discover a bug it will make it suitable for them to exploit from every single individual that has ever had a sales transaction with that block chain system.
- Third party
Eliminating the involvement of a third party in smart contract is quite impossible
Third parties have a part to play in the processing of a smart contract.
For example, attorneys will not be needed to lay down physical contracts.
But they will be needed by developers to understand the terms to develop codes for smart contracts.
- Loopholes
When using smart contract there are possibilities of having loopholes, which is dangerous to the block chain system.
CONCLUSION
Security is a very vital aspect of smart contracts and it cannot be overemphasized.
Building smart contracts is a skill that is very valuable and becomes increasingly valuable as the space evolves.
While numerous people believe smart contracts are the way of the future, others are doubtful. Only time will tell if this technology is truly innovative.