Smart Contract Key Points
- A smart contract is a self-executing contract with the terms of the agreement directly written into code.
- They are stored and replicated on the blockchain and supervised by the network of computers that run the blockchain.
- Smart contracts permit trusted transactions without the need for a central authority, legal system, or external enforcement mechanism.
- They render transactions transparent, irreversible, and traceable.
- Smart contracts are used primarily in decentralized applications (dapps) and are a critical component of blockchain technologies such as Ethereum.
Smart Contract Definition
A smart contract is a type of digital contract that automatically executes and enforces the contract terms. The agreement’s rules are pre-programmed into the contract, allowing it to carry out actions automatically when the conditions are met.
What is a Smart Contract?
A smart contract is a computer protocol intended to digitally facilitate, verify, or enforce the negotiation or performance of a contract.
They are self-executing, with the terms of the agreement between buyer and seller directly written into lines of code.
The code and the agreements contained therein exist across a distributed, decentralized blockchain network.
They are designed to provide a superior system of contract law and related business practices through blockchain technology.
Who Uses Smart Contracts?
Smart contracts are primarily used by businesses and individuals that want to leverage the benefits of blockchain technology.
This includes industries such as finance, real estate, and supply chain, where smart contracts can provide transparency, reduce fraud, and lower costs by removing the need for intermediaries.
They are also used heavily in decentralized applications (dapps) and are a fundamental part of many blockchain platforms like Ethereum and Cardano.
When Were Smart Contracts Invented?
The concept of smart contracts was first proposed by computer scientist and cryptographer Nick Szabo in 1994.
However, they didn’t become a reality until the launch of Ethereum in 2015, which incorporated a programming language that allows for the creation and execution of smart contracts.
Where are Smart Contracts Used?
Smart contracts are used wherever there is a need for trust, transparency, and automation in the execution of agreements.
This includes, but is not limited to, areas such as financial services, supply chain management, real estate, and law.
They are also an essential part of decentralized applications (dapps) and decentralized finance (DeFi) platforms.
Why are Smart Contracts Important?
Smart contracts are important as they eliminate the need for a trusted third party or intermediary in a transaction, reducing costs and increasing efficiency.
They also provide transparency and security, as the agreements are immutable and cannot be altered once they are deployed on the blockchain.
Furthermore, they can automate complex processes, enabling actions to be executed automatically when predetermined conditions are met.
How Do Smart Contracts Work?
Smart contracts work by encoding business rules into a programmable language, which is then deployed onto a blockchain.
Once the predefined conditions of the contract are met, the smart contract will automatically execute the agreement, whether it’s releasing funds, transferring ownership of assets, or recording data.
Since the smart contract is stored on a blockchain, it is decentralized, transparent, and tamper-proof, providing a secure and efficient way of executing agreements.
