A smart contract is something you've already heard about. Its most straightforward concept is that of a computer programme that acts as a contract and can be automatically executed after all parties involved have agreed to and signed the contract's terms.
A smart contract, despite its complexity, is a legal contract that is very close to the conventional contract that we normally make on paper.
Two or more parties agree to such terms in return for a product or service in both situations. Both contracts have both parties' consent as well as a legal and legitimate reason. They vary, however, in terms of how they are written, the legal implications, and how they are carried out.
Smart Contract's History
Nick Szabo coined the term "smart contract" in 1994, referring to contracts as "a machine mechanism capable of implementing the clauses of a contract." His main aim was to apply protocol design business practises to online commerce with strangers. He was unable to put his concept into action due to technical constraints at the time.
Smart contracts involved an online payment mechanism that functioned similarly to FIAT money, and the Bitcoin blockchain was born in 2009. Although this cryptocurrency was only intended to be used as a payment mechanism, its blockchain technology was crucial for smart contracts.
Finally, in 2014, Ethereum smart contracts made their debut in the technical world. Smart contracts are currently used on two major platforms: Ethereum and Codious, both developed by Ripple Labs, the Ripple platform's developer.
How does smart contracts works?
Smart contracts, as we all know, run on the blockchain. One of the challenges in developing smart contracts was ensuring that software could guarantee two parties to an agreement that it would be met without any adjustments. The blockchain was used to solve this problem.
The blockchain cannot be tampered with and is secured. It is run by hundreds of thousands of computers, and everything, even an agreement, can be registered on it, so computer manipulation is not an option.
Another problem was the online wealth management. How do you get money from a physical transaction to an online transaction? With the development of cryptocurrencies, another problem is solved thanks to the blockchain. We now have the assurance that the contract will be fulfilled, as well as a monetary mechanism that functions as a digital asset for making online payments.
How do we connect smart contracts to the properties that are part of the contracts? Another concern is why Nick Szabo was unable to put his plan into action. However, thanks to the Internet of Things, or IoT, the issue no longer exists.
Connecting physical assets to the Internet without them being computers is an example of this. We're talking about all of the mobile devices that can be connected to the Internet and controlled digitally today.
Let's look at how the contract works now that it's possible. Smart contracts are one of the most stable technologies since they are held in an encrypted and invariable ledger called the blockchain. This same technology allows for the clear circulation of assets while still ensuring that each movement is traceable.
As an example Party A allocates a vehicle to Party B. The condition is that if party B sends €15,000 to A within one month of signing the contract, the smart contract immediately and without the use of intermediaries or high fees registers B's ownership of the car in the blockchain, which is irreversible. When the money is deposited in A's account, the car's ownership immediately shifts to B.
Finally, a smart contract acts as follows. A contract's terms are negotiated upon by two or more parties. This contract is held in the blockchain until the agreed-upon activities are completed, and then the outcomes of both parties' fulfilment are carried out.
Smart Contracts Application
Smart contracts may be used for a range of reasons, not just a car sale or a wager. They are now needed in many sectors of the economy. We'll take a look at a few of the smart contract's many uses below.
They're an important part of the payment automation process. We should guarantee that the agreed-upon sum of money reaches the other contracting party through them. This payment may be made immediately or at a later time. We can also find money lending in this field.
Contracts are often used in the form of registrations and transfers of possession. This can be accomplished by registering the necessary documents on the blockchain and then incorporating them into the contract. This technology is currently being used by several banks in their real estate management.
Industry isn't lagging behind when it comes to applying this technology. Power plants, electricity sources, and fuel sources are all contributing to the digital ecosystem. Contracts bind power and fuel sources to organisations or individuals that pay for the service.
Smart contracts facilitate an endless range of utilities, including the bets we've already seen, life, house, and car insurance, and even voting. Every day, technology progresses, and smart contracts are becoming increasingly important.
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