What is smart contract technology

What is the purpose of smart contracts on the blockchain?

Since smart contracts are a program that runs on the blockchain, users have to send transactions to the blockchain to start the program. Once the codes are defined and the logic is locked, then the program can be executed there.

the main objective of smart contracts is to simplify business transactions between parties, by eliminating the intermediaries involved in traditional business processes. These contracts are intended to reduce payment delays, error risks and the complexity of a conventional contract without compromising authenticity and credibility.

Its main distinctive advantage is that it allows secure transactions without intermediaries.

How do smart contracts work on the blockchain?

Smart contracts refer to a computer algorithm designed to form, control and provide information about the owner of the asset. In fact, it is a program that runs on the Ethereum blockchain to facilitate, verify, or perform secure transactions autonomously. To know how it works, you must first understand what a smart contract consists of.

Firms. The two or more parties must give their consent to proceed with the proposed terms and conditions.

Critically identify the object of the contract . The object must be within the context of the smart contract environment.

Be specific with the terms. Terms must be precise and described in detail. For example, the Ethereum smart contract is based on the Solidity and Serpent programming languages, so the agreement must be in specific mathematical terms and compatible with the precise language.

Once these requirements are established, the smart contract based on the blockchain can be formalized. However, the deal is subject to negotiation before the terms are put into action on the blockchain.

Typically, a smart contract will automatically trigger an action based on the agreement between two users giving rise to the blockchain. This means that when a seller intends to sell a BTC, the smart contract will regulate the transfers until the BTC is successfully exchanged from one person to another. When that happens, the funds will be released, and there will be no change. And all information about the transaction will be listed and stored in a public database.

Who created smart contracts?

The idea of ​​smart contracts was originally introduced by Nick Szabo , a well-known American cryptographer. In 1996, he published his article on smart contracts in Extropy magazine , where he predicted the benefits and features of blockchain contract applications. He later developed this concept in several articles in later years.

Ian Grigg and Gary Howland were the other contributors to the idea of ​​smart contracts. They published their work on Ricardian contracts as part of the Ricardo payment system in 1996. The implementation of smart contracts became possible after Bitcoin and its blockchain emerged, given the right conditions. This innovation was finally spread several years later on the Ethereum blockchain. Today, many alternative platforms allow users to take advantage of this feature, although Ethereum is still the pioneer.

How do smart contracts work?

As already mentioned, smart contracts represent computer protocols or, in simple words, pieces of code that are a fundamental technological element. They serve to specify all the conditions of the agreement that is concluded between the parties to the transaction in the blockchain. As soon as these conditions are met, the smart contract will automatically perform a transaction.

A blockchain-based system allows its participants to reduce intermediaries and excessive paperwork, since it is based on the public ledger, in which any interested party can verify all transactions. The central requirement here is to describe all the conditions of the agreement by means of mathematical rules with suitable programming languages.

The blockchain represents a distributed network of nodes, each of which stores information about all transactions. To undo a transaction or double spend funds , you would need to gain control of more than 50% of all these nodes.

Suppose a person wants to start a smart contract, he will have to download special software and generate a public key published in the system. Afterwards, she must send an initiation message and the nodes will process it. When the event set by the smart contract is fulfilled, the codes will be executed.

For example, vending machines automatically deliver a requested item to the buyer if specific requirements are met (a certain amount of money is paid).

In addition to transferring funds, there are other use cases:

Digital Identity: Eliminate counterfeiting and provide individual identity to digital assets.

Financial security: they are perfect for liability management, automatic payments or stock splits.

Trading activities: Smart contracts provide a great way to automate trading operations. Also, cross-border payments and international operations become more manageable with its help.

Clinical Trials: Provides inter-institutional visibility, facilitates and automates data sharing, and enforces confidentiality.

Government: Smart contracts can improve the transparency and efficiency of voting.

The use cases for smart contracts are variable and cover numerous opportunities. They can potentially become a powerful tool in many fields of human activities.

The characteristics of a smart contract

Smart contracts possess some distinctive features that separate them from other forms of financial transactions:

Autonomy: users have full control over the agreement. The smart contract is a guarantee by itself that excludes the possibility of interference from any other third party (broker, lawyer, notary, and more).

Security: An essential purpose of the smart contract is to ensure the security of transactions. The information entered in the blockchain cannot be deleted or modified. Even if one of the parties violates the terms of the agreement, the agreement remains intact.

Speed: Processing documents takes a lot of time if done manually and this delays task completion. Smart contracts minimize personal involvement and increase overall efficiency.