A Beginner’s Guide to Smart Contracts
Nick Szabo, a legal scholar and cryptographer first coined the term Smart Contract. He realized that the decentralized ledger could be used for smart contracts, otherwise called self-executing contracts, blockchain contracts or digital contracts. In this format, contracts could be converted to computer code, stored and replicated on the system and supervised by the network of computers that run the blockchain. This would also result in ledger feedback such as transferring money and receiving the product or service.
What is a smart contract??
A smart contract is a computer code running on top of a blockchain containing a set of rules under which the parties to that smart contract agree to interact with each other. If and when the pre-defined rules are met, the agreement is automatically enforced.
The smart contract code facilitates, verifies and enforces the negotiation or performance of an agreement or transaction. It is the simplest form of decentralized automation.
It is a mechanism involving digital assets and two or more parties, where some or all of the parties deposit assets into the smart contract and the assets automatically get redistributed among those parties according to a formula based on certain data, which is not known at the time of contract initiation.
The benefits of smart contracts
1.Autonomy
Since you will be the one making the agreement, there is no need to depend on a broker or a lawyer
2.Trust
We know that on a blockchain, data cannot be successfully altered without the approval of all the members on that chain. So, your data will be safely encrypted on a shared ledger
3.Savings
One of the best things about smart contracts is that because it is on a decentralized system that exists between all permitted parties, there’s no need to pay intermediaries.
4.Accuracy
Smart contracts are not only faster and cheaper but also avoid the errors that come from manually filling out numerous forms.
The limitations of smart contracts
Once a smart contract has completed and made its way onto the blockchain or distributed ledger, it is immutable, pretty much by definition. But what about before it’s completed?
While they are being processed, they are subject to all sorts of attacks to which any system may be vulnerable. A few of them are
1.Confidentiality
The state of a smart contract may be subject to snooping, which may lead to asymmetric knowledge or leakage to non-approved parties.
2.Integrity
If an entity, whether a party to the underlying contract or not can change the internal state of the code executing the smart contract, then the outcomes of that smart contract will not be as expected and any of the parties involved may have good cause to dispute the outcome.
3.Availability
If one party sees that the conditions associated with a smart contract are turning out to be unfavourable to them, they might try to affect the availability of any part of the system that makes up the smart contract, whether the processing of the code itself, the inputs to the system, or the outputs from the system. Any of these might have a significant impact on the real-life outcomes.
Conclusion
Smart Contracts can impact a wide range of industries from healthcare and automobiles to real estate and law. Though it has gained popularity only in recent times with the rise of blockchain, the future does look exciting.
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