Explaining Smart Contracts to a Child.
Smart contracts can be a big bite especially when it comes to narrating it to a five (5) year old child however, it is doable. Before we proceed, let’s analyze a few definitions related to this topic. What is a Contract?
According to The University of Texas at San Antonio (UTSA), a contract is an agreement between two parties that creates an obligation either to perform or not to perform a particular obligation. This simply means that if you have an agreement with a person, both you and the person have entered into a contract. Now let’s consider the word smart.
Google has explained the word smart as showing a quick-witted intelligence. Literally, A person is said to be smart when they show a high level of mental ability and intelligence. Their major characteristics are increased reasoning and processing speed
In this article, we shall consider,
- What are Smart Contracts
- Characteristics of Smart Contracts
- Real-Life Applications of Smart Contracts
- Summary
So, let’s get started.
What Are Smart Contracts?
Before we proceed, let us consider a real-life scenario of you taking a bottle of drink from a vending machine.
The vending machine is the only mediator between you and the drink. However, you cannot get the drink until you have fulfilled some conditions which are:
- Depositing a few coins/cash then
- Hit the button on which the drink is mapped upon.
Now, what are smart contracts?
IBM defined Smart contracts as simple programs that are stored and run on a blockchain when predetermined conditions are met.
In the scenario above, The vending machine is the smart contract which stands as a mediator between you and the drink and also ensures that you get your desired drink once you have completed the necessary conditions to get the drink.
So, in simple terms, Smart contracts are self-executing codes that carry out a set of instructions, which are verifiable on the blockchain. Tap here to learn more about blockchain technology.
Characteristics of Smart Contracts
According to Nick Szabo, the general objectives of smart contract design are to satisfy common contractual conditions (such as payment terms, liens, confidentiality, and even enforcement). Below are a few characteristics of smart contracts.
- No Third Party: Unlike traditional contracts that requires the services of a lawyer, government or rule enforcer a smart contract removes the need for an intermediary while simplifying negotiation processes. Here, if conditions are met, the transaction will proceed also, if conditions are not met, the transaction will not proceed.
- Automated: Smart contracts are automatically programmed to fit the specific needs of an agreement so that there is no need for manual verifications. So long as the conditions of the agreement are met, the smart contract will automatically be executed.
- Trustless, Secured and Immutable: Smart contracts are secured by cryptographic algorithms, making them tamper-proof or almost impossible to hack. Once a smart contract is deployed, it cannot be modified or altered.
- Transparent and decentralized: Transaction information is stored on the blockchain. Smart contracts allow both parties, including every other person on the blockchain, to see, review and analyze the smart contract and all the addresses that interact with it
- Increased Execution Time: Smart contracts take just a few seconds/minutes to execute agreements after it has been signed using your digital signature which is your private key, thereby reducing the high volume of transaction delays.
Real-Life Applications of Smart Contracts
The use of smart contracts cuts across many industries to which some are yet to evolve. Below are a few things you can use the smart contracts for:
- A smart contract can be used as a billing and payment method for online transactions. Including goods and services
- It can be used for record-keeping and accountability purposes, for instance, storing your landed documents, and school certificates, and even storing medical health records of patients in the health sector thereby reducing the burden of managing large amounts of paper documents.
- It can be used in election processes by allowing people to vote and automatically counting the votes to determine the winner of an election.
- In Agriculture, smart contracts can be used to track all types of information about plants, such as seed quality, and crop growth, and even generate a record of the journey of the plant after it leaves the farm. This data can improve supply chain transparency and eliminate concerns associated with illegal and unethical operations
These are just a few examples of things you can do with smart contracts. With the advanced increase in the use of blockchain technology, there is so much more that can be done with smart contracts.
Summary
Smart contracts are self-executing codes that carry out a set of instructions, which are verified on the blockchain.
Its core objective is to satisfy common contractual conditions, (such as payment terms, liens, confidentiality, and even enforcement) while removing the need for a third party.
The application of smart contracts cuts across many niches including finance, health, education, real estate, etc.
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