What is Smart Contract?
“On the Blockchain, no one knows you’re a fridge” — Richard Brown
Oh, so you’re here. It means you must have heard about blockchain and the buzz in the world going around about it. if you have heard about it, but don’t know how it works. Learn about blockchain and how it works here.
Okay, so let’s get it on.
One of the best thing about blockchain is it’s decentralization concept of the system, which removes the need for the intermediaries like banks and other third-parties, needed for transferring of money/value, and also saves time. It also proved to be more secure, faster and cheaper in comparison to the traditional systems currently running in mostly every part of the world.
In 1994, Nick Szabo (Scholar and Cryptographer), was the one who proposed Smart Contract to be a contract just like any other, but it existed virtually in computers (in a decentralized ledger) which will be self-execute contract, according to the rules defined in it; as we all know that’s normally how a contract works (on rules).
So What Are Smart Contract Exactly?
Smart Contracts helps you in exchanging money, property, shares, assets of any kind or anything of that has some value to it in a very easy, transparent and conflict-free manner while removing the need of middleman (e.g. banks, third-parties).
Describing it in best way is to compare the technology with current on trend going on in traditional system of the world. Here, we will be discussing a real-world scenario of ownership transfer of a House using smart contract technology and the traditional way.
The Traditional Way:
You are buying a house. We have a thing called Ledger, like book-keeping (entries, debits, credit). The ledger is the fundamental element of storing information of transactions ever committed up to today. Take example of the house below:
If we needed to get a record of who owns this house and what it amount or material did it took to build this house, then we would need that ledger of information from a Title company. And Know this; if you want to get a record from the title company, it would take at least 10 days to get that information.
The ledger we want to get of the house, before we want to buy, somewhat looks like the one on the left. Most of the title companies have errors in the ledgers we use today. Today we depend on one critical thing, that is TRUST. You best know this that, as easily as someone can write an information in the ledger, they can also delete some information in it or, better they can tamper with the existing information in the ledger.
Can you image buying a house and go to the house owner and they say; “ Yes, I have kept all the record of the titles. Please have it”.
Would you trust them?
NOO!! Because the information might be tampered with. And You’ll be paying for something that wasn’t even there.
we can improve all of this thing using smart contract.
Smart Contract Way:
Now let’s reconsider the above example of transfer of ownership of the house. The contract works by executing itself on the blockchain, where it has been deployed. We can get the previous title information of the house using the blockchain, as the data in it is not tamper-able, for the smart contract to see if the all the things are in proper manner and everything is on point as described in the blockchain ledger.
Now if the house’s ownership is set to be transferred to you against some value, (money/asset) that will be held inside our virtual contract, in 2 weeks, then the smart contract will keep a time-check from the time of creation to the date of transfer of ownership. If it was not transferred on time as described in the contract, then it will release the funds giving it back to it’s rightful owner according to the rules defined in the contract. All parties will be alerted.
The system works on the If-Then premises and is witnessed by hundreds of people, on and off the blockchain, so you can expect a faultless delivery.
You can use smart contracts for all sort of situations that range from financial derivatives to insurance premiums, breach contracts, property law, credit enforcement, financial services, legal processes and crowdfunding agreements.
And What’s So Smart About Them?
To be honest, almost Everything.! Here’s what smart contracts give you:
Autonomy:
You’re the one making the agreement; there’s no need to rely on a broker, lawyer or other intermediaries to confirm. Incidentally, this also knocks out the danger of manipulation by a third party, since execution is managed automatically by the network, rather than by one or more, possibly biased, individuals who may err.
Trust:
Your documents are encrypted on a shared ledger. There’s no way that someone can say they lost it.
Backup:
Imagine if your bank lost your savings account. On the blockchain, each and every one of your friends has your back. Your documents are duplicated many times over.
Safety:
Cryptography, the encryption of websites, keeps your documents safe. There is no hacking. In fact, it would take an abnormally smart hacker to crack the code and infiltrate.
Speed:
You’d ordinarily have to spend chunks of time and paperwork to manually process documents. Smart contracts use software code to automate tasks, thereby shaving hours off a range of business processes.
Savings:
Smart contracts save you money since they knock out the presence of an intermediary. You would, for instance, have to pay a notary to witness your transaction.
Accuracy:
Automated contracts are not only faster and cheaper but also avoid the errors that come from manually filling out heaps of forms
“Smart-contracts are a way for people all across the globe to do business with each other even if they don’t speak the same language or use the same currency.” — Mihai Alisie
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