What Are Smart Contracts?
We have been talking about cryptocurrency and blockchain technology, with an explanation of what they are, how they work, and what they can be used for. Today we’ll be explaining smart contracts, a fundamental aspect of the way business is done online.
In the 90’s, a new way of doing business emerged thanks to the internet. Not only were people shopping online for the first time ever, but companies were just starting to do business with each other this way. New ways of negotiating and enforcing contracts were needed, so Nick Szabo coined the term “smart contracts,” defining them as “New institutions, and new ways to formalize the relationships that make up these institutions, are now made possible by the digital revolution. I call these new contracts ‘smart,’ because they are far more functional than their inanimate paper-based ancestors. No use of artificial intelligence is implied. A smart contract is a set of promises, specified in digital form, including protocols within which the parties perform on these promises.”
Ultimately, the idea was to implement changes in the way business was done, online and even in traditional businesses.
Over the past 20 years, smart contracts have evolved from being used by companies as substitutes for paper contracts into something much more broad. A smart contract today is more likely to refer to blockchain transactions, or ones over a distributed ledger.
A smart contract is simply a way of doing business online. It keeps transactions honest by providing a transparency and safety from bad actors and even regular mistakes.
Many blockchain-based applications use smart contracts to work, as they have incredible benefits to everyone who uses the systems, thanks to their use of a distributed ledger. All transactions can be seen by all users, which ensures transparency at every level. Transactions are also seen by and checked against all other ledgers, which greatly minimizes the risk of infiltration by bad actors, such as hackers.
Smart contracts more or less rely on blockchain platforms now. Thanks to these benefits, business can be done more securely and faster than ever. With an ever increasing amount of transactions in virtually every sector, these features could not be more important.
Another benefit of smart contracts is that they can ensure good business happening between untrusted agents. What this means is that you can buy or sell goods, devise corporate strategies, and even negotiate a trade deal, whether or not you know the other people you’re dealing with, and the deal can still be enforced. Depending on the platform, there are even protections from collusion and counterparty risk. Essentially, they make it harder to get ripped off or robbed.
Ethereum is a prominent platform that features smart contract functionality. In fact, this is what the company does — the Ether tokens were released to fund the startup. It allows agencies to build their own robust ecosystems for business. Smart contracts are used for any number of transactions, which are then executed later by the Ethereum Virtual Machine, which is a kind of pseudo-computer that’s running on the systems of all Ethereum users.
And of course FundCru uses smart contracts to ensure that all transactions on our platform are honored. A supporter who purchases a deal or exclusive from a company can be sure that they will receive what they bought and that a portion of the proceeds goes to their cause of choice. A business can be sure it will receive payment for its goods and services. And a cause can be sure it will get the money due to it. Thanks to the blockchain-based nature of how this all works, every transaction is efficient, secure, and transparent.
