Mohsin Jameel explain everything you need to know about the working and future of Smart Contracts
Along with the buzzwords, blockchain, AI, cryptocurrency — smart contracts is one of the phrases that is currently trending.
Here, in this post, Mohsin Jameel explain to you all that you need to know about smart contracts and whether it’s worth the hype.
Buckle up and let’s dive right in.
Smart contracts are one of the most interesting aspects of the blockchain, the technology behind cryptocurrencies. It helps blockchain applications do more.
So, what exactly are Smart Contracts?
Simply put, as the term implies, “Smart Contracts,” are new-age contracts that help users exchange, sell or buy anything without any hassles, conflicts, or frauds. It eliminates the need of middlemen for execution of contracts.
They are pre-defined rules for decision making and help in the execution of real-world contracts. They are quick, easy and legal.
Here’s an analogy for smart contracts. Think of smart contracts as the notaries who live inside the blockchain. But, unlike real-world notaries, you don’t have to wait for several days for the legal contract to be drawn up. It’s all done quickly, efficiently and without any intervention.
It contains legal agreements that abide by certain rules. Failure to execute the rules leads to penalties. The smart contracts are smart to execute on its own.
You want to rent an apartment. The apartment owner, instead of drawing a rental agreement the normal way, creates an agreement using blockchain. You pay the rent using cryptocurrencies. The rental contract is designed so that if you don’t pay the rent on a particular date, the contract goes out of validity automatically. To renew it, you’ll have to pay the rent with a penalty.
The contract is based on a digital key. The digital key is the entry key that was used to make the payment for the rent. Since the entire contract is hosted on the blockchain; the payment can be made within minutes.
The beauty of the smart contract is that it cannot be altered or modified by either person. If you want to terminate the agreement, then all you have to do is simply stop making payments, and the smart contract will be destroyed automatically.
And, if you want to make changes to the contract, then it needs the approval of both parties. Neither person can alter or tamper it, without the consent of the other person.
Now, that you are aware of the Working of Smart Contracts,
Here’s a Look at What makes it Innovative:
By using smart contracts, you eliminate the need for any third-person. Be it a lawyer, a notary, a broker or any other legal organization. Also, when you use smart contracts, you eliminate the chances of any fraud and other manipulation. Everything about the contract is on the blockchain and is monitored by the entire blockchain network.
The contract and its supporting documents are hosted in the blockchain. It’s encrypted and is available only to those people involved in the agreement. No one else can read it. What more, the smart contract is digital, safe and accessible anytime.
This cannot be emphasized enough. The contract is encrypted meaning it’s protected from attacks. Also, your documents are backed up to the latest version. Meaning, everyone involved in the agreement has the latest copies of it, at all times. There’s no chance for you to lose it.
This is the biggest advantage of smart contracts. Traditionally, dealing with agreements is cumbersome and time-consuming, involving plenty of paperwork. Smart contracts are quick to execute as they don’t involve any middlemen.
· Error Free
Smart contracts do what they are supposed to do without any errors or flaws. It auto-executes, when a particular condition is met, without any exceptions. There’s no space for errors or biases.
A Quick Snapshot of how Smart Contracts work in a Blockchain
Here’s a look at the components of a smart contract.
· Signatories — This refers to the people who are part of the agreement. It can be two or more people. Smart contracts can be formed between individuals, groups, communities, and even organizations.
· Subject — This is the agreement that is defined in the smart contract. The subject is encoded using the latest cryptographic techniques.
· Terms or Rules — In traditional agreements, the rules or terms are described using a native language like English. However, for smart contracts,the terms or rules are written using a programming language. It includes everything like — rules, agreements, terms, fees, rewards, parties involved, time limit, etc.
· Environment — To function well, smart contracts need a particular environment. A decentralized database (aka the blockchain), public-key cryptography are some of the requirements.
Now, doesn’t that seem super interesting? It looks like smart contracts are the future of contracts, right? But, everything isn’t rosy. There are several problems with smart contracts, and that takes us to the next section.
The Major Problems with Smart Contracts
Simply put, smart contracts are nothing but pieces of code. That means it’s vulnerable to bugs and viruses. What happens when smart contracts fail? Who is held responsible?
If someone attempts to tamper with the smart contract, is it a criminal activity? And, will this case stand in a court of law? Until today, no government or authoritative regulation support smart contracts.
What if there’s a situation when both parties what to compromise the rules of the contract? But, since the contract is irreversible, can you stop it from executing the condition?
As you can see, smart contracts have plenty of issues that need to be ironed out. They are in no way close to replacing traditional contracts.
So, what’s the Future of Smart Contracts?
If one thing’s certain, smart contracts are a long way away from being perfect. They are continuously being improved, by blockchain experts, programmers,and other organizations. If smart contracts are perfected, then we would move to a world where traditional agreements and regulatory bodies become obsolete. Everything will become digital and executed flawlessly, without any human intervention.
Final Thoughts by Mohsin Jameel — The Truth about Smart Contracts
Mohsin Jameel believes smart contracts have plenty of potentials. Yes, there are plenty of kinks to be ironed out,but the opportunities it presents are incredible. Over to you, what do you think about smart contracts? Do you think it’ll stick around or is it yet another fad that will fizzle out?
Share your opinions in the comments below and don’t forget to share this with your friends!