How smart are Smart Contracts?
An introduction to the automated, self-executing, code-enforced world of the smart contract.
Imagine you could replace your lawyer with a vending machine. It may sound daft at first but it’s a commonly used analogy when describing smart-contracts.
While standard contracts outline enforceable terms of a relationship, smart contracts enforce relationships using cryptography — and the possibilities are endless.
Originally taken mainstream by Ethereum, smart-contracts exist solely between permitted parties. They execute exactly as intended by their creators and bypass the need for middlemen, saving a substantial amount of time and conflict.
What are Smart Contracts?
A smart contract is a computer protocol designed to emulate, and improve upon, the performance of a real-world contract. Its function is to define conditions which when met, execute a contract by the computers in a given network. Smart contracts are considered an innovative way of enhancing operational efficiencies and cutting costs for businesses, merchants and artisans alike.
They are transforming how deals and transactions are executed and managed in business life-cycles. Smart contracts and DLT are distinct technologies, yet they are symbiotically linked. The rise of DLT has created the required platform for smart contracts to be hosted and executed on, transforming the idea of a smart contract into a real thing.
Understanding Smart Contracts
Smart contracts can automate many different kinds of processes and operations, such as payment and actions conditional on payment, giving rise to previously unimaginable levels of efficiency and precision.
Here are some important things to note about this technology:
- Depending on the model of smart contract deployed, a promise made in this type of contract can either be contractual or non-contractual;
- Smart contracts operate electronically and are comprised of lines of code which describe conditions and outcomes;
- Functional outcomes and contractual clauses are embedded as code;
- Once initiated, the outcomes for which a smart contract is encoded to perform cannot typically be stopped unless an outcome depends on a condition that has not been met.
Essentially, a smart contract is an automated agreement enforceable by code. Smart contracts can be created on blockchains such as Ethereum which currently dominates in terms of adoption rates of the technology.
The autonomous nature of smart contracts means you can expect huge improvements on traditional systems in terms of speed, cost, security, accuracy and transparency.
From financial derivatives to property law, crowdfunding agreements to the exchange of virtually anything of value, smart-contracts have the potential to significantly alter long-standing aspects of society.
As seen on the Advanced Blockchain AG Technology page.
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