All You Need To Know About Smart Contract: A Beginner's Guide

    Mathew Philips

    Smart contracts are digital contracts that facilitate the exchange of value or assets between parties through the use of blockchain technology. Smart contracts are fast and efficient as they use software to automate and enforce the terms of a contract.

    This reduces the cost of trust and increases the level of predictability in both commercial transactions and transactions that involve a financial exchange. Smart contracts can make transactions cheaper, faster, and more transparent by eliminating fraud and eliminating the need for third parties in contract enforcement.

    Therefore, smart contracts are poised to become an essential part of the digital economy.

     

    What Is A Smart Contract?

    A smart contract is an agreement between two or more parties that has been digitally encoded in a blockchain. This digital encoding ensures that the terms of the agreement are automatically enforced by the network. In this way, the technology eliminates the need for a middleman, like a lawyer or a notary.

    Smart contracts can be used for any situation involving transactions with financial exchanges and contractual agreements. Since smart contracts eliminate third parties, they simplify and facilitate transactions between two parties.

     The elimination of third parties reduces costs, increases efficiency, and speeds up payments. Smart contracts also save time because they are automated; once an asset has been coded into the blockchain, it is immediately available to either party involved in the transaction without someone having to manually process it.

    Benefits Of Smart Contracts

    Smart contracts offer a wide range of benefits for all types of business sectors. For instance, for the financial services sector, smart contracts can make transactions cheaper, faster, and more transparent by eliminating fraud and eliminating the need for third parties in contract enforcement.

    This means that any type of financial transaction that is executed through a computer system or mobile device can be made with little to no error. Further, many financial institutions are looking into implementing smart contracts to reduce costs and increase efficiency.

     How Do Smart Contracts Work?

    Smart contracts are pieces of code that can be stored on a blockchain and that can automate the transfer of assets between people. The contract is managed by an autonomous computer program. Smart contracts are immutable, meaning they cannot be changed once they have been deployed to the blockchain.

    This is done to avoid potential legal issues with the terms of the contract being altered after the fact.  A smart contract can only execute its function when predefined conditions have been met; i.e., when the asset has been delivered and all parties have fulfilled their obligations within the contract's terms.

    Once this happens, copies of the executed smart contract are distributed to all parties who were involved in the original transaction, increasing transparency and trust between them.  To ensure security in these transactions, a majority of smart contracts rely on independent nodes as well as a consensus mechanism that ensures that there is no single point of failure or manipulation in these agreements.

    Final Words: Should You Use Smart Contract?

    If you're considering using a smart contract, it's important to consult with a lawyer as these contracts are still new and not yet fully explored. Always remember to have an outside source review any contracts before signing them. The more information you have about what a contract entails, the better off you'll be.