What is a smart contract ?

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What is a smart contract ?

smart contract blockchain

Today, we’ll be talking about a key concept within blockchain technology : smart contracts. Smart contracts are self-executing contracts that are written onto a blockchain.

You probably have heard about Ethereum, one of the most important Blockchain in cryptos. They develop smart contract on their network.

But what is a smart contract ? What are concrete example of smart contracts in our society ?

They are digital contracts that allow two or more parties to enter into an agreement without the need for a central authority.

The contracts are written using code, and they self-execute once the conditions of the agreement are met. This means that the terms of the contract are automatically enforced, and the parties involved don’t need to trust each other or rely on a third party to verify or enforce the contract.

Smart contracts can be used in many different ways, such as in business agreements, financial transactions, and even in voting systems. They offer numerous benefits, including increased security, enhanced transparency, and reduced transaction costs.

By the end of this post, you should have a better understanding of what a smart contract is and how it works. We hope you enjoy learning more about this fascinating technology!

Why is Bitcoin a revolution ?

Definition of a smart contract on Blockchain

A smart contract is a digital agreement that is stored and enforced on a blockchain. It is a self-executing contract that is written in computer code and stored on a distributed ledger. 

Smart contracts are used to facilitate the exchange of money, property, shares, or anything of value in a transparent, conflict-free way that eliminates the need for middlemen, lawyers, and other intermediaries.

Smart contracts are stored on blockchain technology and are used to automate easy to complex transactions and agreements. 

They are immutable, meaning that once the terms of the contract are agreed upon, they cannot be changed without everyone involved in the contract signing off on the changes.

Let’s take an example to make it easier to understand :

actions that involve multiple parties, as it can help to reduce the risk of fraud or misunderstandings.

Example of smart contract

Here’s an example of how a smart contract might work:

Let’s say that Alice and Bob want to make a bet on the outcome of a football game. They could use a smart contract to automatically pay out the winnings to the winner once the game is over.

Here’s how it would work:

  • Alice and Bob would agree on the terms of the bet (such as how much money they are betting and which team they are betting on).
  • They would then create a smart contract on the Ethereum blockchain that includes these terms.
  • Once the smart contract is set up, Alice and Bob would send their bet money to the smart contract.
  • When the football game is over and the winner is determined, the smart contract would automatically send the winnings to the winning party (either Alice or Bob).

In this way, the smart contract acts as a kind of “virtual middleman” that ensures that the terms of the bet are carried out automatically and fairly. 

This can be especially useful for transactions that involve multiple parties, as it can help to reduce the risk of fraud or misunderstandings.

Impact of smart contracts on our society

Let’s use some example to illustrate the impact of smart contracts and how it can possibly eliminate intermediaries and abuse of dominant position :

  • Banks : A digital payment system could use a smart contract to securely and automatically transfer money from one user to another, eliminating the need for a third-party payment processor.
  • Airbnb : a smart contract could be used to automate the process of renting an apartment. When the tenant pays their rent, the smart contract could automatically transfer the payment to the landlord, and then release the keys to the tenant. This eliminates the need for a physical exchange of money and keys.
  • Uber : smart contracts on the blockchain could potentially be used to create a decentralized ride-hailing platform that does not require a central intermediary, such as Uber.

Here’s how it might work :

  • Drivers and riders would use a decentralized app (DApp) stored on a blockchain (such as Ethereum) to connect with each other and request or offer rides.
  • The DApp would use a smart contract on the blockchain to facilitate the transaction between the driver and rider.
  • The smart contract would automatically handle tasks such as matching riders with drivers, calculating fares, and releasing payments to drivers.
  • Because the smart contract is self-executing and does not require a central intermediary, the need for a company like Uber to act as a middleman would be eliminated.
  • In this way, a decentralized ride-hailing platform using smart contracts could provide many of the same services as Uber, but without the need for a central company to control the process and take a cut of the profits.

By using smart contracts, businesses can create a secure and reliable way to negotiate and enforce contracts without relying on third-party intermediaries.

What is the added value of smart contracts ?

This could drastically reduce the cost and time associated with complex transactions and agreements.

The added value of smart contracts on blockchains is that they provide an immutable and secure way to facilitate digital transactions. Smart contracts are immutable, meaning they cannot be altered or tampered with, and are stored on a distributed ledger, making them nearly impossible to hack.

This means that it can lead to a fair system, with no intermediary that could abuse a dominant position. It is therefore a competition for every company which represents this intermediary. They will have to adapt themselves, and prioritize customer experience in order to remain competitive and justifiy their added value.

You want to rent an appartment to go on holiday, but you don’t want to use Airbnb, maybe there will be an alternative soon, built on a blockchain, with simple steps to be executed.

Additionally, smart contracts are transparent, allowing all parties to view the code and the transactions made on the blockchain. This added layer of transparency helps to increase trust and accountability between parties, as all transactions are viewable and verifiable by everyone.

When signing a contract for a rent, you will be aware of what you sign, and because everything will be ruled by an algorithm, no one will be able to modify anything, or use some kind of hidden clause.

This also allows for faster and more efficient transactions, as there is no need for manual verification or approval processes. Furthermore, smart contracts are cost-effective, as they eliminate the need for costly and time-consuming legal processes. Finally, smart contracts on blockchains can be used to securely store, manage, and transfer digital assets.

This added value is particularly useful for businesses and organizations that need to protect and store large amounts of digital data.

In conclusion, smart contracts on blockchains offer a number of added values, providing a secure, transparent, automated, cost-effective, and immutable way to facilitate digital agreements between two or more parties.

As more businesses, organizations, and individuals continue to embrace blockchain technology, the added value of smart contracts will become even more evident.

Read more on cryptos and Blockchain :

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