Since its practical introduction in blockchain technology, smart contracts have eliminated redundant, time-consuming, and stressful tasks and removed the need for intermediaries to perform contracts between buyers and sellers.
What Are Smart Contracts?
Smart contracts are inflexible, transparent, and irreversible codes written into blockchain technology to carry out automated tasks between two parties without seeking external interaction.
Smart contracts are promising automated agreement codes that perform secure transactions between two parties with little to no fees, unlike having a middleman connect both traders.
Smart contracts allow for trusted trades and agreements between anonymous people without a legal system or external administration mechanism.
History of Smart Contracts
The idea for smart contracts has been around since the 90s when American cryptographer and computer scientist Nick Szabo proposed that smart contracts can be “a set of agreements established in virtual form.”
By focusing mainly on digital currency, the theory of smart contracts was born, and he intended to enhance developed contract law policies for internet users. This theory developed over the years; however, it wasn’t seen until blockchain emerged. When Bitcoin (BTC) was released, it had the platform to endorse smart contracts. Although they could only formulate and implement strict smart contracts. The full feature of smart contracts wasn’t implemented till Ethereum (ETH) was developed by its founder Vitalik Buterin.
Upon releasing his cryptocurrency “Bit Gold” in 1998, Nick Szabo explained smart contracts as computerized deal codes best defined through contracts for implementing intents. In the invention of his cryptocurrency, Nick Szabo was ahead of his time because Bitcoin wasn’t created till 2008 by the anonymous inventor Satoshi Nakamoto.
How Smart Contracts Works
To better understand how smart contracts work, here is a simplified example; if a client asks a carpenter for 70 chairs, the client stores the carpenter’s payment in a smart contract, and when the carpenter delivers upon the initial request, the funds are then released automatically to him. However, if the carpenter does not provide the products, the funds are reversed to the client.
According to Nick Szabo, the idea of smart contracts was to broaden the performance of electronic exchange methods like PoS (Point of Sale) into the virtual world. Smart contracts are programmed to be used by the people, replacing governmental policies and retail processes.
Where Can Smart Contracts Be Used?
There are various procedures through which smart contracts can be executed asides from the common modes of easier payment transactions. Here are other methods where smart contracts are for effective and efficient automated functionality.
A supply chain is one of the most prominent executions of smart contracts and blockchain technology; farmers, stores, and warehouses all have a particular position in the supply chain. However, with these networks getting difficult, industries find it hard to track their payments and goods. Smart contracts can stimulate and automate all aspects of a supply chain to improve its responsibility.
Purchasing and selling a house is no easy task because it involves an intermediary. For instance, a seller might employ an agent to get interested clients, but the agent gets paid once the house is sold. Smart contracts replace the agent, following all lawful procedures as it would be with an intermediary. This way, the seller doesn’t have to pay any intermediary.
In an ideal blockchain-centric world, identities can be tokenized, meaning each user’s identity will live on a decentralized blockchain without fear of being hacked or robbed.
What Are The Benefits of Smart Contracts?
Smart contracts have, since the first implementation into blockchain technology, been carrying out tasks that save time and stress of repetition, especially in a company. Here are the benefits of smart contracts.
Smart contracts are independent, which makes their performances unique and desired in blockchain technology. Once deployed, smart contracts can conduct all necessary functions without the need for any third-party interference.
They can execute tasks within minutes, leaving no room for delay and inconvenience between the two parties involved in the transaction, as opposed to physical transactions requiring lots of time for confirmation.
Smart contracts provide a safe platform for transactions by protecting the parties’ personal information in every transaction. They are also hacker-free due to the minimal third-party interaction.
Smart contracts are fast and efficient protocols set to help ease the transactions between two parties, a buyer and a seller, in blockchain technology, without the need for an intermediary.