Overview of Smart Contracts
In 1994, Nick Szabo comes up with an idea to record the trade agreement between the buyer and sellers in the form of code. The encoded terms of trade between the buyer and seller is spread across a distributed blockchain network.
The code is capable of executing the transaction, and transactions occurred using the smart contract are traceable and irreversible.
A smart contract facilitates the transaction between the two anonymous parties without relying on any central regulatory authority to govern the flow of the transaction.
Working Procedure of Smart Contracts
The most obvious question that might come to the mind of a reader how does the Smart Contract work? I’ll try to make you understand the working procedure of a smart contract with the aid of an example, let’s say John want to buy a house from Mike. The buying and selling agreement between John and Mike is formed on Ethereum block using a smart contract.
The agreement between the buyer and seller would be like this:” When John pays 30 Ether to a mike, john will receive the custodianship of the house.” Once the smart contract is established successfully, no one will be able to modify the agreement. It means John can pay 30 Ether to Mike as a house price. Thus, we can say John and Mike can make a deal with one another with an aid of a smart contract, and they do not need to rely on any intermediary, such as bank, lawyer, or real estate broker.
Advantages of Smart Contract
Smart Contracts provide numerous benefits to the consumers which no one can’t imagine with the traditional agreements. Here are the few of them:
The smart contract is primarily used to store all the terms and conditions in a way more secure, easily accessible, and explicit manner. This record-keeping is mandatory because an omission could lead to transaction errors.
The terms and conditions stored in the form of code lines is completely transparent and can be easily accessible by both the buyer and seller. This extraordinary feature of the smart contract facilitates the complete transparency of the transaction to the concerned parties.
Fast Execution of Transaction
The smart contract is backed by the sophisticated software code, and will be accessible to all the users over the internet thereby smart contracts can execute the transactions way more efficiently and quickly. This speed can save a lot of precious time incurred in many traditional business processes.
Smart Contracts use the same kind of data encryption which the modern cryptocurrencies use to ensure the highest level of security and to avoid any risk regarding the data breach.
Businesses all over the world emphasize greatly on making their product environmentally friendly. Leveraging Smart Contracts, businesses no longer need to rely on the paper. Thus, businesses can effectively reduce their overhead and operating expenses.
Disadvantages and Setbacks of Smart Contracts
Every new technology comes with a few downsides and concerns that need to be properly addressed before the actual deployment of the technology.
- No regulatory body exists for Smart Contracts work
- Smart Contracts solely rely on the programmers so there are great chances of flaws.
- Lack of scalability of blockchain technology sometimes makes the smart contracts impractical for large businesses.
Smart Contracts have completely revolutionized the way buyers and sellers deal with each other. Smart Contracts and blockchain technology would most likely disrupt the $2 trillion commodities market.