Smart contracts came into existence in 1994. Nick Szabo recognized the need for smart contracts. He was the first person to have the idea that contracts can be written in codes. Subsequently, these created codes can be duplicated and stored on a system. These smart contracts can help in transferring digital assets between different parties.
Pre-Definition of Contract- In this first process, the conditions for engagement are set by the parties. Usually, the currency is used in making payments. Then the conditions for executing are fixed. It may include variable interest rates and dates.
Events form the second stage of the process- includes receiving information and may include bare minimum details.
Transfer of value and execution- The terms of the contract will describe the conditions and discuss the movement of value.
Contact settlement- This may be taken in two different ways. Off-chain assets may include fiat currency and stock. It may include changing accounts on the ledger that will match off-chain settlement instructions. On-chain assets may include virtual assets like cryptocurrencies.
In blockchain technology, smart contracts have many distinct features. These features are responsible for increasing the popularity of blockchain. Although the application of blockchain is restricted in cryptocurrency, there are many potential areas in which the technology can be used. The fields that may use blockchain include the medical field, banking sector, cyber security, healthcare, and so on.
Smart contracts do not need any third-party involvement. In plain language, contact is made between two users. There is no need to include intermediaries while making smart contracts. This feature may help users to protect themselves from bullying. All the nodes of the network maintain and execute the smart contracts. This automatically removes the controlling power of any one particular party.
Smart contracts can be modified. Users can customize their terms and conditions before launching their contracts.
In blockchain technology, smart contracts are visible to all parties involved. This feature helps in increasing trust levels. Furthermore, no party can change the contract once it is accepted. Moreover, the changes are all traceable.
The terms and conditions of smart contracts cannot be changed, once it is deployed. It can be removed if there is any change in the previous functionality.
Smart contracts can self-verify because of automation. It can automatically enforce rules and conditions at all stages.
The smart contract feature of blockchain technology is partially responsible for its growing popularity in many fields. As time passes by most of these features will steadily improve.
Smart contracts can lead to better efficiencies. This is because it can remove the need for middlemen and accelerate business processes. Paperwork reduction can be highly beneficial in many sectors. It will help in saving resources and time. These contracts integrated with blockchain technology can minimize the need for manual recording. It also can decrease the possibility of misinterpretations, thereby, reducing costly legal disputes.
Smart contracts have a tremendous potential to prevent fraud. This is because blockchain technology can trace every transaction record. It can minimize the chances of hacking because of its cryptographic and tamper-proof nature. Fraudulent activities in the cyber world increase because of manual involvement. Smart contracts in blockchain almost reduced the need for manual recording of transactions. This indirectly makes transactions less erroneous and more secure.
Smart contracts in blockchain have a tremendous potential to permanently change how things work in the world. Some large companies such as IBM are already applying it in their daily operations.
Smart contracts can reduce issues in the transportation of many essential commodities. It can remarkably improve supply chain efficiency. It has the potential to track medical commodities. Smart contracts can also offer more credible and accurate data across different platforms.
Smart Contracts in blockchain can quickly resolve disputes between suppliers and retailers. This is because both can communicate in real time and view their supply chains. Furthermore, they can save time for more important innovation and work.
Blockchain technology can create an ecosystem of trust in international trade. Smart contracts can facilitate faster international trade by using standard rules. It can also make trading options easier. This may increase trade opportunities for banks and corporations.
Smart contracts are undoubtedly highly advantageous. They have a wide range of applications. However, there are some challenges that users can face while relying on smart contracts.
Smart contracts are a part of blockchain technology. However, the legal status of these smart contracts is unclear in many countries. There are some legitimate questions on how they should be handled. Some countries lack legal clarity on blockchain. This may create uncertainty and may discourage firms from integrating smart contracts. Along with jurisdictions, there can be some minor issues on enforceability. This is because blockchain operates around the globe. But the laws vary from one country to another.
Smart contracts can prevent many transactional risks. However, some bugs and errors may lead to undesirable consequences. Smart contracts cannot be altered or stopped after deploying on the blockchain. The external systems that interact with smart contracts may not always be secure. This can lead to errors and present security challenges.
Different blockchain platforms need and use different languages. This may be disadvantageous. This is because a lack of standardization can create barriers to the widespread adoption of smart contracts. This can make it difficult to interoperate.
Smart contracts can lead to better security, efficiency, and transparency. It can also increase the trust levels of many traders in cryptocurrency. It can streamline processes and save costs. Record-keeping can improve significantly. Some features can eliminate the need for intermediaries. Encryption technology in smart contracts can facilitate faster transactions. However, there are some minor challenges associated with smart contracts. In the near future, these challenges will be overcome after standardization.