To understand the actual concept of smart contracts, you can start by considering the purchase of a candy bar from any vending machine. In this case, the buyer needs to deposit change followed by pressing the button according to the selection. As the button happens to map against a particular slot. It helps activate a lever within the machine for pushing out the candy bar. Here the transaction took place without the requirement for a clerk or cashier.
The procedure with smart contracts is the same as the vending machine. It completely eliminates the requirement for a mediator. From the above example, it can be said that the vending machine happens to replace the direct seller, thereby facilitating the customer to purchase the candy bar without the help of a middleman.
Smart contracts can be referred to as self-executing contracts incorporating the conditions and terms of agreements among peers. The stipulations concerning the agreement are inscribed into code. It helps execute on the decentralized platform of blockchain, hence making the agreements carry out the exchange of property, shares, assets, or money.
When two different parties happened to enter into a smart contract traditionally, to use the services of the reliable third party to carry out the agreement. This procedure has been along for centuries. But, the introduction to smart contracts along with its associated technologies happens to be automating what has remained a laborious procedure to date. This article explores the technology backing smart contracts and how one can use them. Let us understand the key benefits of them as compared to traditional contracts.
Stipulations remain pre-embedded and pre-defined within a smart contract. With the terms and conditions, remittance happens automatically after recording it. In case, any remittance requires a conventional contract, it happens to be a manual procedure incorporating approval workflows.
Conventionally, transparency happens to be dictated by the participants involved, intermediaries, and peripheral entities. Together, the system is imperfect. In this case, smart contracts happen to be 100% transparent. Anyone can audit, validate, and review the archived transactions.
The process of archiving happens to be difficult with conventional contracts as they maintain it offline and are on papers. Transaction tracking is further difficult. In this case, smart contracts are easily traceable from the point of origin. Thereafter, automatic archiving, thereby creating an entirely accessible history.
The number of intermediaries and middlemen incorporated in the execution of a transactional contract traditionally slows the procedure usually taking weeks or months. Smart contracts can help carry that out in only a few minutes as they happen to be programmable and automated, thereby operating on a machine under pre-stipulated conditions without the involvement of third parties.
Conventional contracts happen to be expensive when you compare them to smart contracts. It is due to the existence of intermediaries for payment.
Security and privacy happen to be some of the main concerns with conventional contracts. With many middlemen involved, there is a chance of security compromisation at any level in the procedure.
They work on the blockchain. There are numerous blockchains where smart contracts can work. Ethereum blockchain is one of the most popular ones. They are relatively easy to use even if someone is not a professional. To utilize a smart contract, one need these steps:
1)First, send the details of the transaction to the network involving nodes.
2)After sending the details of the transaction, a particular algorithm evaluates the digital signatures of all incorporated parties.
3)Post signature evaluation, the smart contract starts working. As soon as the terms and conditions are met, the parties present, get the funds.
Apart from the above-mentioned points, one needs to keep in mind that smart contracts do not just operate anywhere. If you look forward to using them, ensure that the system complies with open databases, followed by decentralized platforms without the presence of any human factor, hence including special encryption for taking care of data security.
Blockchain and smart contracts are in the decentralized finance world. While many things can improve, these developments come with great futures as far as the modern world is concerned. However, the inherent potential of both technologies is yet to disclose. But, considering the use cases already accessible, one can clearly say that it is unlimited.