Among the huge list of features in blockchain, the one that stands out – because of its decentralization – is the concept of smart contracts.
Blockchain has been defined so perfectly by Don & Alex Tapscott, authors Blockchain Revolution (2016). They said,
“The blockchain is an incorruptible digital ledger of economic transactions that can be programmed to record not just financial transactions but virtually everything of value.”
Every transaction that occurs on the blockchain has a smart contract running behind it. We’ll define smart contracts below but by using blockchain and smart contracts, there is no need of an intermediate or overseer between two parties. All related parties in a blockchain observe the smart contracts and get instant alerts about their transaction updates. It saves huge amount of time, intermediary fees and the need of trusting a third-party. Blockchains are still far from perfect but they are undeniably faster, cheaper and more secure than any traditional database based system currently out there and Smart contracts are one of the reasons why most banks and governments are shifting towards blockchain technology.
In 1994, Nick Szabo, a legal scholar and cryptographer realized that the decentralized ledger could be used for smart contracts. We could convert the real life paper contracts into computer code and store them on the blockchain.
To understand the smart contract, we first have to define what a contract is. A Contract is a written or spoken agreement, especially the one that involves employment or sale, which is enforced by the law. So a smart contract would be a contract that is written in Computer code instead of ink and paper.
Smart contracts allows the user to exchange money, property, assets or anything of value in a transparent manner without the need of a middleman.
Smart contracts can work identical to a soda machine. Where you put some money into the machine and you get your soda can in return. Here you transfer some bitcoins in the contracts and in return an assets of that value is transferred to your account. Smart contracts like traditional contracts not only define all the contract laws and steps but it also automatically enforces them as well.
Smart Contracts Benefits
Smart contracts hold many benefits over the traditional systems.
Example of using a smart contract for a real world situation
Let us suppose you want to buy a car from someone. You will purchase this car using cryptocurrency and your receipt will be held in our virtual contract. I will send the car key to you and you will own the car. Now lets suppose you transfer the money but i don’t send the key. So the contract will have a lock time and once that lock time is over. You will get your money back and if i send the key before the money. It will hold the key wait for the money and then transfer the key and the money to me and you respectively. This transaction will work on the IF – then premises that if i transfer the money then give him the key. This transaction is safe because it will be witnessed by millions of people and no one person can cheat the other one as real time alerts will be given to each part upon modification.
A sample Code for smart contract
Here is a code example for a smart contract that sends some ethereum tokens from the sender address to the receiver’s address. This code is written in Solidity Programming Language. If you want to learn more about writing smart contracts then please follow our guide on how to create Ethereum ERC20 tokens.
Implementation of smart contracts
Smart contracts can be used in many field ranging from financial services to healthcare to charity to supply chain. They have their own implementations in every field. Some of the most common are .
- Supply Chain
- Real Estate
They have many other implementations apart from these but there are some of the most heard and used.
Click here to read how each of these industries will get impact with the use of smart contracts and blockchain.
Problems in smart contracts
Smart contracts still have a long way to go to be called perfect. There are a lot of real life accidents that can occur before we can totally rely on the digital contracts. Like for example lets suppose the contracts is written for a car buying and before the date is reached for the transaction to be written on the blockchain, The car gets stolen but now the digital contract has executed and we all know once the data is in the blockchain it cant be removed or modified. These kinds of issues could have been handled in court but smart contracts are a whole new story to deal with.
What if the smart contract wasn’t written properly and there is bug in the code that would create a lot of problems.
The list of challenges goes on and on. Experts are trying to unravel them, but these critical issues do dissuade potential adopters from signing on.
Future of Smart contracts
The future of smart contracts would be impacting directly the legal sector of the society. So the lawyers would have to be equipped with the knowledge on how to operate these smart contracts or somehow inculcate themselves into this process by providing a fail safe that in case of the accidents mentioned above how can they facilitates the smart contract holders. the huge chunk of future of smart contract is about working on these few limitations of the smart contracts.
I hope by now, you have a fair idea of what smart contracts are. If you need help of Blockchain development company in writing smart contracts for your projects, you can contact us.