Smart Contracts are self-executing contracts with terms of the agreement between two parties written into a piece of code without intervention of central authority on a distributed and decentralized blockchain network. They run when pre-defined conditions are met. It was first proposed by Nick Szabo in 1997, an American computer scientist and cryptographer. It’s one of the major concepts that enables the working of blockchain technology. They are distributed ledgers that store contracts completely digital, clarifies and defines business logics.
But what is smart about smart contracts?
Smart contracts are used to auto-execute a process in a more secure and efficient way .Their working can be classified into three steps: store rules, verify rules and self-execute.
There are multiple factors that have been concluded that make smart contracts smart.
Firstly, smart contracts are immutable and distributed. Immutable means once a contract is defined and written with mutual understanding of both parties, it’s almost impossible to be tampered with. This factor enables, and provides more security to blockchain networks. Being distributed means the contract is not validated by any central authority but, it’s validated by all stakeholders in it. It eradicates monopolies and gives equal rights to all stakeholders.
Secondly, when we compare smart contracts with traditional contracts, we find them more efficient and secure.
The contracts are decentralized and have no third party intervention. Their execution time is faster and has an automatic remittance process. They offer transparency, easy archiving and are cryptographically secure. Their operational cost is less and secured by digital signature.
Finally, smart contracts support applications in a more efficient way and can be utilized for increased efficiency of the system, for example, usage in storing census data on decentralized networks or for a voting process that helps to prevent malpractices. It can also further be implemented in multiple applications such as crowdfunding, urban farming and much more.
Hence, it is summarized that immutability, distributions and security make smart contracts really smart. Smart contracts are transforming the world into a more secure and a sustainable community. With the advancement in blockchain technology we are getting safer and secure transactions in applications.
Courtesy: Muhammad Salman Tanveer