Making Smart Contracts a Reality with Blockchain Technology

A smart contract is a self-executing contract with the terms of the agreement between buyer and seller being directly written into lines of code. The code and the agreements contained therein exist across a distributed, decentralized blockchain network. The code controls the execution, and transactions are trackable and irreversible.

Smart contracts permit trusted transactions and agreements to be carried out among disparate, anonymous parties without the need for a central authority, legal system, or external enforcement mechanism.

While blockchain technology has come to be thought of primarily as the foundation for bitcoin, it has evolved far beyond underpinning the virtual currency.

Understanding tokens and smart contracts

For example, an insurance company could use smart contracts to automate the release of claim money based on events such as large-scale floods, hurricanes, or droughts. Or, once a cargo shipment reaches a port of entry and IoT sensors inside the container confirm the contents have been unopened and remained stored properly throughout the journey, a bill of lading can automatically be issued.

Smart contracts are also the basis for the transference of cryptocurrency and digital tokens (in essence, a digital representation of a physical asset or utility). For example, Ethereum blockchain's ERC-20 and ERC-721 tokens are themselves smart contracts.

But not all smart contracts are tokens, according to Martha Bennett, a principal analyst at Forrester Research. "You can have smart contracts running on Ethereum that trigger an action based on a condition without an ERC-20 or ERC-721 token involved," she said.

Smart contracts can govern the transference of other cryptocurrencies, such as bitcoin. Once payment is verified, bitcoin can change hands from seller to buyer.

Most enterprise blockchain networks don't use tokens, Bennett pointed out. In those that do, the rules in smart contracts govern how tokens get allocated and define the conditions of transfer.

We hope you have found this article informative and interesting. For more information or queries contact us to know more about this technology.

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