What is a Smart Contract?

The concept of smart contracts is primarily based on the idea of blockchain technology.

A smart contract is similar to a contract in the physical world, but it’s digital and is represented by a tiny computer program stored inside a blockchain. More specifically, a smart contract is a piece of software that stores rules for negotiating the terms of an agreement, automatically verify fulfillment, and then executes the agreed terms. 

What’s the main idea of a smart contract?

Smart contracts remove the need for intermediaries because participants can trust the visible data and the technology to properly execute the transaction. There is no need for an extra person to validate and verify the terms of an agreement because it is built into the code. Since a smart contract removes reliance on a third party when establishing business relations, the parties agreeing can transact directly with each other.

Consider the example of a crowdfunding platform where product teams share their projects and collect money from supporters until a goal is reached. If such a platform is centralized then it acts as a third party between product teams and supporters who donate their money. This means both sides need to trust Kickstarter and, in fact, pay an additional fee to Kickstarter to serve as an intermediary.

On the other hand, consider a smart contract. It can perform the same crowdfunding actions – sharing projects, setting goals, and collecting donations – but without a third party. Simply put, we can program a smart contract to execute all of these actions. More precisely, we can program a smart contract to receive funds until a goal is reached. If the project gets fully funded before the deadline, the money raised automatically goes to the product team. If the project fails, the money automatically goes back to supporters.

Benefits of Smart Contracts

·         Speed and accuracy

·         Trust

·         Security

·         Savings

 

How are Smart Contracts Created?

Smart contracts can be built on multiple blockchain platforms, including Ethereum and NEO. Ethereum is the most popular choice for developers. Smart contracts are developed using Ethereum’s original coding language, called Solidity.

 

How will you use smart contracts?

Now that you have a better understanding of smart contracts and their benefits, I’m sure you’ve thought of some ways to use them in your company. And with Blockchain Development, you can get access to development tools and a secure environment to quickly create your own smart contracts using The Linux Foundation’s Hyperledger Composer.

 

For detailed information on Smart Contracts

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