What are smart contracts on blockchain?

 

A Smart Contract, like any contract, establishes the terms of an agreement. But unlike a traditional contract, a smart contract’s terms are executed as code running on a blockchain like Ethereum. Smart contracts allow developers to build apps that take advantage of blockchain security, reliability, and accessibility while offering sophisticated peer-to-peer functionality — everything from loans and insurance to logistics and gaming.

Just like any contract, smart contracts lay out the terms of an agreement or deal. What makes smart contracts “smart,” however, is that the terms are established and executed as code running on a blockchain, rather than on paper sitting on a lawyer’s desk. Smart contracts expand on the basic idea behind Bitcoin — sending and receiving money without a “trusted intermediary” like a bank in the middle —  to make it possible to securely automate and decentralize virtually any kind of deal or transaction, no matter how complex. And because they run on a blockchain like Ethereum, they offer security, reliability, and borderless accessibility.

Benefits of smart contracts

• Speed, efficiency, and accuracy

Once a condition is met, the contract is executed immediately. Because smart contracts are digital and automated, there’s no paperwork to process and no time spent reconciling errors that often result from manually filling in documents.

• Trust and transparency

Because there’s no third party involved, and because encrypted records of transactions are shared across participants, there’s no need to question whether information has been altered for personal benefit.

• Security

Blockchain transaction records are encrypted, which makes them very hard to hack. Moreover, because each record is connected to the previous and subsequent records on a distributed ledger, hackers would have to alter the entire chain to change a single record.

• Savings

Smart contracts remove the need for intermediaries to handle transactions and, by extension, their associated time delays and fees.

Applications of smart contracts

Explore how businesses benefit from smart contracts in active blockchain solutions

• Safeguarding the efficacy of medications
• Increasing trust in retailer-supplier relationships
• Making international trade faster and more efficient

Currently, Ethereum is the most popular smart contract platform, but many other cryptocurrency blockchains (including EOS, Neo, Tezos, Tron, Polkadot, and Algorand) can run them. A smart contract can be created and deployed to a blockchain by anyone. Their code is transparent and publicly verifiable, which means that any interested party can see exactly what logic a smart contract follows when it receives digital assets.

 

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