Table of Contents
- What is a smart contract?
- How does it work?
- Benefits of a smart contract
- Use cases of smart contract
What is a Smart Contract?
Smart contracts are computer programs or protocols for automated transactions that are stored on a blockchain and run in response to meeting certain conditions.
It 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. It is important to note that the code controls the execution, and transactions are trackable and irreversible.
In simple terms, a smart contract is a code that does something if something else happens. The most common smart contract are written on the Ethereum network called solidity.
How a Smart Contract Works ?
Smart contracts work by following simple “if/when…then…” statements that are written into code on a blockchain. A network of computers executes the actions when predetermined conditions have been met and verified. These actions could include releasing funds to the appropriate parties, registering a vehicle, sending notifications, or issuing a ticket. The blockchain is then updated when the transaction is completed. That means the transaction cannot be changed, and only parties who have been granted permission can see the results.
Benefits of Smart Contract
Accuracy, Speed, and Efficiency:
The contract is immediately executed when a condition is met. Because smart contracts are digital and automated, there is no paperwork to deal with, and no time is spent correcting errors that can occur when filling out documentation by hand.
Trust and Transparency: There's no need to worry about information being tampered with for personal gain because there's no third party engaged and there's no need to worry about information being tampered with for personal gain because there's no third party engaged
- Security: : Smart contracts are secured because blockchain transaction records are encrypted, they are extremely difficult to hack.
- Furthermore, because each entry on a distributed ledger is linked to the entries before and after it, hackers would have to change the entire chain to change a single record.
- Savings: Smart contracts eliminate the need for intermediaries to conduct transactions, as well as the time delays and fees that come with them.
Two things that make smart contracts beneficial
- They are immutable: This means that they can not change
- They are distributed: This means there are no discrepancies
Use Cases of Smart Contract
Smart contract has numerous applications. Here are some of it's use cases. Please note that this list is not exhaustive
- Flash Loan: Smart contract can be used to collect a Flash loan on the ethereum network
- Insurance: Smart contract can be used to get an insurance
- Token switching: This is also one of the great benefits of smart contract which is writing
- Simple economic transactions: They can be used for simple economic transactions, such as moving money from point A to point B, as well as for smart access management in the sharing economy.