Basically, smart contract is a computer program that follows pre-specified rules. Smart contracts are built on top of blockchain and allow for payments, property titles, or anything of value to be exchanged with no third party needed. The best way to understand this is through an example. Let’s say you are building a new house and you want to hire a contractor to help you build it.
You will have the best intentions with this contractor and you want everything to go well; but what if something happens and your contractor doesn’t deliver? What if he gets sick or has some other emergency? What if he decides he doesn’t like where the house is being built and stops construction all together? This can be a big problem for you because now you’re out a lot of money – all the money you paid for materials, tools, lumber, and more.
Now let’s look at smart contract via blockchain technology. You will still want to hire a contractor to help build your house, but instead of having him work for you directly, a smart contract is created that states the terms of the agreement between the two of you. No matter what happens to your contractor—even if his dog gets hurt during construction—the smart contract ensures that he will complete
So, what exactly is blockchain smart contract? The two terms—blockchain and smart contract—are tied together in a way that’s not always immediately clear. Let’s first talk about blockchain, which is the technology underlying most cryptocurrencies.
In order to better understand why it matters, we need to go back to the origin of money as we know it. Money has been around for a long time, and throughout history, different materials were used to represent value in transactions. You can think of it this way: if you were doing business with someone who only wanted goods and services in return for their goods and services, then bartering was your best bet.
But what if you wanted to buy something from overseas? The only thing you could do was wait until your next trip there and carry more stuff along with you in exchange for the goods or services you wanted. The problem was that carrying more things was inefficient, so people started looking for a new solution.
This is where money came into play: instead of carrying goods on trips across the earth, people started carrying currency instead. It then became easier to trade with other people who weren’t as close by—you could just give them a stack of paper or a bag of coins in exchange for whatever goods or services they had to offer.
How Blockchain smart contract is changing the world
Blockchain is a technology that’s most well-known for being at the heart of cryptocurrency, the digital money that’s quickly gaining traction in the banking industry. But the technology holds promise for much more than just keeping track of money; it has the potential to be used to handle all kinds of transfers of value, including tangible assets like houses and cars, intangible assets like intellectual property and stock ownership, and even votes.
Before blockchain, when you wanted to transfer any value between two people on a global scale, you had to rely on an intermediary such as a bank or government agency. A lot of time and effort went into ensuring that those intermediaries were handling your information correctly—but they usually didn’t have the best interests of their customers at heart, and they were susceptible to corruption or outside influence. Blockchain smart contracts can get rid of this whole system by creating a way for users to conduct transactions without relying on any third-party agencies.
But what exactly is blockchain? How does it work?
Blockchain can be described as an electronic ledger or database that records information through a secure network connection. It enables parties who have no prior knowledge of each other to trust and interact with each other through a transparent, shared mechanism. Data is stored in encrypted format and can only be read by those with access rights to the system. This makes data tampering virtually impossible as well as maintaining privacy for users.
All copies of the ledger are synchronized and updated regularly. This decentralized feature allows for transparency and trust, without the need for a central authority or government to approve the transaction. The blockchain was invented in 2008 as the underlying technology for Bitcoin, but its potential extends far beyond it. It is now being used by organizations and individuals in various industries worldwide to securely store, track, send or receive data.
The New technology behind blockchain smart contracts
The term ‘smart contract’ initially started as a way to describe computer protocols that automatically execute the terms of a contract. In the early days of blockchain technology, this was almost entirely an academic discussion that had no relation to the world at large.
What the concept evolved into, however, was a way to describe terms on a blockchain that were unalterable and self-executing. This brought with it a whole range of benefits over traditional contracts that have been used for centuries.
For one thing, removing human error from the equation is crucial to many industries – financial services, supply chain management, and others. The enforcement of smart contracts in these industries allows for safe automation of processes and data tracking.
Secondly, smart contracts are much easier to enforce than traditional contracts in court. With a traditional contract, there will be times when evidence is missing or unverifiable – for example if someone dies in an accident and it’s unclear who was truly at fault. With smart contracts on a blockchain, all data is permanently recorded and available for review. It can even be used to track the movement of physical goods through supply chains in real time as they make their way towards consumers.