On this post, I’ll overview everything about Smart Contracts. What are smart contracts, why do they exist and why are they important? Smart contracts are a powerful tool that can provide many solutions in a wide variety of industries around the world to make business faster, more efficient, more global, and more secure.
Today we dive into Smart Contracts. Well To start, Smart contracts are essentially just contracts but with better technology. It’s not just an IQ, but rather it’s the underlying technology that makes these things smart, and that underlying technology for smart contracts is the blockchain. Through the use of programming and decentralized networks, we can have contracts that work more efficiently and are more appropriate serving the growing business needs of the new globalized economy. Well get to the blockchain portion of it a bit later, but first the contracts themselves. These smart contracts have Computer code built into them so the logic and programming language of Smart Contracts results in automation, where specific events are triggered automatically when an initial event occurs like signing a transaction, a timestamp, or anything else programmable.
In programming terms, the automation of a smart contract is actually something we call Ifthisthenthat logic, Executing code based on a triggered event where “if” this event trigger happens, “then” code executes some other event or function. For example, putting money to an address could execute a contract which does anything programmed into the contract. You need a pre-existing event to trigger the next event. Then these event changes programmed in the smart contracts are updates through communication and agreeance of those updates between nodes on the blockchain, updating the network wide transparent ledger.
One of the main differences with smart contracts from a regular contract is that any contract changes are pushed out and verified by all of the other nodes in the system.
So how do these smart contracts help us make the world better in the real world. Let’s think of an example where normal contracts occur in commonly for reference. What are big contracts you would normally sign? Buying a car, buying a house or a signing a rental or lease contract. These could all be automated into smart contracts.
Imagine taking the regular contract with the details of the contract all coded on to the blockchain where through interaction You would be able to make a purchase of that car. When you make a deposit for the car based on the contract terms, the smart contract would execute that deposit automatically and engage you in the next stage of the contract. By having this contract on the blockchain, all of the information associated with this contract would be agreed upon by all parties verifying the network where the contract sits, and once the car is purchased the identity will be transferred to you and the smart contract will be updated across the entire network so everyone agrees that you now have ownership of the vehicle. This process should make doing business more streamlined and allow for a more secure and transparent communication of data than previously possible.
Another feature of smart contracts is multi-signature requirements where an event cannot be triggered without multiple parties accepting to it. For instance if that car was owned by 2 people, the contract could enforce both people to sign off or else no actions will be taken.
A strong example of multisignature protection in crypto is a Multisig ICO Wallet. Many wallets owned by corporations holding the collected funds from ICOs have restriction where any particular amount of signatures, whether it be 2 of 3 or 3 of 5 signatures coded into the contract must sign off on a particular event for the contract to execute that specific event. This prevents one single party from taking the funds out of an ICO wallet without others permission.
The current traditional process requires a lot of communication back and forth. The old way requires a lot of steps to confirm back and forth between parties. If the information is all coded into the blockchain and the owners of the information can be transferred easily through a transparent transaction on the blockchain. In a rental contract agreement, there can be issues on both ends.
There are many other utilities arising from smart contracts. For instance having your own Digital identity that can build reputation and social credibility. With blockchain technology and smart contracts possible to build credit by providing a history of timely and transparent payment history recorded on the blockchain.
In Summary, smart contracts really are just contracts that have some form of automation or what programmers call logic, and are uploaded to a blockchain. These contracts are not the end all be all to regular contracts and they are still in the early adoption stage at least in the real world, but they have the ability to change many industries and likely will end up reshaping the legal industry, financial industry, insurance industry and many others.