What is a Smart Contract?
The basic concept of ‘Smart Contracts’ was introduced in 1994 by a legal scholar and computer scientist Nick Szabo. He described it as a set of promises and protocols between parties put in a digital form. Four years later, he also invented an electronic currency which he called Bit Gold.
Similar to customary contracts, Smart Contracts are used for exchanging shares, capital, property, or other assets. It is a secure and transparent method of exchange and you will not require any middleman to help you out with the deed either.
To create a smart contract, assets and data considered have to be written down in a digital form. To execute the contract, pre-requirements of the contract should be met, otherwise funds will be sent back to the initial owner.
How are Smart Contracts Created?
The process is quite simple; you just have to put in the required cryptocurrency amount. Place it with the information that you wish to keep inside the contract. You may also be asked to specify the terms & conditions, rules, or other norms before finalizing the contract.
Smart contracts work for both an individual contract and crowdfunding groups. While the single contract functions independently, this feature is available for group contracts as well. They can create smaller contracts among themselves. Few companies have taken a step forward in this and have already set up smart contracts in their blockchain. Now their functioning is interdependent of each other.
Elements of Smart Contracts
Basic Smart Contracts works on 3 separate aspects or objects. These three elements are:
- Digital Signatures; from both sides or parties on whether or not they have any interest in signing up on the deal
- Subject; is a must object in all agreements. Everyone from concerned parties should have full knowledge of the deal and related information. Transparency maintained, there will be no hidden clauses in the contract.
- Terms & Conditions; based on factual and arithmetic calculations. Apt programming languages can set these norms for you in the contract.
After the agreement is prepared, both parties will have to accept it and adhere to the rules or directives listed in it.
To ensure that the Smart Contracts works properly, one has to maintain a stable operational setting. Users are asked to have a cryptographer code to grant permission to the transactional processes. You must use an accessible, independent, and reliable database to maintain a suitable environment.
Pros of Smart Contracts
- Safety: These contracts are encrypted and shared between nodes. This provides assurance that the contract will not be amended or lost without seeking your approval.
- Standardization: There are different types of Smart Contracts available, you are free to select and modify the one that fits your requirements the best.
- Dependable: You can trust these contracts for implementing your blockchain network processes effectively.
- Assured Results: Unlike traditional contracts, members of Smart Contact can make an agreement that resolves their demands suitably. However, they do have to comply with certain rules.
Cons of Smart Contracts
- Undetermined Legal Position: At present, smart contract regulation has not received governmental support. Therefore, if in the future, any authority decides to make their framework could pose problems.
- Privacy: The complete transparency of these contracts gives them one of their disadvantages. While most users ensure proper confidentiality, others like Ethereum don’t; make sure you cross-check on this.
- Execution Charges: Since these contracts cannot be completed without adequate programming, you might require the assistance of an expert cryptographer or programmer.
What to pay attention to while using Smart Contracts for exchanges?
The process of innovations like Ethereum Blockchain has been showcasing the future of exchange effectively. To ensure that the contract gets approved quickly then focus on:
- Selection of Programming Language should be done wisely
- Blockchain Technology’s Development Approaches
- Perform Safety Audits & Tests on regular intervals
Getting the Smart Contract ready could be a prolonged process, however, their success rates depend on ongoing development and undertaking. These contracts benefit your supply chain to a great extent.