Introduction
Smart contracts are programs which facilitate, verify, or enforce the negotiation or performance of a contract, or that make a contractual clause unnecessary.
Smart contracts are computer programs designed to facilitate, verify, or enforce the negotiation or performance of a contract. Smart contracts can be used to encode the rules and logic of any contractual relation: their use does not require an intermediary. While traditional contracts require third parties for enforcement, smart contracts run on decentralized platforms such as blockchains and allow us to program its own terms without a middleman.
Smart contract was first proposed by Nick Szabo in 1994 as part of his research on formalizing and securing relationships using cryptography. In 1996 he coined it with the help of another researcher who suggested the term “smart contract”.
Smart contracts often emulate the logic of contractual clauses.
Smart contracts are often used to manage data and agreements. These self-executing contracts are computer programs that can be built upon the Ethereum blockchain. They contain a set of rules that execute automatically when certain conditions are met, e.g., if someone sends me money then I will send them a picture of myself doing a backflip.
Smart contracts can be used to automate business processes by defining the logic of contractual clauses: what happens if you don’t pay your taxes or if you forget to return your library book on time?
If a smart contract is well-designed, it can improve efficiency in transactions with less legal barriers and lower transaction costs compared to traditional contracts.
The first reason that smart contracts are more efficient than traditional contracts is because they are more transparent. The terms of the agreement are written in code and stored on a blockchain where anyone can see them. This makes it harder for one party to hide their intentions or trick another into thinking they were party to an agreement when they weren’t actually involved at all.
The second reason that smart contracts are more efficient than traditional contracts is because they are more enforceable. Smart contract code is automatically executed once certain conditions have been met, meaning there’s no need for intermediaries like lawyers or judges to oversee the implementation of an agreed-upon solution (although such services may still be useful). For example, if one party defaults on their payment obligations under an escrow account held by a third party, then funds will automatically transfer from one account holder’s balance into another’s according actuated by code rather than trust alone – no court proceedings needed!
A smart contract may provide security superior to traditional contract law and reduce other transaction costs associated with contracting.
Smart contracts have a number of advantages over traditional contract law. Most notably, smart contracts are self-executing with specific instructions written on its code. They can be programmed to trigger events automatically, including: releasing funds and sharing information based on pre-defined conditions. Smart contracts also operate independently from any particular entity, relying instead on decentralized networks such as the blockchain to execute transactions automatically or semi-automatically.
Furthermore, because they run on a blockchain (which is infinitely transparent), smart contracts are accessible by anyone who wants to see them; this transparency also means that they are immutable—you cannot change anything once it has been recorded on the blockchain
Smart contracts facilitate trusted transactions and agreements to be carried out among disparate, anonymous parties without the need for a central authority, legal system, or external enforcement mechanism. They render transactions traceable, transparent, and irreversible.
Conclusion
Smart contracts are the new way to do business. They’re a form of digital technology that facilitates trusted transactions and agreements to be carried out among disparate, anonymous parties without the need for a central authority, legal system, or external enforcement mechanism.