A smart contract is just computer code that defines certain parts of an agreement and can self-execute if terms are met.
Contracts are normal thing which we people make in our daily lives. There are basically many types of contracts like, business contracts, education contracts, and many more. These contracts define a deal between two people which a mutual understanding of rules and regulations that make an agreement. But these days this system has changed and the latest version of making a contract is a smart contract.
These smart contracts especially help in exchanging money, properties, shares or anything valuable in complete transparency. There will be no middleman making deals with side parties here and that’s the best part.
The best way to understand what a smart contract is to use a simple and real-world example.
Imagine if you and friend wanted to bet 1 ETH each on which team would be the winner in the next Superbowl. Well, you and your friend could create a smart contract using a dApp to write out a simple contract.
Inside the smart contract would be the terms of the bet and a source of who would verify the winner such as ESPN.com or NFL.com.
You and your friend would then deposit 1 ETH into the smart contract and on the day of the Superbowl the smart contract will execute and the winner will be paid out the 2 ETH that originally deposited in the contract.
Smart contracts are defined as protocols which are used by a computer to verify and negotiate the contract performance.
Here everything will be done by computer and so it will be useful and makes it easy for people to handle tasks in a smooth way. These smart contracts apply the same rule and regulations which we do in traditional contracts and in addition there will be more security with this system. These smart contracts have been used especially in matters which are associated with cryptocurrencies.
Smart contracts are powerful because we can guarantee their future execution in a decentralized and transparent manner. We can code programs that orders our cryptocurrency to operate in a certain way, making it possible for machines to hold and automatically transfer value.
The main feature of smart contract is to provide utmost security for every contract and especially with transaction matters as it costs more for other contracting methods.
Smart contracts in Ethereum are created in a programming language called Solidity which is created specifically to for Ethereum.
Advantages of smart contracts
These smart contracts are awesome and there are many more advantages which we people can enjoy using this. Some of the advantages are:
Autonomy: A complete contract will be made by ourselves i.e., people who are making a deal and so there won’t be any need of third party or a lawyer in charge of your contract. The execution will be completely done by the network.
Trust: The most important thing we expect while making a deal is trust among the partners and that factor is completely guaranteed here by using this system. There won’t be any way of saying that they lost the document.
Backup: If in some cases bank has lost the persons personal savings account that will never effect this system as everything will be stored in it automatically. And our documents will be duplicated many a times and they will be also linked up with our friend’s accounts and so will be stored in their accounts too.
Safety: Safety is also most important factor we people will be wanting for. Here in smart contract cryptography which encrypts the network keeps all the documents safe and there won’t be any problem of hacking too.
Speed: These days’ people want everything to be done infraction of seconds and no one would like to stand in a queue for long time and get the work done. So here smart contract uses a software code which automates the tasks very fast which saves a lot of our business time.
Savings: This helps us in saving our funds as there won’t be any need to pay for third party person or a broker. We should just pay at once the money for required transaction to be made.
Accuracy: These automated contracts are faster and cheaper and also they make sure that there won’t be any problem or errors as in traditional contracts people may make some errors while entering pile of information.
There are now many new things we can do with money that was previously impossible.
Use your imagination and you can create any limit or possibility. These contracts will be useful in many other fields too and still, in its early stages, Ethereum has the potential to leverage the usefulness of blockchains on a truly world-changing scale.