What Are Smart Contracts?

A smart contract is a set of rules that are executed automatically when certain conditions are met. The definitions vary depending on the intended use but the concept is usually used for contracts. Smart contracts are largely written in computer code.

In a typical smart contract, the parties involved must mutually agree to put into place the particular terms they’re going to agree to. A smart contract takes care of ensuring that those parties make the legally binding agreement they’ve agreed to do so, with the various safeguards built-in for situations where they don’t follow through with what they’ve promised.

Ethereum is the first smart contract platform in the world to utilize blockchain technology for smart contracts. Ethereum uses a peer-to-peer network of computers to confirm the validity of digital transactions and offers the first commercially available smart contract language, Solidity.

Benefits of Smart Contracts

Smart contracts, in most applications, offer the following benefits:

Improved efficiency of transactions: Rather than waiting for the network to confirm transactions, smart contracts achieve that functionality themselves, thus allowing faster transactions to take place.

Rather than waiting for the network to confirm transactions, smart contracts achieve that functionality themselves, thus allowing faster transactions to take place. Insurance coverage: Smart contracts can be used to create insurance policies and perform payouts in the case of an accident.

Smart contracts can be used to create insurance policies and perform payouts in the case of an accident. Unique integration into everyday life: The ability to perform transactions without requiring an intermediary like a bank or broker, is a big advantage.

The ability to perform transactions without requiring an intermediary like a bank or broker, is a big advantage. Risk-management mechanisms: In a traditional payment transaction, the parties to the transaction are both at risk if the transaction isn’t completed. In a smart contract, the party that needs to make the payment is the one who has the ability to close the transaction.

In a traditional payment transaction, the parties to the transaction are both at risk if the transaction isn’t completed. In a smart contract, the party that needs to make the payment is the one who has the ability to close the transaction. Digital identities: By using a digital signature to complete the transaction, parties have a more secure way to prove their identities to others and the parties themselves.

By using a digital signature to complete the transaction, parties have a more secure way to prove their identities to others and the parties themselves. Payment transparency: Smart contracts also increase transparency, making it more difficult for a dispute to take place as parties know exactly when they made the transaction and can easily make the payment.

Smart contracts also increase transparency, making it more difficult for a dispute to take place as parties know exactly when they made the transaction and can easily make the payment. Greater flexibility: While many businesses in the world require a set of written agreements for most transactions, a smart contract allows businesses to use more than one method to fulfill their payment requirements.

Key Smart Contract Features

While Ethereum is the platform that many businesses are experimenting with to see what they can accomplish with smart contracts, other platforms have offered smart contracts for a long time, such as Proteus, EtherDelta, and zcash. It’s worth looking at the features offered by the different platforms to see what makes each one work best for the kind of use case that a business may be considering.

Ethereum:

Ethereum’s platform offers the ability to build smart contracts for just about any kind of transaction that a business could imagine. Ethereum’s smart contracts offer the following capabilities:

Contract execution

Acceptance and payment

Payment channel

Insurance

Warning or cancellation

Redemption

Matter of Trust

Contracts can have values of, and attributes such as rights, obligations, and liabilities, along with smart contract data fields such as values, variables, and parameters.

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