In the simplest terms, a smart contract is a computer program that helps to enforce an agreement between two or more parties. Smart contracts are powered by blockchain technology, and they have the potential to revolutionize how business is conducted online. In this blog post, we will discuss what smart contracts are and how they work. We will also explore some of the benefits of using them in business transactions.

Smart contracts were first proposed by Nick Szabo, who is credited with coining the term. Szabo is a computer scientist and legal scholar foresaw that smart contracts could one day be used to replace traditional paper-based contracts, and recognized the potential for using computer programs to execute contracts.

How do smart contracts work?

In the most basic sense, a smart contract is a digital contract that self-executes when certain conditions are met. For example, let’s say you want to buy a car from someone. You could draw up a contract that stipulates that the car will be delivered to you on a certain date, and that you will pay X amount of money for it. Once both parties have signed the contract, it is stored on a blockchain. When the delivery date arrives, the contract automatically releases the funds to the seller. If the car is not delivered, then the buyer gets their money back. In this way, smart contracts can help to streamline transactions and reduce the need for third-party intermediaries.

Since smart contracts are contracts that are written in code and stored on a blockchain, and the blockchain ensures that the contract is executed exactly as written, this makes smart contracts more trustworthy than traditional contracts, which can be subject to interpretation and fraud. Smart contracts can be used for a variety of purposes, from financial transactions to bets and games. One of the most popular applications for smart contracts is initial coin offerings (ICOs). ICOs are a way for startups to raise money by selling digital tokens. The terms of the ICO are typically written in code as a smart contract. This allows investors to trust that they will receive the tokens they are due, and that the startup will not be able to keep the funds if they do not meet their obligations.

Ethereum is currently the most popular smart contract platform, but they run on many other blockchains, including EOS, Neo, Polkadot, Ergo, and Algorand.

What are the benefits of smart contracts?

A smart contract is a self-executing contract with the terms of the agreement between buyer and seller being directly written into lines of code. The code and the agreements contained therein exist across a distributed, decentralized blockchain network. Some benefits are:

  • Smart contracts permit 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.
  • By eliminating the need for intermediaries, smart contracts potentially enable faster, more efficient, and more secure transactions.
  • In addition, smart contracts can be used to automate complex processes and workflows, such as supply chain management or insurance claims processing.
  • Smart contracts could help to reduce fraud and other forms of financial crime.
  • Ultimately, smart contracts have the potential to streamline many business processes and reduce costs while also enhancing security and transparency.

Because they are not subject to the jurisdiction of any one country, they have the potential to create a truly global economy. First proposed by Nick Szabo in 1996 as a way to facilitate, verify, and enforce the performance of contractual agreements using cryptography, Smart Contracts today are being used to automate a wide variety of business processes, including financial transactions, supply chain management, and identity verification. As the use of smart contracts becomes more widespread, it is likely that they will have a profound impact on the way we conduct business and exchange value.