Smart contracts are computer codes, that are stored inside the Blockchain which is self-executing base on a contractual agreement with terms on the agreement directly linked to the Blockchain and are decentralized. Smart contracts are Blockchain, it is considered as a second generational Blockchain. As the word contract goes, a legally binding agreement which recognizes and governs the right and duties of parties to an agreement. Contracts are legally enforceable, it needs to meet its requirement and approval of the law binding it in order to make the contract valid. Smart contracts such as computer codes follow suit and act according to the law that binds it and expects both parties to be involved in the contract to act or perform what is expected of them in order to make the contract valid. As always, traditional contracts are enforced by a centralized organization to enforce the contractual agreement. For example, a bank will act as a middle entity for two people transacting money, the court can be in charge of an undertaking involving the transfer of ownership of land. In the case of a smart contract, it is defined by computer codes themselves, the contract is made by the parties involved. Though the extent to which you can automate the contract is relative, smart contracts are automated by computer codes, defined by the computer codes, and are executed automatically by the same codes. The purpose of a smart contract as a Blockchain is to remove centralized organization involved in traditional contracts and make everything decentralized to suit the purpose of Blockchain, whereby everything involving in the contract is captured by the codes and as the parties involved in the contract does exactly what is required in the contract. The contract will then automatically be executed. Smart contracts are automated. In that case, it enables autonomy and as a Blockchain it is immutable, the codes become the law that is governing the contract. Once the parties involved in the contract abide by the contract, the code will execute no matter what. That gives full control of ownership to the parties involved in the contract without any central entity getting involved, thus control of ownership digitally. Smart contract is self-distributed across all nodes connected. Smart contract works algorithmically; once the contract is valid, once the agreement is functional, it must self-execute. The codes will determine how the contract will take place and that no individual, no organization can alter, temper, or manipulate contracts. Smart contract reduces corruption, in a case where parties involving in the contract disagree with the terms the contract will not execute, it removes central dependency, it is cheaper and faster to run as well as guarantee certainty.
An example of a smart contract could be a logistics company delivering items to a person as the receiver automates payment on a smart contract and let payment through after receiving items. In this case’ once both parties agree on a contract, the person receives the items and confirms that items are received, the codes will release payment to the logistics company right away.
Another example is using smart contract is for food delivery. You just order and automate payment to pay on delivery. In this case, once you receive food and confirm, payment is also received by the restaurant right away and a smart contract makes the transfer of payment such that once both parties abide by the agreement the transfer of payment is unstoppable.
The last example is booking for a hotel; you can book hotels in advance and schedule time and date, as you occupy the room at the exact time and date, payment to the hotel, and the availability of the room is agreed on. Payment will be made once you occupy the room. Smart contract can be used to settle both parties without having to get people involved just the computer codes.
Smart contracts were first proposed by Nick Szabo.
Today a countless number of cryptocurrencies work on the smart contract Blockchain. Ethereum was the first Cryptocurrency to be built on the smart contract. Example of other cryptos that works on smart contract includes; Pundi X, Zilliqa, Basic Attention Token (BAT), Status(SNT), Kin, etc.
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