Smart contracts
Smart contracts are simply programs stored on a blockchain that are executed when predetermined conditions are met. They are usually used to automate the execution of an agreement so that all participants can be immediately sure of the result, without the involvement of any intermediaries or loss of time. They can also automate a workflow, triggering the next action when conditions are met.
How smart contracts work
Smart contracts work by following simple “if/when…then…” statements that are written in code on a blockchain. A network of computers executes the actions. when predetermined conditions have been met and verified. These actions could include releasing funds to the appropriate parties, registering a vehicle, sending notifications, or issuing a ticket.
The Blockchainx is then updated when the transaction is complete. That means the transaction cannot be changed and only parties that have been granted permission can see the results.
Within a smart contract, there can be as many stipulations as necessary to satisfy the participants that the task will be completed successfully.
To set the terms, participants must determine how transactions and their data are represented on the blockchain, agree on the "if/when...then..." rules that govern those transactions, explore all possible exceptions, and define a framework for resolving disputes.
A developer can then program the smart contract, though increasingly, organizations using blockchain for business are providing templates, web interfaces, and other online tools to simplify smart contract structuring.
Benefits of smart contracts
Speed, efficiency and precision
Once a condition is met, the contract is executed immediately. Because smart contracts are digital and automated, there is no paperwork to process and no time to reconcile errors that often result from manually filling out documents.
Trust and transparency
Because there is no third party involved and because encrypted transaction records are shared between participants, there is no need to question whether information has been altered for personal gain.
Security
Blockchain transaction records are encrypted, which makes them very difficult to hack. Also, because each record is connected to the records before and after it in a distributed ledger, hackers would have to alter the entire chain to change a single record.
Savings
Smart contracts eliminate the need for middlemen to handle transactions and, by extension, the associated delays and fees.
