As of today, we know that Bitcoin is the king of the cryptocurrency with its primary use being a digital currency. With this rapid popularity, the blockchain technology has made its way into our lives and also our mobile apps. A recent example for this is the KFC Bitcoin Bucket, yet this is exactly what the name reads. Bitcoin has become legal tenders with KFC Canada where from now you can buy fried chicken in exchange for Bitcoin. As previously discussed, with all that blockchain buzz around it’s quite impossible for even a common man to avoid the latest talks i.e., Smart Contracts.
‘Smart Contract’ what exactly is this? Is it just an electronic contract? Why do we call it smart? With so many questions surrounding this topic let’s get to know more about this topic step-by-step.
“A Smart Contract can be defined as a computer protocol intended to digitally verify, facilitate or enforce the negotiation or performance of a contract.”
Basically smart contracts allow performing credible transactions without the involvement of the third parties whereas, these transactions are trackable and irreversible. The who concept of Blockchain Technology is based on a decentralized system that exists between all permitted parties but there’s no requirement to pay the intermediaries. And without these middlemen involved the chances are conflicts are lowered and extra time wastage is avoided.
NickSzabo is the man who first introduced smart contracts in 1994 which are otherwise known as self-executing blockchain contracts. Here, the contracts can be converted to computer code, stored and even replicated on the system and further can be supervised by the network of computers that run the blockchain. As blockchain is rated as a cheaper, faster and secure method more banks and governments are opting for this technology.
Let’s understand this process with an easy example of a vending machine and this is where the following steps occur.
Step 1 – An option contract between the parties is written as code into the blockchain. The individuals involved are anonymous, but the contract is the public ledger.
Step 2 – A triggering event like an expiration date or strike price is hit and the contract executes itself to the coded terms.
Step 3 – Regulators can use the blockchain to understand the activity in the market while maintaining the privacy of individuals actors’ positions.
Say, you need a document to get done in this case a Driver’s License. Normally, we would go to a lawyer and pay his/her to get the work done. But with smart contracts, you can just drop a bitcoin into the ledger/vending machine and the document will not only just drop into your account but will also automatically enforce those obligations. In short, we can say that smart contracts are taking over the functions of Lawyers.
More and more Multi-National companies are bringing out their own products and services on Blockchain Technology to keep with the trending. As smart contracts enable companies to create an ecosystem that supports their business processes. Transparency and immutability of blockchain ensure that the transactions & agreements between businesses and their respective customers are verifiable.
Autonomy – As you are the one making the agreement, there’s no need to rely on a broker or lawyer.
Accuracy – Smart contracts are not only faster and cheaper but also avoid the errors that come from manually filling out heaps of forms.
Backup – On the blockchain, your documents are duplicated over many times so there’s always backup.
Savings – Smart contracts save you money since they knock out the presence of an intermediary.
Trust – Your documents are encrypted on a shared ledger.