What's behind smart contracts?
Nowadays, one of the significant advances that are changing the world and how it works are smart contracts. It is undeniable that automation is the future of all. For this reason, smart contracts emerge as a solution to many problems of repetition and execution. It is indisputable that automation is everyone's future. There is no doubt that most contracts will be involved with blockchain technology and will run by themselves in the future.
Before approaching this topic, you may ask yourself: What are smart contracts?
As defined by IBM, smart contracts are " Simply programs stored on a blockchain that run when predetermined conditions are met. They typically are used to automate the execution of an agreement so that all participants can be immediately certain of the outcome, without any intermediary's involvement or time loss.
How do they work?
Smart contracts follow different statements that have been determined before, for example.
If…When…Once…
After the contractual terms are finalised, they are translated into programming code and stored in the blockchain network. Once the conditions previously established have been fulfilled, the network of computers executes what it has been agreed to carry out.
Smart contracts benefits
Autonomy: Fewer intermediaries for the execution of the contract makes it autonomous. The only requirement is that the conditions need to be met to execute itself.
Security: Thanks to the transparency of blockchain technology and its public and immutable registry smart contracts are less compromised by fraud.
Speed: By not having intermediaries to execute the contract, time is much shorter than previously, the main idea of the Smart contract is that once the conditions are met, the contract is self-executed.
Less probability of error: since everything is programmed in the blockchain there is a lower possibility of error compared to when a human does the same work.
Records: all transactions are registered in the network and are not subject to modifications.
Some common uses
Smart contract example
Daniel is about to fly from London to Los Angeles. He sends $ 10 in cryptocurrency to the insurance company's smart contract and provides his flight number. The insurance company sends $ 40 to the smart contract. So, there is $ 50 in the smart contract.
If Daniel's flight arrives on time, the insurance company will receive $ 50 from the smart contract. Instead if the plane is late, $ 50 is sent to John from the smart contract. Everything is automatic and self-executing.
This example of a smart contract shows us how easy it is for all parties. For Daniel, it is very beneficial because he immediately receives the money from the smart contract without applying any request if there is a problem with his flight. On the other hand, for the insurance company, it is also beneficial because it automatically executes the process, being the insurance disbursement or keeping the part of the profit.
Last thoughts...
As mentioned above, smart contracts are part of the change. The reduction of time thanks to decentralisation and the elimination of intermediaries are just one of these advantages. For all the benefits, most areas have sought to implement them in their day to day and thus reduce costs and increase productivity.
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