Smart Contract is the next step in the progress that is being made in blockchain technology, consisting in the transition from a financial transaction protocol to a universal tool that will automatically implement the terms of contracts, minimizing the risk of error and manipulation.
It is worth mentioning that Bitcoin was the first to introduce simple, intelligent agreements that enabled mutual payments between users. As the limited language of Bitcoin’s coding did not allow the development of its own block applications, Vitalik Buterin thought about creating its own platform – and that’s how Ethereum was born. Smart Contracts were invented and introduced by Nick Szabo in 1994 to create new things.
What are the goals of Smart Contracts?
Let’s consider why people need traditional contracts first. To put it simply, mainly because of the lack of trust between the interested parties entering into a contract. An example is the exchange of value, e.g. the transfer of goods in order to make a cash payment. Usually you would not trust a real seller of a house without an agreement with him, would you? What if you have never met the person you intend to send money to online?
Intelligent contracts are the ideal solution to ensure that all kinds of transactions between people can take place in a way that is beneficial to all interested parties, regardless of whether you trust them or not.
What is Smart Contract?
Intelligent contracts, like traditional paper contracts, are a guarantee of trust. However, there are certain characteristics of Smart Contracts. They are not a stack of paper filled with legal and difficult to understand language. It usually happens that it takes lawyers a long time to verify contracts legally. Intelligent contracts are digital versions of traditional contracts. They are simply programs that run on the Ethereum platform in blockchain technology and have the same meaning: to legally bind any person who intends to participate in the conclusion of a contract. It’s nothing more than a line of code written in Solidity language comparable to Java Script. This code is then converted into bytecode and issued to the blockade as a smart contract. Each contract has its own block address. This means that if you start communicating with someone, the contract will be created as part of the blockade and the address will be accessible to all interested parties. Then you can use it to interact with the smart agreement and fulfill the obligations to start its implementation. It’s worth noting that smart contracts can also connect and work with other smart contracts. The whole process is blocked, so the smart contract is transparent, secure, stable, inexpensive, and decentralised.
Why are Smart Contracts gaining in popularity?
There are several key areas where Smart Contracts are better than traditional counterparts, making them much more preferred. Contracts provided in an intelligent way provide simplicity, speed of execution and real-time update – these are three aspects in which traditional contracts simply become limited compared to the smart option of Smart Contracts. In addition, they are able to eliminate the excess of centralized entities and other intermediaries who often contribute to increased risk, autonomy and accuracy of self-fulfillment which means that there is no delay in the delivery of agreed contract terms. Blockchain technology provides transparency, certainty, security and legitimacy for intelligent contract execution.
Based on these advantages compared to traditional contracts, some sectors only use smart contracts. Some of them already have a real application or companies in the field, but the use of smart contracts is still in the development phase. CCG Mining is one of the leading companies on the Polish market that offers Smart Contracts, so you can use the platform to create and execute contracts without the need for specialist knowledge on block coding.
Enabled by blockchain, Smart Contracts functionalities will significantly impact the financial industry and the entire economy. Thanks to the block technology used, the features of intelligent agreements, such as the ability to receive, store and send information safely, as well as the pre-established terms and conditions of the agreement mutually agreed upon by the contracting parties, will allow them to help decentralize the trust model, speed up billing time, reduce the need to participate in the process of concluding transactions of expensive intermediaries, improve transparency, automate processes, reduce legal disputes, mitigate risk and become the norm for countless types of transactions.
– explains Michał Kwieciński, CEO, advisor in CCG Mining, a technology startup that enables the conclusion of Smart Contracts.
How does Smart Contract work?
Blockchain technology uses Ethereum to process smart contracts and requires a certain amount of fuel to complete them. Fuel, ether, is used to pay for computing power to process contracts. However, charges are minimal compared to centralised entities, such as lawyers or brokers involved in trading. The ideology behind smart contracts is quite simple, as they are implemented on the basis of IF-WHEN-THEN decision making instructions.
Of course, the future of business will dictate that contracts will become a hybrid of traditional paper-based contracts and Smart Contracts, often referred to as paper and code contracts. This means that although there is a real copy of the contract, the details are verified or authenticated by intelligent contract programs.