Smart contracts are just like traditional contracts. The only difference between a smart contract and a traditional contract is that smart contracts are digital. In the simplest form, a contract is an agreement between two or more parties containing considerations, agreements on both sides. There is an intermediary party that sits between these 2 parties. This can be a financial institution, government or any other institution. The parties that are coming into terms and making the transaction is dependant on the intermediary. This is the traditional, centralized model of a traditional contract. If one party fails to deliver what is expected and agreed upon by other parties, the injured party can sort to litigation. Unfortunately, this comes with lawyer fees. This is where the smart contract differs.
A smart contract is a computer program in the blockchain. You do not need an intermediary to ensure that the contract is executed correctly. This is all done by the code. The code is the enforcer and executor of the contract. Once certain conditions are met, the code carries out the rest. This enables parties to sign a contract without the need for an intermediary. For example, when someone delivers a product, the funds of the receiver of the product is released automatically. These contracts run on the blockchain; so they are stored in a public database.
Reasons why a smart contract is better than a traditional contract.
- Can be trusted
- Faster than traditional contracts
- Safer than traditional contracts
- Cost efficient.
History of Smart Contract
The idea of a smart contract was first put forward by a cryptographer named Nick Szabo in 1994. His idea was to record contracts in computer code. In his paper, he wrote “These new securities are formed by combining securities (such as bonds) and derivatives (options and futures) in a wide variety of ways. Very complex term structures for payments can now be built into standardized contracts and traded with low transaction costs, due to computerized analysis of these complex term structures,”
How to create a smart contract?
You can build a smart contract on the Etherium blockchain. Etherium is the most popular choice right now. You can create a smart contract using Solidity. Solidity is the original coding language used to build Etherium. If you want to learn how to build a smart contract on Etherium blockchain, check out here. This course is completely free after signing up.