Smart Contracts
The term "Smart Contract" is highly spread on the internet, What is it? why we need it? what it provides? so on and so forth. In this blog I'll try to answer each and every question and more in detail. The aim of this blog is to provide all possible details regarding "Smart Contracts" to readers.
"A Smart Contract is an agreement, contract, or set of instructions that is deployed on a decetralized Blockchain". Once the Smart Contract is deployed:
- It cannot be altered.
- Automatically executes.
- Everyone can see and have access of the terms of agreement.
In simple terms we can say that "Smart Contracts" are a piece of code that are written in some specific language like Solidity or Vyper and are deployed on blockchain to give raise to trustlessness or unbreakable promises and many more.
Why we need Smart Contracts?
Let's look at the real world example of breaking promises. Back in the 80s and 90s McDonald's ran a promotion for people to win money by collecting McDonald's Monopoly game cards. The idea was simple "you have to buy McDonald's food and in return, you get a chance to win $1 million. but they ended up breaking this promise, instead of having a fair chance of winning the money, the chance for anyone to win millions was ZERO.
The $24 million went into the pockets of not people playing the game, but to the currupt insiders who rigged the game. So the people played the McDonald's monopoly game, they were bought into a set of lies and promises. But if this was deployed on a blockchain with Smart Contract, the owners couldn't been able to break their promise and had to pay $24 millions to the winner, as smart contracts are immutable and give rise to unbreakable promises.
So simple we can say that we need "Smart Contracts" to get surity for trustlessness.
Smart Contracts will solve society's critical trust issues:
Counterparty Risks: The likelihood or probability that one of those involved in a transaction might default on it's contractual obligation.
Paper Guarantee (Brand based)
- Counterparty risks are high & opaque.
- Transparency is purposfully removed.
- Interest yeilds are low and going lower.
Cryptographic Guarantee (Math based)
- Risk is low & transparent.
- Transparency is built-in.
- Interest yeilds are consistently high.
Benefits of Smart Contracts!
- Transparency: The Smart Contracts give rise to transparency, which means every transaction happening on Blockchain can be seen by every user in that Blockchain. Along with that also as smart contracts are based on blockchain, they guarantee the immutability of data. Smart Contracts also give rise to trustlessness or unbreakable promises, which means that you don't have to trust anyone on blockchain, as if someone on the Blockchain is promising you to give some service, that person or party can't deny you from giving that service after transaction as Smart Contracts make sure the immutability on chain.
- Speed: The absense of third parties or intermediaries reduces the economic cost as well as the time cost, hence the time invested is reduced compared to contracts done manually.
- Cost Reduction: Elimination of intermediaries also makes it cost efficient as people on blockchain with smart contract don't have to pay any third party for any services.
- Backup: All the transactions and data on Blockchain are duplicated on multiple nodes or systems, thus originals can be restored as long as one node is working properly.
- Safety: Smart Contracts are encrypted, and cryptography keeps all the transactions and data on chain safe from infilteration.
Along with benefits and pros there are also some cons or limitations as well.
Limitations of Smart Contracts
- Difficult to change
- Vague terms
- Possibility of loopholes
- Legal Ramifications
- Delayed Transactions
With this much information about Smart Contracts, you are good to go and if you wish to know more about Blockchain technologies and more, then follow me on Hashnode and Medium.
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