Smart contracts

Smart contracts allow the exchange of funds or other assets without mediators. For a regular deal you need help from a notary or a lawyer. In the case of cryptocurrency transactions, a smart contract acts as a notary.

Smart contract is a pre-written algorithm with all the rights and obligations of the parties. Smart contracts not only store information about the rules for conducting transactions, but also automatically “monitor” the fulfillment of all conditions.

Smart contracts can be written in any blockchain, most often they are written on Ethereum, because it provides almost unlimited possibilities for creating and working with such contracts.

How do smart contracts work?

A smart contract is usually written to the blockchain, and the logic of the contract is stored in the block. Also, the block stores all messages related to this smart contract.

Mandatory attributes of a smart contract:

private decentralized environment (for example, Ethereum), in which all data of the smart contract is recorded and which supports the inputs and outputs for oracles (information providers);
using electronic signature methods based on private and public keys;
the subject of the contract and the necessary instruments for its execution;
accurately described terms of the contract, confirmed by the signatures of the participants.

How to use smart contracts?

Smart contracts can be used not only in the field of cryptocurrencies, but also in other areas.

  1. Elections. To protect the election as much as possible from falsification, you can put votes in the distribution register. Then for decoding, you will need exceptional capacity. This makes hacking of such a system almost impossible.
  2. Management. Blockchain-based smart contracts provide a transparent and open shared ledger. It helps to avoid confusion when multiple parties work together or when contracts are drawn independently of each other.
  3. Supply and logistics. These industries often suffer from bureaucracy at different stages. It makes them susceptible to fraudulent activities. Access to a secure electronic system that can control all payments, work execution and deliveries significantly simplifies logistics and procurement processes.
  4. Cars. Smart contract technology can be applied in the field of self-driving cars. Such contracts can contain algorithms for finding the causer of an accident and define other important parameters.

Pros and cons of using smart contracts

Pros:

  1. Security. The contract is placed in a distributed ledger and is immutable.
    Independence. With a smart contract, no third party services are needed.
  2. Cost-efficiency. The absence of mediators allows you to cooperate on more favorable terms.
  3. Speed. When the conditions of the smart contract are fulfilled, the parties can immediately exchange assets.

Cons:

  1. Legal status. Smart contacts work with cryptocurrencies, and its legal status is not defined by most states.
  2. Complexity. Smart contracts need prescription of all possible conditions – the more complex the transaction is, the more difficult should be prescription.

What platforms do smart contracts support?

There are many platforms that support working with smart contracts and their creation. Let’s take a look at the most popular ones.

  • Ethereum. The most popular blockchain for working with smart contracts. Provides ample opportunities for writing contracts and working with them. You can create any contract by paying for the platform resources with ETH coins.

  • Bitcoin. The most popular blockchain is great for working with transactions, but the possibilities for smart contracts are limited.

  • NEM. This platform works directly with the blockchain code and, unlike Ethereum, is more scalable and can process up to 4000 transactions per second.

  • NXT. An open platform with ready-made smart contracts. You can use already written contracts, but you cannot write your own.

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