Smart Contract is one of the most popular and debated innovation that the blockchain presented to us. They have become real thanks to Ethereum. Speaking in simple words, the smart contracts let two or more parties sign a digital agreement with the automated payment made in cryptocurrency after the stipulated conditions are implemented. Today, there are many start-ups and blockchain projects suggesting the creation of user-friendly smart contracts for business and not only.
Smart Contract’s Backbone
Smart contracts let exchange money, property, shares or any other assets without addressing intermediaries. To make a common deal a person has to go to lawyer or notary, pay and wait for the documents to be prepared. Smart contracts work like vending machines: you throw a coin to the machine (the ledger) and get the contract or any other service you ordered. Besides, in contrast to the traditional contracts, smart contracts not just contain the information on the obligations of the parties and sanctions for the violation of them but automatically provide the implementation of all the terms and conditions of the agreement. In the smart contract, the asset or the currency is transferred to the program that tracks the implementation of the stipulated conditions.
At some point, the program confirms the implementation of the contract conditions and automatically decides if the indicated assets should be transferred to one of the participants to the deal or should immediately be returned back to another participant (the conditions can be more complicated). All along the document is being stored and duplicated in the decentralized ledger that provides the security and doesn’t let either party change the conditions of the contract.
Standard VS Smart
Traditional physical contracts that are nowadays developed by lawyers are made of a myriad of pages of printed documents, written in the legal language. Their implementation and realization greatly depend on the third parties and therefore demand considerable efforts and don’t guarantee any result. In the case of derogation from the contract conditions, to solve the problem the parties have to apply to the state judicial system. The whole process takes really much time and money.
Smart contracts that are created by software developers with the help of special means exist in a digital form only. They are written in the following programming languages: C++, Go, Python or Java. The smart contracts just like the traditional ones contain the coded rules, consequence, obligations, payment and sanctions for either party in different circumstances. After that, such a code can be automatically activated by the distributed ledger system.
Smart Contract Strengths
Smart contracts are created on the basis of the computer logic that is why the conditions written in the code are scrupulously implemented. They cannot be changed retroactively or neglected. The most important feature of the smart contract is that even the participants to the deal cannot change the conditions and the third party just doesn’t exist.
The implementation of the contract is fully in hands of the system. The main advantages of smart contracts are the following:
- Self-sustainment, thanks to which there is a great chance to make a secure deal;
- Confidence. A smart contract cannot lose the information they have been entrusted with;
- Backup. The advantage is tightly connected with the previous one. The blockchain duplicates the users’ data more than once;
- Speed. Processing of the contracts and their realization takes much less time.
Despite many advantages, the smart contracts are far from being perfect as they are now on the experimental stage of their development.
Smart Contract Weaknesses
Smart contracts are far from being perfect. What if the code will contain mistakes? How will the government regulate them? How will the government collect taxes from such transactions? The list of potential problems is not limited to these ones. Experts are trying to solve all the problems. Observers express their concern that the widespread of the automated technologies may result in weakening of the existing social institutes that have been created by a human for centuries. But maybe it is the very push we so badly need to make another good step in sustainable development.