Published 15 October 2018

What is a smart contract?

What is a smart contract?

A smart contract is a self-executing computer code designed to conclude and maintain commercial contracts, which is recorded in the blockchain that is a decentralized chain of blocks stored on multiple computers.

Smart contracts mean that some automation of value distribution is performed, which can depend only on those conditions that were specified. In the simplest form, it looks like a contract with strictly specified conditions, which is signed by certain parties.

Smart contracts are designed to minimize trust to third parties. Sometimes the decision-making center is completely excluded. In addition, it is easier to conduct audits for such contracts. This is a consequence of some design features of such a system. More often we understand a smart contract as a decentralized environment and the availability of functions that allow anyone to analyze the database and conduct a full audit of the performance of contracts. Thus, protection against retroactive data changes is guaranteed, which will entail changes in the performance of the contract itself. The digitization of most processes when creating and launching a smart contract often simplifies the technology and the cost of implementing them.

The difference between a smart contract and a traditional contract

The difference between a smart contract and a traditional contract:

  • allows you to exchange assets such as money, shares directly without the participation of third parties, transactions are traceable, and transparent;
  • openness of the code, anyone can check the content;
  • impossibility of making changes in conditions;
  • automatically ensures the implementation of all the terms of the contract (it is a fully automated code of a smart contract);
  • provides a prompt solution of the issues as soon as the terms of the smart contract are fulfilled, the parties immediately exchange assets;
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