Smart contracts, in the world of cryptocurrency, are the most used applications in blockchain technology. Nick Szabo introduced the concept of a smart contract almost 25 years ago, and he concluded that all decentralized ledgers could become self-executable contracts, also known as a Smart contract. Decentralized ledgers are a unique feature of blockchain, meaning that they can be shared amongst all parties of a network, without the need for any third parties. This allows for faster, more efficient and less expensive systems, as compared to the more traditional systems that we know.
Smart contracts amongst the digital world work far more efficiently than the ‘paper contracts’ we all know and understand, but they still need to be organized and arranged in a legal matter. This is for the protection of all working parties. In the ‘paper world’ contracts take a long time and involve lawyers, various trips to different institutions, signatures, and a lot of bureaucracy. In the digital or blockchain world, Smart contracts are a set of computer code that runs on the top of the blockchain and is a set of pre-defined rules agreed upon by all parties. The code allows for a decentralized system that verifies the agreement, as you enter the blockchain world. The smart contract means you can do your business, digitally and online, using blockchain, while eliminating the middle man.
You may be asking how a Smart Contract brings a legal change and how secure can people feel by using blockchain, and new technologies, where there is no signed paperwork and everything is electronic. Here are the answers:-
The encryption of Blockchain is sophisticated and only uses the most secure technology. Because of the nature of the ledger, making blockchain decentralized, entries or work done does not need to be validated by any one authority. Blockchain is transparent in nature and all parties involved can see what is on the ledger. All arrangements are logged, openly and transparently, on the digital ledger.
All transactions are recorded online. This means that while a smart contract is different from a paper contract – there are no actual signatories, no actual paperwork to file away – everything is still filed away. It’s just filed away, online. And even though the contract is in code, it is still a contract.
Smart contracts can be used in several situations; in fact, in endless situations. Think of buying a house, transferring property, starting a job, having a new employee, buying shares, entering in a copyright situation, doing online work for someone, or selling shares. A smart contract can be legally binding. There is no law that says contracts have to be paper. Oral contracts are legal, paper contracts are legal and Smart contracts are legal too. One just has to take a look at the principles of the contract you are looking into, and if it is via blockchain, the principles will always be at the top of the blockchain.
You may not know it but Smart contracts are being entered into all the time, even by you! Insurance policy claims are often settled with the use of a Smart contract, especially when data is processed online. And if you think of your work, you may well be sending and receiving contracts all the time, without even realizing they are Smart contracts.
Smart contracts are making our lives easier. They are secure. They are far less bureaucracy involved. They are speedy. And they are totally and utterly transparent. There are some limitations to Smart contracts as they are not flexible like paper contracts. But this may well make a Smart contract a lot more secure.