What is a Smart Contract?

Basic information

A Smart contract is an almost ubiquitous feature on the blockchain and one of its biggest advantages. This is because it is a computer protocol that automatically executes a contract if the conditions are met. All this without the need for intermediaries or human intervention. Smart contracts work similarly to regular contracts, but are simply faster, safer, more economical, and do not depend on intermediaries.

For example, if you go to buy an NFT on the secondary market, the wallet will jump out at you and require a signature before you buy. You have to sign almost every transaction, something that practically prevents fraud. Funds will not leave the wallet without your permission.

Let’s try to make it even simpler. Imagine walking up to a vending machine. It is programmed to give you goods if the following conditions are met:

Deposit money + select product = get product.

If you don’t deposit enough money or don’t choose a product, the machine simply won’t give anything to you because the conditions for dispensing the product have not been met. If you meet the conditions, you will receive the product, with the machine fulfilling its part of the agreement.

In addition to advantages such as speed, full automation, flexibility, and transparency (because anyone can find your transaction), a Smart contract understandably has its disadvantages. It’s still just a computer system, so is susceptible to software bugs and malicious attacks. There is almost no legal regulation and, once it is created, the contract cannot be changed.

How do Smart contracts work in practice?

For example, the AXA insurance company has tested these contracts in the Fizzy product, which provided customers with automatic compensation for flights delayed by 2 hours or more. Thanks to Smart contracts, the Inmusik streaming platform can distribute streaming revenue fairly. And Factom, a blockchain development company, would like to use them to revolutionize healthcare. By storing medical records within the blockchain, information is only accessible to hospitals and healthcare facility administrators, greatly increasing the security of confidential information.

Is there anything else that interests you about Smart contracts? Be sure to write to us, for example on our Discord.

Source: capital.com

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