Under the smart contract (or smarts) concept people commonly understand a special blockchain based software intended to fulfill an agreement. Smarts guarantee its reliable execution without intermediates. All the agreements presented in transactions are clearly traceable and stable. Smarts hold all required details about the agreement and perform it by themselves.
The original concept was proposed in 1994 by Nick Szabo, a cryptographer and scientist. He described the whole process in detail but it was impossible to implements his ideas. Several years later, the presentation of blockchain gave a second chance to Szabo’s development. Bitcoin allowed blockchain-based interactions to be contracted. Nevertheless, there still was the lack of flexibility. An additional improvement was proposed by the Ethereum solution with its available programming languages.
Smarts work in a very simple way. They can be described as automated sales box. They are intended to automatically perform strict set of instructions.
In the beginning, all parameters are calculated and researched. Then they are placed to blockchain as a standard transaction, duplicated and distributed across the network. After required conditions are met, the contract is performed according to the algorithm.
There are several things you need to create your own smart contract:
Subject. The software has to automatically provide or remove access to all products and services under the contract requirements.
Digital signatures. Each user must be protected with the help of cryptographic keys.
Parameters. All the parameters input in a smart must be inscribed in the command sequence. Each user has to be ready to interact in accordance with the proposed rules.
Decentralization. Smarts work best for decentralized platforms based on the distributed ledger technologies.
Smarts can be successfully implemented in real life and cover a lot of areas, namely:
All votes will be recorded in a distributed way and spread across all the participants. It is impossible to manipulate results since encryption and encoding methods are applied.
Common supply arms are united in the global route. Every participating arm must be confirmed by the previous ones with the transmission of all received information. This commonly causes lags and redundancies. With the help of smarts people will be able to increase the performance of their facilities. Another interesting applications are Internet of Things, financial markets, infrastructure control, and many others.
What advantages do smarts have?
Safety. Smarts depend on encryption techniques that are protected by their nature. There will be no losses unless a user does a mistake.
Economy and speed. Automated processes and no intermediaries guarantee faster and cheaper operations.
Engineering norms. Although, there are many different smarts exist, they are composed with standard components. All of them are clearly understood.
Unfortunately, smarts have weaknesses. Among their disadvantages are:
Mistakes are common for people, and in case of a smart contract code may lead to huge losses. Remember The DAO. The weakness in the code cost investors $60 million.
Some countries has started implementing smart contracts in their governmental processes.
In order to add a smart contract to blockchain, a programmer must be highly experienced. It is quite difficult and expensive process, which requires a lot of knowledge and funds invested.
The majority of smarts exist in different blockchains and other types of distributed ledger. Most of them, however, are Ethereum-based. This is due to the network’s open source nature and a flexible programming language.