At the basic level, a smart contract automatically enforces a contract between two parties with a digital ledger, without the need for a third party. It is a computer protocol intended to digitally facilitate, verify, or enforce the negotiation or performance of a contract.
In technical terms, code is injected into the blockchain, and it is automatically enforced without any need for intervention or third-party verification.
Smart contracts made using Ethereum live on the Ethereum blockchain, for example.
Smart contracts are considered to be cryptocurrency’s “killer app”, because they have the potential to replace traditional contracts. They are considered disruptive tech because can affect anyone in contracts, sales, and other businesses.
“A simple example of the use of a smart contract would be an Airbnb-esque rental agreement enforced by a digital lock.
You send the money to my smart contract, and it sends you the door code.”
“The smart contract holds the money in escrow, releasing it to me on the first day of your stay. If you cancel, the terms of the cancellation would be automatically enforced, and the door code would be deleted.”
“This is exactly how Airbnb works now, except a smart contract would eliminate the need for Airbnb to actually hold the funds in escrow.”
“Or, it could eliminate the middle man entirely — Airbnb’s 17% fees.”
Despite the noise and hype around smart contracts, it is premature to say things like smart contracts could eliminate roles like a lawyer. There are several flaws associated with smart contracts.
Committing code to the blockchain is permanent, and in Ethereum’s case it is costly.
“What makes contracts so powerful is that a judge is not necessary for a transaction, but only as a backup in the event of a breach. Other ‘smart contract platforms’ such as Ethereum and Tron completely miss this fundamental insight of contracts.” said cryptocurrency writer Conner Brown.
The solution to some of these problems can be tackled by the Lightning Network, a tool created to make microtransactions instantaneous and affordable in Bitcoin
“The design of the lightning network fully grasps this contracts concept. With lightning, millions of transactions can take place between two individuals without needing the judge at all.” – Conner Brown
The judge is the blockchain. And the judge doesn’t need to enforce every transaction, just those that may be in breach of contract.
Protecting Your Cryptocurrency and Business Done With Smart Contracts
Cryptocurrency and the blockchain stand to be a major driving factor in the technology of the future. However this popularity has attracted an element of cybercrime. There are several tools internet users should use to increase their online protection. One of these tools is SaferNet.
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