A smart contract is a self-executing contract in which the buyer-seller agreement’s terms are written directly into code. The code, as well as the agreements contained within it, is distributed throughout a decentralised blockchain network. The transactions which are involved in the process of the smart contract are trackable and irreversible, and the programming of the code regulates their execution. The smart contract is performed on a blockchain network, and the contract’s code is replicated throughout the network’s numerous computers. This allows for more transparent and secure facilitation and execution of contractual obligations. Smart contracts were first proposed in 1994 by Nick Szabo, an American computer scientist, and digital currency researcher.
Working of a smart contract:
Step 1. Agreement on terms :
- Bookseller publishes its Terms and Conditions.
- The buyer accepts the basic terms and fills out a standard purchase form with information about the order.
Step 2. Agreement plugged into ecosystem :
- The smart contract connects to the order system and bank accounts of the bookshop.
Step 3. Self-execution :
- The contract carries out its own execution by ordering the book and enforcing the Terms and Conditions, such as penalties.
- The Contract is in charge of the bank accounts and guarantees that payments are made.
Step 4. Tracking :
- Data collection for reporting
The processes are carried out by a network of computers after specific conditions are met and confirmed. Transferring funds to the appropriate persons is one of these activities. The blockchain is updated after the transaction is completed. This implies that the transaction can’t be changed, and the results are only available to those who have been given permission to see them.
Benefits of smart contracts
- Speed, efficiency, and accuracy
- Trust and transparency
- Security
- Savings
