What is the essence of smart contracts on the blockchain? This is an algorithm of sequential operations written into the blockchain code. If the conditions prescribed by the parties therein are met, the target transaction is automatically completed.
Let's consider, for example, an elementary step - the sale and purchase of crypto between a pair of users. This operation is carried out anonymously, it is not regulated by any intermediaries who control such transactions. In this way, it became possible to conduct business after the advent of smart contracts, which prescribe the entire algorithm for performing this action between two participants. Due to this procedure, the possibility of fraudulent activities is eliminated and the transaction is carried out in a strict order of pre-prescribed steps.
What are they needed for?
Smart contracts are a necessary link that ensures the functionality of decentralized projects (DeFi, DApps and others) outside the control of regulatory structures. In our case, smart contracts serve as guarantors of the fulfillment of agreements previously specified by the parties in a given algorithmic sequence.
This algorithm is assigned to the structure of the blockchain, as a result of which the conditions for performing transactions and other actions cannot be changed or rewritten in the interests of one of the parties involved in the transaction.
The principle of their operation
At their core, smart contracts are part of the blockchain software code that operates within a given network. With their help, paper contracts familiar to everyone are implemented, but only in the digital space. In this case, agreements are recorded not with pen to paper, but with the help of mathematical algorithms and programming languages.
Just like an agreement on paper, the terms of a digital contract must also be fulfilled. And only if this rule is observed, the transaction will be completed and the parties will receive the agreed result. Once the algorithm is completed and the transaction is closed without errors, smart contracts are archived in the registry, becoming an integral part of the blockchain.
The main thing in a smart contract is the unconditional execution of the sequence of operations prescribed by the parties.
Where are they used?
Smart contracts are already widespread today in a wide variety of areas of human activity, but their progress is clearly not complete. Often, such rapid development is explained by a whole list of advantages provided by these “smart” digital contracts. With the help of smart contracts, optimization and acceleration of many routine procedures becomes much more convenient, all kinds of intermediaries are almost completely eliminated, and this provides significant savings for users.
In addition, the use of this technology allows us to get rid of errors that were previously very likely due to human factors. For this reason, smart contracts have now spread to other types of activities, except crypto-assets.
What are their advantages?
Automation of many processes and exclusion of unnecessary participants is one of the significant advantages of smart contracts, and in addition:
Eliminating the human factor ensures better security and transparency of transactions.
The digital sphere has become an order of magnitude safer. All data on contracts and transactions is recorded in the blockchain, which makes life difficult for scammers and other dishonest users.
Any information about a specific operation is available to participants almost forever and at any time. So you can check everything later if you doubt the correctness of your transaction.
The promise of smart contracts is beyond doubt. This technology has become a true breakthrough in the development of our civilization, and it is obvious that soon smart contracts will be able to demonstrate their titanic capabilities to their fullest extent both in entrepreneurship and in other aspects of social life.
What does the future hold for them?
Literally at these moments, many specialists and companies are striving to correct the identified shortcomings of smart contract technology. According to a number of experts, very soon this technology will receive a firm legal status, which will further simplify its penetration into our everyday life.
Today we can say that in the near future, smart contracts will become a modern replacement for most operations with all kinds of financial documentation. Leading banks have already begun experimenting with blockchain technologies and are gradually introducing them into their activities.
More broadly, smart contracts will soon expand beyond the sphere of finance and will serve government agencies, entrepreneurs, doctors and other categories of the population.
