Introduction

A smart contract is a small computer program that is written in code and then stored on a blockchain.

This means that the execution of agreements among all participants is automated on the smart contracts to ascertain the outcome as soon as possible without contracting an intermediary to save time.

What Are Smart Contracts?

A smart contract is an automated agreement between two parties that is secured by code and powered by blockchain technology.

How do they work

Let's see a simple example to understand how a smart contract work, many of us are familiar with “GoFundMe” one of the largest crowdfunding platforms.

Team ‘A’ goes to GoFundMe, creates a project, sets a funding goal, and GoFundMe is essentially a third party that sits between Team A and Team B, who happens to be those who believe in the project. This means they need to trust GoFundMe to handle their money correctly.

If the project gets successfully funded, Team A expects GoFundMe to give them the money. On the other hand, Team B wants their money to go to the project if it was funded or get a refund if it hasn’t reached its goals. So, both Team A and Team B have to trust GoFundMe.

But with smart contracts, a similar system can be built that doesn’t require a third-party intermediary or a middleman like ‘GoFundMe’. A smart contract can be programmed to hold all the received funds until a certain goal is reached. Then Team B, the project contributors, can now transfer their money to the smart contract. If the project gets fully funded, the contract automatically passes the money to the project's creator (Team A). And if the project fails to meet the goal, the money automatically goes back to Team B.

Why should we trust Smart Contracts? Is it legal?

Although there is no legal agreement binding Smart contracts, but rather the means of performing obligations deriving from agreements that can be executed automatically by a computer program or a transaction protocol (a system of rules that allows two or more entities of a communications system to transmit information) makes it more secure.

Smart contracts are stored on a blockchain. They inherit some interesting properties which make them immutable and they are distributed.

Being immutable means that once a smart contract is created, it can never be changed again or modified. No one can go behind to tamper with the codes of the contract. And they are being distributed means that everyone on the network validates the output of the contract.

So a single person cannot force the contract to release the funds because another person on the network will spot this attempt and mark it as invalid.

What are Smart Contracts used for, and what are their dreams?

Smart contracts are used for decentralized finance (Defi), and it’s built on a blockchain, the goal, and dreams of a smart contract are to simplify business and trade between both parties involved without the help of a middleman.

This technique makes it impossible for anyone to be in control of the money.

Benefits of Smart Contracts

• Accuracy, Speed, and Efficiency

Because smart contracts are digital and automated, there is no paperwork to Deal with, and no time is spent correcting errors that can occur when filling out documentation by hand.

• Trust and Transparency

All transaction records are encrypted on the blockchain, and no one can tamper with the information for personal gain because no third party was engaged. The encrypted transaction logs are exchanged among all participants.

• Security

All blockchain transaction records are encrypted, which makes it impossible for anyone to hack.

Furthermore, because each entry on a distributed ledger is linked to the entries before and after, hackers would have to change the entire chain to change a single record.

• Savings

Smart contracts eliminate the need for intermediaries to conduct transactions and the time delays and fees that come with them.

What are the Limitations of Smart Contracts?

As much as there are numerous benefits to adopting an intelligent contract, There are a few reasons to look out for.

• Inability to Scale and Shared Networks:

Smart contract platforms are just a single blockchain with a shared network.

• Insecure smart contracts:

Anyone may run whatever smart contract they want on the platforms as long as they pay the necessary gas fees. Decentralisation has also resulted in a lack of security audits of smart contracts that run on a platform.

• Third-Party:

Even though smart contracts aim to eliminate third-party participation, it is impossible. Third parties have a different role in conventional contracts than in traditional arrangements.

• Adaptability:

For law firms, logic-based execution might be difficult. Contract construction is subjective to some phrases. When the parties desire to form a relational contract rather than a transactional one, Smart contracts are rendered useless in such situations.

Do Smart Contracts Support an API

Smart contracts on any blockchain can connect to any API by integrating the generated smart contract client APIs to correspond directly with the properties and methods of your smart contract. The smart contract APIs are created at runtime, and the generated APIs provide paths for all the smart contract methods.

Conclusion

The smart contract enables business transactions on the blockchain between two or more people easy, fast, safe and convenient without the aid of a middleman or third party, or even without the fear of the system being hacked, this is due to the fact that all transactions are encrypted on the blockchain and no one can alter the records.

Smart contracts present a future of seamless transactions on blockchain technology.