Task automation
Smart contracts are automated “agreements” between the creator and the recipient. Written in code, when the agreement is incorporated into the blockchain it becomes unchanged as well as irreversible. Usually, they are used to automate the execution of a deal, so that all parties can be sure of the result without the need for intermediaries. They can also automate a workflow, starting when certain conditions are carried out.
An executed contract creates a connection between two or more parties. Each party promises to abide by the legal obligations to which it has agreed. Smart contracts became known by the second most popular blockchain in the world, Ethereum, smart contracts have helped create decentralized applications and other uses.
‘A key advantage of blockchain networks is the automation of tasks that would traditionally require an intermediary (3rdparty). For example, instead of a bank having to approve the transfer of funds from a client to a freelancer, the process can happen automatically thanks to a smart contract.
Another example could be a regulatory group discussing a law for the citizens it represents. If these two parties reach an agreement on a blockchain-based system, the law will take effect through an executed contract.
How do smart contracts work?
Think of smart contracts as “ifs” and “thens” in digital form between two or more parties (parties). If the needs of a group are met, then the agreement can be met and the contract can be considered complete.
Smart contracts can be programmed to work for the masses, replacing government orders and intermediaries. In addition, smart contracts would potentially eliminate the need for most court disputes, saving participants time and money.
The security of smart contracts is largely due to the code that has been written. In Ethereum for example, smart contracts are written in the Solidity programming language which is Turing. This means that the rules are embedded in the network code and no bad actor can manipulate them. Ideally these restrictions would mitigate scams or hidden contract modifications. Smart contracts can only come into effect if all participants agree.
Once a smart contract is completed, the transaction is recorded on the blockchain like any other. All nodes will then update their copy of the blockchain with this transaction, updating their new network status.
Now you may be wondering if Bitcoin (BTC) and other networks can use smart contracts. To a certain extent each BTC transaction is technically a simplified version of a smart contract and tier two solutions, such as the Lightning network, have been developed to extend the functionality of the network.
Advantages of smart contracts
Blockchains using smart contracts provide various advantages such as speed, efficiency, accuracy, trust, transparency, security, and savings.
Smart contracts use computer protocols to automate actions, saving hours in various advertising processes. In addition, the lack of an intermediary in smart contracts saves money while all participants have full visibility and access to the terms and conditions of these contracts. Therefore, there is no way to withdraw after the contract has been signed.
In addition, all documents held on the blockchain are copied multiple times, allowing the originals to be restored in case of data loss. Finally, smart contracts are encrypted and documents are protected from all violations.
Regarding smart contracts, it is worth mentioning that 930 smart contracts have been registered in Cardano just until December 19 (they started September 12, 2021). The programming languages used for Cardano’s smart contracts are called Marlowe, Plutus, and Glow.