What is a Smart Contract?

A smart contract, like any other contract, governs the terms and conditions of an agreement between parties. However, unlike a traditional contract, the terms of a smart contract are executed based on code programmed on a blockchain like Ethereum. Smart contracts allow developers to create applications that leverage the security, reliability and accessibility of blockchain, offering sophisticated peer-to-peer capabilities including loan and insurance applications, and grant, logistics and gaming services.

Like any type of contract, smart contracts specify the conditions of an agreement between different parties. However, the term “smart” refers to the fact that the conditions are specified and executed in the form of code executed on a blockchain, rather than on a sheet of paper held by a notary. Smart contracts expand the basic idea behind Bitcoin (sending and receiving money without any “trusted intermediary,” such as a bank), making it possible to automate and securely decentralize virtually any type of transaction, regardless of level. of complexity. Because smart contracts run on a blockchain, like Ethereum, they offer borderless security, reliability, and accessibility.

Smart contracts allow developers to create a wide variety of tokens and decentralized applications. They are used in everything, including new financial instruments, logistics and games, and are stored on a blockchain like any other cryptocurrency transaction. Once a smart contract application has been added to the blockchain, it generally cannot be deleted or modified (although there are some exceptions).

Smart contract-based applications are often called “decentralized applications” or “dapps” and include decentralized finance (or DeFi) programs that aim to transform the banking industry. DeFi applications allow cryptocurrency holders to complete complex financial transactions, manage savings, loans and insurance policies anywhere in the world, without having to pay fees to a bank or financial institution.

In the traditional financial system, currency exchange is expensive and time-consuming. And it is not easy, nor even safe, to lend liquidity to strangers on the other side of the world. Smart contracts give you both possibilities and many more.

Since the security of transactions is guaranteed through blockchain technology, smart contracts can work automatically, which means that verification by a supervisory body is not necessary. It will be enough to indicate in a computer program which result must be executed after a certain event occurs, that is: if X occurs then Y.

It is essential that each of the parties involved in the contract knows and accepts in advance the rules and steps that will be performed, since once the execution of the smart contract begins, the programmed rules cannot be changed. Every step or clause formed is recorded in the blockchain and cannot be changed.

Smart contracts can be created by natural and legal persons but also by programs or machines that work autonomously, acting within a decentralized and public network. That is, anyone can verify and trust which smart contracts will execute because they have access to specific code that will do so.

And you? Would you like to become a blockchain expert and be able to create smart contracts?

Sources:

https://www.coinbase.com/it/learn/crypto-basics/what-is-a-smart-contract

https://www.santander.com/es/stories/smart-contracts

https://www.campusblockchain.es/que-son-los-smart-contracts-para-que-sirven/

What is a Smart Contract? was originally published in Coinmonks on Medium, where people are continuing the conversation by highlighting and responding to this story.