The term “smart contract” was first put forward by Nick Szabo in 1997, well before the advent of Bitcoin.
Nick Szabo is a computer scientist, a jurist, and a cryptographer. He wants to use a distributed ledger to store contracts. Smart contracts are like contracts in the real world. The only difference is that smart contracts are completely digital. In fact, a smart contract refers to a computer protocol. Once such a protocol is formulated and deployed, it can achieve self-executing and self-verifying, and no longer requires human intervention. Technially speaking, a smart contract can be considered as a computer program. This program can autonomously perform all or part of the contract-related operations and generate corresponding verifiable evidence to illustrate the effectiveness of performing contract operations. Before the smart contract is deployed, the logical flow of all terms related to the contract has been formulated. Smart contracts usually have a user interface for users to interact with established contracts, and these interactions strictly adhere to previously formulated logic. Thanks to cryptographic technology, these interactions can be rigorously verified to ensure that the contract can be successfully executed in accordance with previously established rules, thereby preventing defaults.
Here are 5 advantages of smart contracts:
1.Efficient real-time updates
Smart contract execution does not require the participation of third-parties or centralized proxy services. It can respond to users’ requests at any time, greatly improving the efficiency of transaction processing. Users do not need to wait for the bank to open the door to request related services since all requests can be solved quickly and easily through the network.
2. Accurate execution
All the terms and execution process of the smart contract are formulated in advance and carried out under the absolute control of the computer. Therefore, the results of all executions are accurate and unpredictable. Today, with the development of cryptography and the invention of blockchain technology, the smart contracts can execut accuratly.
3. Low human intervention risk
After the smart contract is deployed, all contents of the contract cannot be modified, and neither party in the contract can interfere in the execution of the contract, which means that no contractor can maliciously break the contract for his own benefit. Even if a breach of contract occurs, the person responsible for the incident will be punished accordingly. This punishment has been decided at the beginning of the contract and cannot be changed after the contract takes effect.
4. Decentralized authority
Generally speaking, smart contracts do not need a centralized authority to arbitrate whether the contract is executed in accordance with regulations, and the supervision and arbitration of the contract are performed by computers. Generally, in a blockchain network, there is no absolute authority to supervise the execution of the contract, but the vast majority of users in the network determine whether the contract is in accordance with the implementation of regulations, this way of supervision by most people is achieved by PoW or PoS technology.
5. Lower operating costs
Because there is no human intervention in smart contracts, the labor costs incurred in performing, awarding and enforcing contracts incurred in contract implementation can be greatly reduced, under which circumstances the contract formulators need to establish and confirm all the details in the contract from the very beginning.
Let’s take an example and see how smart contracts work. Maybe you are familiar with the large crowdfunding platform Kickstarter. The product team can create projects in Kickstarter, set funding goals, and then raise funds from those who believe in the team’s idea or vision.
Kickstarter is essentially a third party between the product team and supporters. This means that both parties need to trust Kickstarter to properly handle their funds.
If the project is successfully funded, the project team hopes to get their funding from Kickstarter. Supporters hope that their funds can be given to the project after the fundraising, or get a refund if the project failed. Under this kind of model, the product team and its supporters need to trust Kickstarter as the intermediary to help them achieve their goal.
But with smart contracts, we can build similar trust mechanism without third parties like Kickstarter.
The blockchain provides a trusted execution environment for smart contracts, and smart contracts expand applications for the blockchain. Smart contracts on Ethereum can control various digital assets on the blockchain for complex operations. In the long run, the smart contract will promote the transformation of the industry and develop into newer and better fields.
