What is Smart contract? If you’ve been into the cryptocurrency investment market, you’ve probably heard of the concept of smart contracts at least a few times. Referring to ethereum or ICO projects you will hear this concept a lot. To learn more about its features and practical applications in the crypto market, in today’s article we will learn about it.
1 – What is Smart contract?
Smart contract is a term that describes the ability to automatically come up with fully automated terms and agreements using algorithms on the basis of blockchain technology.
With traditional contracts, the terms are agreed by people, sometimes there will be errors. With smart contract, everything is completely automated on the computer quickly and accurately.
In 1993, the term contract was mentioned by Nick Szabo, who said that it is a program that automatically executes the agreement of contract terms. With the goal of allowing transactions with each other without the need for an intermediary 3rd party.
2 – Feature
The features have some highlights as follows:
The ability to decentralize distribution, data is replicated, evenly distributed to all nodes in the ethereum network.
Any agreement terms in a smart contract are unlikely to be fraudulent. Actions execute only when the conditions are satisfied. The outcomes of the agreement are also unchanged.
Once the contract is activated, it will be possible to automate the execution of processes using blockchain technology algorithms.
There is something special about anti-fraud or tampering, that once the contract has been activated, no one can modify or delete the terms anymore. In case if the smart contract is misconfigured with the terms, it is required to delete the smart contract and completely reconfigure the new smart contract.
Smart contracts are developed and operate on blockchain technology openly. This means that anyone can see the status of the agreement between the two parties. However, some important information about the identity and details of the transactions will be kept confidential.
3 – Advantages and disadvantages
3.1 – Advantages of smart contract
Decentralized operation, not subject to the management or manipulation of any organization.
In addition to decentralized operation, smart contracts also have transparency on blockchain technology.
The contract execution is fully automated without the need for human confirmation by a 3rd party.
Smart contracts are encrypted on a common ledger and are shared throughout the blockchain network to ensure safety and security by cryptographic technology.
Compared to traditional contracts, smart contracts solve problems faster, more securely, and help save operating costs better.
3.2 – Disadvantages of smart contract
Due to the unchangeable nature when the contract has been activated, if the terms of the agreement are wrong, the user’s rights will be affected.
For a traditional contract, only the two parties signing the agreement know. As for smart contracts, the information will be public on the blockchain. This will compromise user privacy.