What are smart contracts: a quick guide

    The idea of ​​smart contracts appeared back in 1994, when Nick Szabo suggested using a distributed global code to store information about transactions. Today they are considered a very promising technology that can greatly simplify and secure many areas of life. Let's see how smart contracts are arranged and why they are needed.



    A smart contract is a computer algorithm in a blockchain environment. It allows you to conclude and maintain transactions, as well as automatically fulfill their conditions.
    The main "trick" of this technology is that it allows you to eliminate intermediaries from the transaction - the blockchain completely eliminates the possibility of fraud or violation of the terms of the contract. For example, the widespread introduction of smart contracts in real estate transactions will lead to the fact that the role of government bodies will be minimized - they simply will not be necessary.

    Content of smart contracts


    Each smart contract is recorded on the blockchain and contains the following data:

    • electronic signature based on public and private keys;
    • subject of the contract;
    • instruments for the execution of the transaction;
    • terms of an agreement.

    In order for the contract to be able to interact with the real world, the so-called “oracles” are used - special programs that collect information from external sources and format it so that the data can be used by the blockchain application.

    Varieties of smart contracts


    Specialists classify smart contracts by degree of automation. So, they can be:

    • fully automated, without paper media;
    • partially automated, with a copy on paper;
    • partially automated, mainly on paper.

    Today, the lion's share of all smart contracts belongs to the third type. This is due to the almost complete lack of regulation and a number of disadvantages that are still inherent in this technology.

    Scope of application


    The potential of smart contracts is very large - experts believe that soon they will be widely used in such areas as:

    • finance;
    • law;
    • elections and voting;
    • logistics;
    • accounting and audit;
    • Smart gadgets and vehicles;
    • personal identification;
    • registration of property rights.

    So far, smart contracts have been used to create multi-signatures and implement ICOs. There are cases of successful use of smart contracts in transactions with real estate and other valuable property, however, they are single and have not yet become widespread.

    Benefits of Smart Contracts


    The technology of smart contracts appeared on the basis of the idea that most transactions can be fully or partially automated. Thanks to blockchain technology, such an agreement will be much safer than a traditional one. Using smart contracts, we can avoid violation of the terms of the transaction, as well as their ambiguous interpretation.
    Thus, this technology has a number of pronounced advantages:

    • lack of intermediaries;
    • safety and immutability;
    • automation;
    • saving;
    • accuracy.

    The disadvantages of smart contracts


    The main obstacle to integrating smart contracts into everyday life is poor regulation. Given the absence of legal acts, agreements on the blockchain will not be able to interact with courts and other government agencies. This scares away potential users and causes distrust of the new technology.

    Another problem is the presence of critical errors in the code, as well as the lack of the necessary blockchain infrastructure. In addition, the very idea of ​​smart contracts is far from suitable for all purposes - for example, banks will not transfer confidential information through open distributed registries.

    Fortunately, the world does not stand still - thousands of developers are constantly working to solve these problems. Looking at the dynamics of the development of the blockchain industry, we can safely assume that very soon we will move from traditional contracts to smart electronic contracts.

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