One unique thing about Blockchain is that it is decentralized. This automatically eliminates middlemen, a factor that not only helps to save time but also helps to prevent conflicts. It is true that that Blockchain also has its own challenges but one thing that is clear is that it is more secure, cheaper, faster and more reliable than traditional systems. That explains why most financial institution and even governments now prefer Blockchain over traditional systems.
In 1994, a cryptographer and legal scholar Nick Szabo found out that a decentralized ledger can also be used for smart contracts. So what are smart contracts in cryptocurrencies?Below is a detailed information about smart contracts and the role they play in the digital currency.
What exactly are smart contracts?
In simple terms, a smart contract is an agreement between two individuals in form of a computer code. It is actually a software that contains set of rules for negotiating terms. The entire process is fully automated meaning that the software automatically verifies the contract then executes the exact terms that have been agreed upon. When smart contract are coded and executed on Blockchain, they become independent and immutable from centralization. Smart contracts can actually be compared to a vending machine.
They automatically execute themselves when certain set conditions are fulfilled. This is very important because it ensures that only those individuals who are directly involved get to benefit. It completely eliminates the need of an intermediary such as a notary or a lawyer.
How do smart contracts work?
Let’s imagine this scenario: James wants to sell Steve his house. They decide to form an agreement on Blockchain using smart contracts. The smart contract will read like this: “When Steve pays mike 500 ether, then he will be the new owner of the house”. Once a contract has been drafted by the two parties involved (in this case Steve and James) it cannot be changed by anyone. This is important because it will make both parties involved in the contract feel safe.
If both James and Steve decide to use the traditional system, they would have been forced to use a third party such as a house broker or a lawyer then end up paying a lot of money on the process. With smart contract, there are no commissions or delays. Once the set conditions of the contract are fulfilled, then the smart contract is executed automatically. All this is possible thanks to Blockchain that enables decentralization (not being controlled by a single party like a broker, bank or government). Blockchain technology operates in a shared databases run by multiple computers known as nodes.
This means that Blockchain is a public entity and because of that fact, then there is no single person who has total control of process that happens. This makes it very difficult for some to hack smart contract. In fact, if an individual wants to hack the system, then he/she actually needs to hack more than half of the computers which is impossible. This means that smart contract can run safely without worrying that someone will alter them.
Amazing features of smart contracts
Smart contract completely eliminates middlemen. This not only cuts cost but also prevents fraud. It also increases efficiency. The fact that smart contracts are decentralized means that you actually don’t have to worry of bias from banks, government or any other third party.
2. Completely eliminates the element of trust
Trust is very important when using traditional systems. You have to trust that the bank or the lawyer will honor the agreed terms. However, that is not the case with smart contracts. In smart contracts, you don’t have to trust anybody. All that you need to do is trust the system. If you have used
Blockchain before, then you definitely know that it is a trustworthy and reliable platform.
3. It eliminates fraud
Trusting someone is not good enough. We have all heard of stories of people of have trusted someone then ended up being disappointed. One thing about smart contracts is that they completely eliminate fraud. It is easy for a thief to hack your bank account and steal money. However, that cannot happen in Blockchain because it is decentralized. The fraudster has to hack over 51% of the system, something that is completely impossible. This clearly shows that smart contract are secured.
4. They are fast
Smart contract are not just safe and accurate but they are also fast. The fact that the process is fully automated and is monitored by Blockchain means that you will get instant results.
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