I. What is Smart Contract?
Smart Contract is a computer program or a transaction protocol with the purpose of automatically executing, controlling and recording legally related events and actions according to the terms of a contract or agreement. .
In simple terms, with predefined conditions, a stored program is run on the blockchain through which the participants of this program are sure of the immediate results without being affected by the consequences. intermediaries. Smart Contracts can also automate the process, triggering further action if conditions are met.
II. History of Smart Contract
The term “Smart Contract” was first coined in 1993 by American computer scientist Nick Szabo. He is also the one who invented a virtual currency called “Bitgold” in 1998 (10 years before Bitcoin appeared).
According to him, a smart contract is a transaction protocol that is executed by a computer according to the terms of the contract. He proposes contract execution for synthetic assets such as a combination of bonds and derivatives (options and futures).
Smart Contract is used to refer to a set of promises (terms) specified in digital form, until 1998, it was used to describe objects in the system’s rights management service layer. Stanford Infobus – part of the Stanford digital library project.
So, from the time of appearance until now, what language are Smart Contracts written in? There are many languages used to write Smart Contracts such as Solidity, Golang, JavaScript, SQL, C++, Java, etc.
III. Striking Features of Smart Contract
Elements needed to create a smart contract
There are 4 important elements to form a smart contract:
- Contract subject: The parties participating in the conclusion of the contract, including those who are granted the right to access and monitor the handling and contract content.
- Contractual Terms: Terms specified in the form of strings, specially programmed to which the parties must agree to these.
- Digital signature: The parties to the smart contract agree to implement the agreement on the digital signature and must perform the operation through the digital signature.
- Decentralized Platform: Entering the completion stage, the smart contract needs to be uploaded to the Blockchain. The Blockchain chain continues to distribute data about the nodes and save it, which cannot be adjusted.
What is the purpose of smart contracts in Blockchain?
Since a smart contract is a program that runs on the blockchain, users will need to send transactions to the blockchain to start the program. Once the codes are identified and the logic locked, the program can be run.
In general, the main purpose of smart contracts is to simplify business transactions between parties by eliminating the middlemen involved in traditional business processes. These contracts are intended to reduce payment delays, risk of error and the complexity of a conventional contract without compromising authenticity and reputation.
The main special advantage is that it allows reliable execution of transactions without intermediaries.
IV. Core Technology of Smart Contract
Smart contract refers to a computer algorithm designed to form, control, and provide information about content owners. It is actually a program that runs on the Ethereum blockchain to independently facilitate, verify, or execute trusted transactions. To know how it works, we must first understand what a smart contract includes?
- Signature: Two or more parties must agree to proceed with the proposed terms and conditions.
- Clearly define the subject of the contract: The subject must be in the context of the smart contract environment.
- Specifically with the terms: Terms need to be precise and detailed. For example, Ethereum’s smart contract is based on the Solidity and Serpent programming languages, so the agreement must follow specific mathematical terms compatible with the exact language.
Once these requirements are in place, you can join a blockchain-based smart contract. However, this agreement must be negotiated before the terms are put into practice in the blockchain.
Normally, a smart contract will automatically trigger an action based on an agreement between two users maintained on the blockchain, that when the seller intends to sell BTC, the smart contract will regulate the transfer until BTC is released. successfully transferred from one person to another. When that happens, the money will be released and there won’t be any changes. And all transaction information will be listed and stored in a public database.
V. Advantages and disadvantages of smart contracts
1. Advantages of Smart Contract
- Smart contracts assist save time and reduce costs compared to using traditional contracts in some cases.
- High security ensures almost absolute safety for data.
- Smart Contract is a set of programmable code, so developers can easily customize and design it into many contracts to suit different types of services and products.
- Besides, Smart Contracts are decentralized programs, not subject to third-party interference. This helps to increase transparency, save operating costs and increase operational efficiency.
2. Disadvantages of Smart Contract
Because it is stored on a ledger, the data in the contract is almost immutable. This is an advantage but at the same time a disadvantage if the parties agree to change some terms in the contract.
Because the system is highly secure, not affected by intermediaries, the data safety is guaranteed, it is difficult for hackers to attack, but it also means that it will be difficult to repair.
VI. Benefits of Smart Contract
The outstanding benefits of smart contracts can be mentioned as:
- Processing speed and efficiency: When a condition is met, the contract immediately executes. Since this is a fully automated digital contract, the time to deal with problems or errors is often faster than with traditional contracts.
- High transparency and trust: The conclusion of the contract is not affected by intermediaries/third parties. At the same time, encrypted transaction records will be shared with participants, so everyone knows the information, no need to question whether the information is different from person to person as well as affecting personal interests or not. No.
- High security: Data/transaction records in the blockchain are encrypted to prevent hacking.
- Saving processing costs, intermediary costs & time compared to implementing traditional methods.
VII. Applications of Smart Contract
Smart Contracts are applied a lot in today’s life. Especially for the field of cryptocurrencies, smart contracts are showing advantages, having many important applications with the development of digital currencies:
- Bitcoin is the first cryptocurrency that lays the foundation for the creation of smart contracts on the Blockchain. However, it is still quite primitive, until Ethereum develops Smart Contract to become a platform business running on Ethereum to help applications run correctly, without interruption, tampering as well as interference by third parties. father.
- Smart contracts eliminate the intermediary transaction parties from the contract when trading cryptocurrencies, helping to overcome the inadequacies of security, legal, fraud, censorship, … saving time and human resources. force compared to performing transactions through intermediaries.
- The network of Smart Contracts along with blockchain technology with decentralized/decentralized characteristics help operate an efficient cryptocurrency exchange system.
In addition, smart contracts are also applied to other organizations’ activities such as: Effectively protecting Sonoko and IBM drugs, strengthening the relationship between Home Depot retailers and suppliers, WE.Trade organizes international trade activities more efficiently, etc.
VIII. Compare smart contracts and traditional contracts
Compare smart contracts and traditional contracts
Smart contracts have many differences from traditional contracts:
- Smart contracts are concluded by electronic means and will have electronic signatures. While the traditional contract is concluded by means of “paper”, “physical” and signed by hand after the parties meet and exchange with each other.
- Smart contracts are generated by a computer system with a programming language, the terms of which are given and are not subject to human intervention. This helps to enforce contracts fairly and accurately. While traditional contracts are created by legal experts, they rely on regulatory documents and require a third party to help enforce them. This takes a lot of time and expense, especially in the event of a problem that requires revision of the contract.
- Compared to traditional contracts, it is easier to store smart contracts. Instead of storing paper contracts as usual, smart contracts will be stored directly on digital platforms, without worrying about loss or damage.
With the above information, Finhay believes that readers have better understand about Smart Contract as well as its meaning. Smart contracts play an important role in the development of cryptocurrency exchanges. Understanding this type of contract will help you apply it to your investment process to make the most of it and find the most effective profit.
Conclusion
Smart contract advantages are hard to overstate or underrate. They appear to be a fantastic replacement for conventional setups and provide a greater caliber of performance. Smart contracts will embrace the range of contracts and agreements as they compete for a position, and these changes will be permanent. The use of smart contracts will alter how people do business.
Smart contracts are appealing to most people because of their low prices, decreased fraud and delays, and total autonomy. Smart contracts, however, become much more intriguing when transaction efficiency and certainty are increased, as well as when the need for third parties is decreased.
With the above information, Metalion Ventures believes that readers have better understanding about Smart Contract as well as its meaning.
