What Is A Smart Contract?
A smart contract is a self-executing contract with the terms of the agreement directly written into code. It runs on blockchain, which is a decentralised and distributed ledger technology, and automatically enforces, verifies, or executes the terms of a contract without the need for intermediaries.
What Are The Main Features?
- Automation: It automatically executes predefined actions when specific conditions are met, removing the need for manual intervention.
- Transparency: The code and terms are visible on the blockchain, ensuring transparency and trust among participants.
- Immutability: Once deployed to the blockchain, they are immutable and cannot be altered, providing security and preventing tampering.
What Is Required For A Smart Contract?
- Blockchain Platform: They operate on blockchain platforms like Ethereum, Binance Smart Chain, or others that support smart contract functionality.
- Programming Language: They are typically written in programming languages suitable for the chosen blockchain such as Solidity for Ethereum.
- Decentralised Network: A network of nodes (computers) that participate in the blockchain is necessary for the decentralised execution and verification of these contracts.
How Does It Work?
- Creation: The terms of the contract are coded into it using a programming language suitable for the chosen blockchain.
- Deployment: Its code is deployed to the blockchain, creating a unique address for it.
- Execution: When participants fulfil the specified conditions (e.g. payments), the smart contract executes the predefined actions automatically.
- Verification: The decentralised network of nodes verifies and records the transaction on the blockchain, ensuring transparency and security.
What Are the Pros And Cons ?
Pros
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- Efficiency: Automates processes, reducing the need for intermediaries and speeding up contract execution.
- Transparency: All participants can view the contract details on the blockchain, fostering trust.
- Security: Cryptographic features and blockchain immutability enhance security and prevent fraud.
- Cost Efficiency: Reduces costs associated with intermediaries and manual processes.
Cons:
- Complexity: Developing smart contracts requires technical expertise in blockchain programming languages.
- Irreversibility: Immutability can be a drawback if errors are present in the code, as corrections may be challenging.
- External Data Integration: Smart contracts may struggle to access real-world data outside the blockchain.
