Smart Contracts: The Automated Business Transactions

Understanding Smart Contracts

Smart Contracts in Blockchain are essential to run safe and secure transactions systematically. In a nutshell, Smart Contracts are computer programs/protocols stored on the blockchain, executed in self when specific conditions are met. The term ‘smart contract’ is introduced by Nick Szabo. It executes the terms of the agreement between the buyer and seller which are written in codes. The agreement facilitates the exchange of money, shares, property, etc.,

Some Benefits of using Smart Contracts

  • There is no paperwork that the contracts are digital. They are executed automatically when a condition is met. As there is no manual work, errors will be avoided.
  • It builds a trustless network. There is no third-party interference and information is immutable that it is stored in blockchain.
  • The transaction records are encrypted so it’s difficult to hack.
  • It eliminates time delays and fees.
  • No need for intermediaries to perform transactions.

Smart Contracts – Working Principle

Smart contracts operate upon the “If/when…then…” statement is written into the code. The codes stored in the blockchain have executed an action whenever a built-in condition has been met. Smart Contracts run without any help from the intermediaries. For example, consider if person B is selling the house to Person A. Person B wants the cash as in a return to his house. This agreement can be created in a smart contract and is stored in the blockchain. Once it is placed, it cannot be modified. Now A need not fear that B will raise the agreement money and B does not need to worry that A may cheat him for any cause. Also, the participants don’t need to pay any third party or lawyers to process the transaction and for payment proof. They both save money and time.

You can program smart contracts to work for the masses. The Ethereum smart contracts are written in the Solidity programming language. The rules and limitations are predefined in the code which makes no one manipulates the rules in contracts. The smart contracts only will run if all the participants agree and sign the agreement.

Smart Contracts working principles are broken down in simple steps here:

  • Smart Contracts require two or more parties to create an agreement.
    Once the agreement is created, the parties need to agree to the terms so that it can perform.
  • The decisions are written in codes into smart contracts, encrypted, and stored inside the blockchain.
  • When a transaction is complete, it is recorded in the blockchain and all the participating nodes will get their new copy of the blockchain.

Platforms of Smart Contracts

Below listed are the widely used smart contract platforms to develop and execute on the blockchain.

  • Ethereum: Ethereum is the most popular platform where smart contracts are written in solidity language. Here smart contracts are executed by the EVM(Ethereum Virtual Machine) where we run the dapps.
  • Solana: Smart Contracts are written in Rust, C++, and C languages. It offers development tools like frameworks and SDKs. It lets developers run Ethereum-based smart contracts on its ecosystem.
  • Polkadot: It depends on a chain called para chain that allows many transactions. Polkadot is the best alternative for Ethereum.
  • Hyperledger: It is an open-source platform developed by the Linux foundation. It is a flexible platform for creating smart contracts.