Smart Contracts: An Overview

Blockchain technology has significantly changed the entire cryptographic space. Its key features are simplicity, decentralization, security, and immutability. It is these qualities that have brought technology great popularity. However, there is one more thing that has heightened public interest in technology - the lack of intermediaries in financial transactions. Mostly, this is the merit of smart contracts, which allow you to save time and make transactions faster, more cost-effective, and more efficient.

What is a smart contract?

Smart Contract is a computer protocol designed to digitally verify or enforce contract terms. The phrase "Smart Contract" was first coined in 1994 by Nick Szabo, an American cryptographer, and computer scientist.

Smart contracts help people use their assets securely in an open, conflict-free, blockchain-based ecosystem. Smart contracts are created and deployed at the top of the blockchain. In other words, they are automated digital versions of traditional real-world contracts.

How do smart contracts work?

Smart contracts can be roughly compared to vending machines. You send digital coins (for example, TON Crystal) to a smart contract, and it sends you what you should have received. In the real world, a smart contract can also be compared to a lawyer or notary, but in this case, the transaction process takes much longer.

Smart contracts are completely autonomous, work without human intervention and ensure the fulfillment of all obligations prescribed in them. They can also spell out penalties in case of non-compliance with the contract. Smart contracts are the technology that is changing the world for the better.

Benefits of smart contracts

Smart contracts provide many benefits. Considering that in our world there is a constant digitalization of all processes, smart contracts may become irreplaceable in the near future. They fulfill their obligations much better than their physical counterparts.

1. Safety

Smart contracts provide the most secure environment for storing documents or any other information. Hacking smart contracts are almost impossible. Smart contracts, created by experienced programmers, always provide maximum reliability. Some experts say that smart contracts are by far the most secure place for storing documents in the digital world.

2. No downtime/pause in work

Smart contracts do not need a human presence to function, they work autonomously. For example, in real life, a lawyer or broker does not work at night, so at night you cannot get what you owe. Smart contracts do not need time for breaks, etc. They work 24/7. The process of executing a transaction does not depend on third parties, only on the parties to the transaction.

3. Fast execution of the transaction

Smart contracts work in digital format. Through the program code, they handle all tasks automatically, which saves time. For the functioning of smart contracts, human control or the presence of controllers is not required, which slows down the implementation of transactions in the real world. Smart contracts provide optimal fast transaction speed without intermediaries.

4. No commissions

If any broker or third party was involved in the transaction, you would have to pay a commission. When using smart contracts, you do not need to involve anyone and pay commissions to anyone. No middleman - no additional costs. Smart contracts allow you to save a significant part of the money for both legal entities and individuals.

5. No mistakes

Manual processing of documents is often accompanied by errors, etc. In a well-created smart contract, there will not be a single error while completing the assigned tasks. However, only if this smart contract was created by an experienced technician, beginners can draft imperfect smart contracts. That is why if organizations order the creation of smart contracts, they turn to experienced specialists with cases. In addition, open-source smart contracts are independently audited.

The most popular applications for smart contracts

Smart contracts are widely used in various areas of our life. They are already being actively used in real estate, medicine, logistics, and video games. Their popularity is growing because more and more people are beginning to realize their benefits in the modern world. Below are the main areas for which smart contracts offer many benefits.

1. Real estate market

One of the main uses of smart contracts in real life is the real estate market. Implementation of real estate agreements has become much easier and more reliable thanks to smart contracts. Moreover, the need for personal meetings to conclude any agreements has disappeared. The real estate market is famous for a large number of fraudsters, the use of smart contracts would help reduce fraud in this area to nothing.

2. Supply chain management

Today's supply chain management is unreliable. Registries can be modified and easily cracked by experienced hackers. Smart contracts can help supply chain management become more reliable. From the collection of material to the delivery of the goods, all records will be kept by smart contracts. Since they are reliable and it is impossible to remove information from them, the control becomes stricter and more qualitative. Those companies that have already implemented smart contracts in their supply chain control systems respond positively to this decision.

3. Information storage

Smart contracts allow users to automatically store and update data records as needed. If necessary, they can also delete any entry from the smart contract permanently. Modern information storages are unreliable, they are quite vulnerable. Different databases are hacked every month, which cannot be unnoticed. Storing information in smart contracts will provide a new level of data security.

4. Mortgage lending

Today's mortgage lending industry is famous for the fact that banks change the terms of the agreement, and then people need to pay off the mortgage according to the new rules. Smart contracts allow you to make the process of obtaining a mortgage as simple, inexpensive, and fast as possible. Moreover, all information about the mortgage will be available to all participants in the smart contract. Thus, the process of obtaining mortgages will become more transparent.

5. Medicine

Smart contracts can be used as the basis of the accounting system in healthcare institutions. Since healthcare facilities produce large amounts of information, they need to provide high-quality protection. Smart contracts are reliable, they allow you to securely store and manage huge amounts of data.

6. Online transactions

Most of today's online transactions are done through intermediaries. Moreover, a commission must be paid when executing a transaction. Using smart contracts to carry out transactions eliminates intermediaries. They allow you to make the process of making online transactions easier.

7. Elections

The blockchain-based system for holding elections (voting) always uses smart contracts to provide security. Such systems provide highly reliable coding of voting results, as well as high computational power, due to which such systems can be used even in presidential elections. Decoding and accessing data from third parties is almost impossible. Compared to conventional voting and counting systems, smart contracts provide
greater reliability and speed.

Popular platforms for deploying smart contracts

Smart contracts exist within a specific blockchain. They can be transferred from one blockchain to another, but without the blockchain, they cannot function. Different platforms provide different functionality to smart contracts. There are 5 main platforms for deploying smart contracts: Ethereum, Hyperledger Fabric, Stellar, NEO, Free TON, Polkadot ecosystem projects.

1. Ethereum

Ethereum is the market leader when it comes to smart contracts. This platform was created back in 2015. Since then, thousands of smart contracts have been created based on it. Ethereum has the highest market capitalization of any smart contract platform due to being the favorite for smart contract creation. There are more advanced blockchains than Ethereum, but this blockchain has become the benchmark for smart
contracts.

2. Hyperledger Fabric

Hyperledger Fabric is known as the largest competitor to Ethereum and is the second industry leader. The Hyperledger Project was also launched in 2015. A distinctive feature of this platform is that its smart contracts are less vulnerable compared to smart contracts on the Ethereum platform. Hyperledger Fabric is popular with large corporations looking to leverage smart contracts.

3. Stellar

The Stellar platform is much simpler than Ethereum and has a more user-friendly interface. However, Stellar is significantly less popular than the above 2 blockchains. This platform specializes in smart contracts and ICOs. Stellar is the oldest smart contract platform founded in 2014.

4. NEO

The NEO blockchain has been called the "Ethereum killer" or "Chinese Ethereum". In fact, this blockchain is analogous to Ethereum but much more advanced and faster. This blockchain can carry out about 10,000 transactions per second, in comparison, Ethereum - about 30. The NEO blockchain is supported by the government of China and IBM, thanks to which it is developing rapidly.

5. Free TON

Free TON is a fairly new blockchain that is gaining momentum. Its characteristics are superior to those of all the above blockchains. Its throughput reaches 100,000 transactions per second. This project provides instant transactions with the TON Crystal cryptocurrency, it uses a secure and reliable Proof-of-Stake consensus, as well as smart contracts written in different programming languages. Due to scalability through sharding, more and more smart contract developers are switching to this blockchain.

Limitations of smart contracts

Despite the advantages of smart contracts, they also have disadvantages. For some, these shortcomings may seem insignificant, but for others, vice versa. Either way, the advantages outweigh the disadvantages. All 3 drawbacks can be overcome, you just need to find a way.

1. Confidentiality

Not all smart contracts ensure the privacy of the participants. Moreover, this problem is in the blockchains themselves, since they are completely transparent, then smart contracts are also transparent. However, not all blockchains are like that. On the Hyperledger platform, you can create a private smart contract that will provide the parties with privacy.

2. Errors in the code

Smart contracts are highly secure and securely encoded. However, a mistake can be made by programmers who create smart contracts. Errors in the code can cause a smart contract to be hacked or even blocking funds or files located in them. That is why it is better for experienced programmers to create smart contracts.

3. Fraudulent contracts

If the coder makes mistakes while creating the smart contract, the hacker can use them to his advantage and rewrite the smart contract. Moreover, some people deliberately create errors in a smart contract so that one of the parties incurs losses while executing a transaction. If a hacker compromises the smart contract, he can commit any
illegal actions.

Conclusion

Smart contracts allow you to trade assets, real estate, stocks, and any other valuable things. They work quite simply and without intermediaries. By using smart contracts, you can get rid of a lawyer or broker and thereby save a significant portion of your money or income.

The main goal of smart contracts is to fundamentally improve business and transactions. Thanks to their use, all transactions become transparent, traceable, and irreversible within the blockchain. The unique features of smart contracts make them attractive and effective.

Yes, in addition to advantages, they also have disadvantages, but half of them can be solved, you just need to find a way. In any case, there is no doubt that smart contracts are changing our lives for the better - it becomes safer and more reliable in the digital field. Smart contracts will continue to evolve and improve, and perhaps very soon we will see the most invulnerable smart contract in the world. This will indicate that nothing is impossible.