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What is a Smart Contract?

A smart contract is the term given to a code that runs on Blockchain, binding the two involved parties in its creation to the mutually agreed set of rules. It is automatically enforced when the previously mentioned conditions are met by both the parties. A smart contract basically facilitates, verifies and enforces the defined conditions or negotiations through technically embedded codes. These can be seen as the most non-complicated form of decentralized and automated contracts.

The mechanism incorporates digital assets and two or more participants who mutually decide upon a number of digital assets that they deposit into the contracts. These assets are then redistributed automatically among the involved parties conferring to a formula that is based on a certain data. This is unknown at the time of contract initiation.

Although termed a ‘smart contract’, they are not a replacement for legal contracts.

  • The smart contract doesn’t come up with the information or rules by itself, it can only be as ‘smart’ as the people coding it.
  • Smart contracts do have the potential of replacing legal contracts, they haven’t become a contract enforceable by law or court as of now. Nevertheless, in the next few years, the technology may be fused with legal contracts as they become more mature and their adoption becomes more widespread.

Some Characteristics of a Smart Contract

Smart contracts can track performances in real time settings, resulting in huge cost savings, while maintaining compliance and regulation. To obtain external information, smart contracts require information oracles.

Features of Smart Contracts are:

  • Self-verification
  • Self-execution
  • Tamper-proof

Capabilities of Smart Contracts are:

  • Make automated processes out of legal obligation
  • Assure increase level of security
  • Decrease dependence on trusted intermediaries
  • Reduces the cost of transactions

The smart contracts have the potential to be employed in multiple industries.