You’ve probably heard that blockchain technology will soon revolutionize the way we do just about everything – including how we buy and sell things. But you might still be wondering what, exactly, is a smart contract, why does it matter, and how does it work?
A smart contract is a self-executing contract with the terms of the agreement between buyer and seller expressed as code. The code self-executes (precisely, without any third party involved), which means the terms of the contract are directly written into lines of code. The code and agreements exist across a distributed, decentralized blockchain network. The code controls the execution, and transactions are trackable, irreversible (once confirmed), and tamper-resistant due to their cryptographically secure design.
Buying and selling has never been easier. Forget about banks or agents, with a smart contract you can trade directly with anyone you choose. The terms of your trade are coded on the blockchain to be fair and transparent – no need for a third party to verify or enforce the agreement.
What makes smart contracts so cool is that they’re not simply contracts. They are coded pieces of software that can actually manage events and perform data-transfer exercises. In other words, they follow simple “if/when…then…” statements. If condition X occurs, then you get paid $100. If someone owns X amount of cryptocurrency, then a digital product can be downloaded from our site.
In short, smart contracts will redefine negotiations and legal proceedings with software. New smart contract features are being developed all the time, which means that we’re still at the early stages of what this technology has to offer. What we can expect is that smart contracts will continuously evolve to meet changing needs in the contracting space, and developers will be tasked with keeping up with these new technologies.
So, why is it all so interesting? Well, think of how many things today are done through an intermediary. Whether you’re buying goods or services, entering into a contract, or completing legal paperwork – from an insurance contract to buying a house – there’s always someone or some company involved in the process. These intermediaries can mean higher costs, slow transactions, and additional uncertainty because these third parties may not be completely reliable. Because it eliminates intermediaries from the transaction process, smart contracts could be the next big leap for businesses and other institutions.