Self-executing and automatic contracts written in code that allows a blockchain transaction to take place between two or more parties.
Description
In the blockchain, smart contracts are executable and automatic agreements with specific terms that allow transactions to take place. They are publicly accessible, distributed in the blockchain, and can be audited. Smart contracts are self-regulated and automatically executed if pre-programmed conditions and agreements are met, making it possible to use and enforce them without needing a central authority, legal system, middleman, or broker to authorize the deal.
Smart contracts allow complex transactions such as transferring assets and the execution of contracts when the triggering event can be measured digitally, for example, digital payments or changes in public or private registries. Because blockchain technology prevents retroactive alteration, smart contracts are unmodifiable and final, which improves traceability and fairness. They can be created in minutes —at a fraction of the cost of traditional contracts—, are digitally signed, and carried out without the need for third parties such as lawyers or an escrow agent.
Alex's entry:
Code which is stored on a blockchain to automatically monitor, execute and enforce a legal agreement.
The code is distributed on blockchain to create secure, self-regulated and self-executing contracts that set out specific terms directly allowing transactions to take place or triggering the next event. Transactions are recorded across the blockchain.
Smart contracts allow complex transactions to be processed peer-to-peer and without third-party validation, such as transferring assets, and the execution of contracts when the triggering event can be measured digitally, for example, digital payments, or changes in public or private registries. When pre-programmed conditions and agreements are met, it is possible to use and enforce them without needing a central authority, legal system, middleman, or broker to authorize or enforce the agreement. Because blockchain technology prevents retroactive alteration, smart contracts are unmodifiable and final. Smart contracts can be created in minutes, at a fraction of the cost of traditional contracts, digitally signed, and carried out without the need for third parties such as lawyers or an escrow agent.
Smart contracts are revolutionizing a range of industries, in particular, the legal and financial sectors, with infinite use cases. Current applications are being deployed in supply chains where the transit of goods is recorded on a blockchain, and smart contracts are used to execute payments automatically upon the receipt of delivery, with inventory levels being updated automatically in real-time. Smart contracts are also being used in real estate to create self-driven, automated digital transactions to streamline deals and exchange funds and ownership securely.
By design, smart contracts by themselves cannot get information about "real-world" events, as this would jeopardize security and decentralization. Smart contracts also rely on code. Flaws in the code leave the smart contract vulnerable and could cause unwanted and irreversible transactions.
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