What are Smart Contracts

Everyone is talking about them, but nobody ever explains them.

A smart contract is a self-executing contract that holds the terms of agreement between two parties directly within the code. The terms of the agreement usually exist on a blockchain network, are traceable and irreversible. They allow for parties to exchange money, property, shares or other things of value

Smart contracts (also known as cryptocontracts, blockchain contracts and digital contracts) allow agreements to occur between anonymous parties without the need of a third party. They are currently most commonly developed using the coding language Solidity.

As Vitalik Buterin says, “the program runs this code and at some point it automatically validates a condition and it automatically determines whether the asset should go to one person or back to the other person, or whether it should be immediately refunded to the person who sent it or some combination thereof.”

The term “smart contract” was first used by Nick Szabo in 1997. Nick Szabo was one of the first core developers of Bitcoin, and the designer of Bit Gold in 1998, a strong design precursor to Bitcoin. He had a cryptography and law background and was part of the “cypherpunks”, a group of geniuses looking to solve the world’s trust problems through cryptography.

Szabo saw the power of combining an immutable ledger that cannot be changed with a digital self-executing contract and he wanted to use a distributed blockchain to keep contracts within code and proliferate the code throughout the network.

Regular contracts require someone to make a decision- a third party such as a lawyer or auditor has to adjudge agreements. A smart contract does not require any decision making by any third party. With a smart contract, when you put in an input, you get an automatic output, like a vending machine.

A good illustration to think about how this works is with crowdfunding platforms like GoFundMe. People can create a GoFundMe for a cause, and supporters can donate funds towards it.

Both the fund starters and the fund supporters trust GoFundMe to keep the funds safe and disperse them once the goal has been reached, or return the funds if the goal is not reached.

GoFundMe is a trusted third party. With Smart Contracts we can build the same system as GoFundMe, but it wouldn’t require a third-party. When supporters donate, it does not get dispersed to the fund starters until the right parameters are met, then the code allows the funds to be dispersed automatically.

Because a smart contract is held within a blockchain, everything is distributed and no one party controls the contract or the value being transferred through the .

There are other great benefits of the blockchain and smart contracts:

Where can I find Smart Contracts?

Smart Contracts can currently be utilized on:

What Can Smart Contracts Be Used For?

There are many other good use cases for smart contracts beyond crowdfunding including :

For more in depth explanations of how and why Smart Contracts and Blockchains are used for these purposes, read the Use Cases found here: https://medium.com/fast-access-blockchain/tagged/use-cases.

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