To understand smart contract, you need an understanding of the blockchain. An understanding of the blockchain can only be achieved with the sound knowledge of how digital ledgers technology works. The word “smart” being added to a contract makes the whole thing look complicated, huh! When you see contract, what comes to mind immediately is Lawyers, Court, etc.
Let me break this down further; remember your old vending machine in your favorite corner? How does it work? Yes, vending machines are not smart, right? Just sitting there and doing as it is told. Without you feeding it with your coin it won’t budge. That’s how a smart contract works.
One afternoon, you felt the need to take a cold diet coke. All you’ll need is to walk up to the vending machine nearest to you.
This is what happens…
Vending Machine: Welcome, I believe you want me to give you a cold diet coke?
Vending Machine: If you give me $2.50, I’ll release to you a bottle of ice cold diet coke in 3 seconds
You: Really! You feed in the coins
Vending Machine: Releases your diet coke.
The vending machine will not be saying a word, that’s the exact way a smart contract works. It is based on the if-then premise. If you give it a coin, then it releases the bottle. This is the exact same code inputted into the smart contract, understandable by humans and machine. Or rather humans and the blockchain.
Let’s make it a bit techy.
If you see smart properties or chain code, these are the other names smart contracts are known as. They are just agreements codified into the blockchain, remember the blockchain is incorruptible? There’s a higher level of trust that smart contracts rely upon. Smart contracts are based on simple “if-then” and “if-then-else” statements. Let’s put it to more use here. Assuming you are generating excess energy from your microgrid, you can monetise this using a smart contract. As soon as you supply the agreed value of energy in Kilowatts, the set value in exchange will be released to you. Have in mind that before supplying the energy, the value to be released would have been held in escrow by the smart contract.
Uniqueness of Smart Contract
There are reasons why we think smart contracts are awesome;
Unlike the inaccuracy that comes with manually filling a multiple numbers of forms manually, smart contracts are accurate and precise.
- Safe and Secure
Blockchain and other distributed ledger technologies rely on cryptography to keep all of your agreement and document out of reach.
- Fast and Swift
Smart contract relies on automated codes in the processing of agreement. You will be spared hours of manual processing of contracts.
- Cost Effective
You will not need the services of an intermediary like a lawyer to execute legal contracts. However, with a smart contract, you can save more.
You and the other party are involved in the contract, a third party will not be needed. This further strikes out any form of manipulation by third parties.