What are smart contracts?

Smart contracts are a great technology that does not require a third party to complete a transaction.

The principle of smart contracts was described by the programmer Nick Szabo back in 1996: “A smart contract is a list of obligations described in digital form, and protocols for the fulfillment of these obligations by the parties.”

The advent of blockchain technology in 2008 made it possible to implement smart contracts on the Bitcoin network. They were distinguished by a complex technical structure, cumbersomeness and limited possibilities for practical use.

Simple and flexible smart contracts appeared after the creation of the Ethereum network.

Smart contracts allow two or more parties to sign a digital contract with automatic payment of funds after predetermined criteria are met, without any intermediaries.

A simple example: monthly salary payments to an employee. The trigger for payments can be the first day of the month. In the case of such a smart contract, the employee would automatically receive the agreed amount in cryptocurrency every month.

In the field of smart contracts, three key objects can be clearly distinguished:

🔹 contract participants — there can be any number of them, starting from two;

🔹 the subject of the contract is a digital asset to which the contract has independent access without anyone’s participation;

🔹 the terms of the contract — a clear and consistent mathematical algorithm required for the execution of a smart contract.

Advantages of smart contracts over traditional ones:

🔹 speed;

🔹 independence;

🔹 accuracy;

🔹 low price;

🔹 no errors;

🔹 automation.

Smart contracts are an evolving technology that can be widely used in the following areas:

🔹 finance;

🔹 insurance;

🔹 e-commerce;

🔹 audit and taxation;

🔹 elections.

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