As per Wikipedia, a smart contract is a computer protocol intended to digitally facilitate, verify, or enforce the negotiation or performance of a contract. Smart contracts allow the performance of credible transactions without third parties. These transactions are trackable and irreversible.
Contract accounts are able to pass messages between themselves as well as doing practically Turing complete computation. Contracts live on the blockchain in a Ledgerium-specific binary format called Ethereum Virtual Machine (EVM) bytecode.
Contracts are typically written in some high-level language such as Solidity and then compiled into bytecode to be uploaded on the blockchain.
IDE-or-development-framework lists the integrated development environments, developer tools that help you develop in these languages, offering testing, and deployment support among other features.
Smart contracts can play an important role during financial transactions, wherein multiple stakeholders are involved and every party has to function seamlessly. Smart contracts on blockchain streamline the complex process by adding an extra layer of security. This builds trust among multiple participants involved in the transaction. With user identity stored on a blockchain, lenders can quickly make a decision about credit to the user.
A smart contract can be created between user's bank, the dealer and the lender so that once the funds have been released to the dealer, the lender will hold the car’s title and repayment will be initiated based on the agreed terms. The transfer of ownership would be automatic as the transaction gets recorded to a blockchain, is shared among the participants and can be checked at any time.
Let’s see how smart contract works in a supply chain scenario. Buyer B wants to buy something from Seller A, so she puts money in an escrow account. Seller A will use Shipper C to deliver the product to Buyer B. When Buyer B receives the item, the money in escrow will be released to Seller A and Shipper C. If Buyer B doesn’t receive the shipment by Date Z, the money in escrow will be returned. When this transaction is executed, Manufacturer G is notified to create another list of the items that were sold to increase supply. All this is done automatically through logic written inside the smart contract.
Smart contracts work by following simple “if/when…then…” statements that are written into code on a blockchain. A network of computers executes the actions (releasing funds to the appropriate parties; registering a vehicle; sending notifications; issuing a ticket) when predetermined conditions have been met and verified. The blockchain is then updated when the transaction is completed.
The benefits of smart contracts go hand-in-hand with blockchain.
Speed and accuracy The automated smart contracts remove manual errors, maintain exact computer code and thereby greatly reduce the time spent in processing paperwork.
Trust All contracts run as per pre-agreed terms and rules and encrypted transaction records are shared amongst participants. Thus, the transparent functioning of smart contracts inculcates a feeling of trust among the blockchain network.
Security As all transaction records are encrypted, making it very difficult to hack and change any individual record. Each individual block/record is connected in a chain of previous and subsequent records on a distributed ledger. The whole chain would need to be altered for modifying a single record.
Savings Smart contracts remove the need for intermediaries because participants can trust the visible data and the technology to properly execute the transaction. There is no need for a central authority/third-party to validate and verify the terms of an agreement because it is built into the code.