What is a smart contract?

Smart contracts on Blockchain are considered the core technology that makes up Dex, NFTs, or Marketplace. In today's article, VBI helps you to summarize important information you need to know about Smart contracts.

What is a smart contract?

Smart Contracts are programs that are launched on the Blockchain, encrypted from an immutable set of rules, and all the nodes running on the network have copied and enforced those rules.

Blockchain is known as distributed ledger technology, where data is stored on many different servers, then the rules established on Smart Contracts are the basis for confirming transactions, in a way. Easy to understand Smart Contracts are used to monitor and manage activities taking place on the blockchain.

Example: When both parties need to exchange cryptocurrencies, based on the binding protocols inherent in a Smart Contract the transaction is forwarded to the Blockchain order book.

Back in the day, Smart Contract was only known in the cryptocurrency industry and was mainly used to confirm legitimate transactions. But with the rapid development of Blockchain, Smart Contracts are still being applied to insurance and real estate trading.

Role of Smart Contracts in Blockchain?

Any activity that takes place on the Blockchain must go through the verification step of the smart contract. Once the codes are determined and valid, the program will run and the new transaction will occur.

The main purpose of a Smart Contract is to eliminate the reliance on intermediaries in the traditional model, simplifying the process of exchanging digital assets in the blockchain network.

Thanks to smart contracts, the processing time of transactions is shortened, and the risk in that exchange process is also somewhat reduced. It can be said that the biggest advantage of a Smart Contract is that it can perform complex transactions in a short period but still ensure the safety of both parties.

The main purpose of a Smart Contract is to eliminate the reliance on intermediaries in the traditional model | Source: Internet 

Structure of Smart Contract?

A smart Contract is composed of three main components: Signature, Subject, and Terms, according to which:

The signature represents the consensus of the parties who want to make the transaction

Contract subject: In the context of the Smart Contract environment

Terms: Principles are established to govern the activities that take place on Blockchain in the future. For example, Ethereum's Smart Contract is created using Solidity and Serpent programming languages, other agreements must be in mathematical terms that may correspond to the main programming language.

A smart Contract is composed of three main components | Source: Internet 

How does Smart Contract work?

Blockchain can reduce the intervention of intermediaries and cumbersome administrative paperwork thanks to Smart Contracts. This system works on the principle if….then, meaning that any action can only take place when they satisfy pre-coded rules.

For example, on Ethereum, Smart Contract is responsible for verifying daily activities on the Blockchain. The Smart Contract will be controlled by both the computer and the EOA – An externally Owned Account!

Besides transferring money, Smart Contracts are also used for several other cases such as:

• Digital identity: Strictly control the problem of fake trading accounts, verify personal identity
• Financial security: Debt management and automatic payments
• Control transaction activities: Automate transactions, facilitate cross-border transaction payments
• Manage transactions taking place on Blockchain

Outstanding features of Smart Contract

Talking about the advantages of Smart Contracts certainly cannot ignore the following outstanding features:

• Autonomy: Eliminates the intervention of intermediaries in financial transactions, in the traditional asset exchange model these parties can be brokers, lawyers, notaries
• Static security: Create absolute security for transactions. Any information entered into the blockchain cannot be deleted or modified.
• Transaction processing speed: Since individual involvement is eliminated, the overall performance of the process can be boosted.
• High Reliability: Since it works on the Blockchain environment, it seems to be able to guarantee

Although they cannot completely replace traditional paper contracts, Smart Contract will certainly continue to develop in the coming time and gain their market share. Low management costs, increased transaction speed, and reduced intervention of intermediaries have made Smart Contracts more attractive to the public.