The last decade has seen the world become more and more connected. The concept of a global village is enhanced by technological innovations which make communication and transportation more efficient between people irrespective of location or time zone. More and more people are conducting businesses over the internet without necessarily knowing the person on the other end. Even as the concept of distance is becoming more and more shrunken, there still exist various problems arise due to trust. Setting up legal contracts to invest in foreign businesses or engage in purchases over the internet becomes unfeasible for a great deal of people as the cost of setting up such contract is simply too high.
A smart contract is a self-executing contract with the terms of the agreement between buyer and seller being directly written into lines of code. Smart contracts solve the issue of trust between two parties as they formalize the relationships between people and institutions and the assets they own over the Internet, on an entirely Peer to Peer basis, without the need for trusted intermediaries. They were first proposed in 1994 by Nick Szabo, an American computer scientist.
Smart contracts are self-enforcing agreements written in computer code and managed by a blockchain. The code contains a set of rules under which the parties of that smart contract agree to interact with each other. If and when the predefined rules are met, the agreement is automatically enforced. The Blockchain is ideal for storing smart contracts because it is secure and immutable. The data for a smart contract is encrypted on a shared ledger, making it impossible to lose the information stored in the blocks. Also, developers are able to store almost any type of data within a blockchain, and they have a wide variety of transaction options to choose from during smart contract deployment.
Advantages of smart contracts include:
Cost-efficiency - Smart contracts eliminate many operational expenses and save resources, including the personnel needed to monitor their progress.
Challenges of smart contracts includes:
Smart contracts use cases are numerous. They can be used for simple transactions between two parties. They can also be used for registering ownership and property rights, like land registries and intellectual property. Smart contracts can be used for much more complex agreements between a multitude of actors, along the supply chain of goods or services,
Smart contracts have the potential to disrupt many industries. As the world becomes more and more interconnected, they peofer a solution that is cost effective and available to people all over the world.
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