Smart contracts are the new transaction protocols in the cryptocurrency market. The term was coined by the cryptologist, Nick Szabo in 1994. Smart contracts are computerized protocols which execute the terms and conditions of a contract. The main objective of building smart contracts is to satisfy the common conditions of any contract.
What are Smart Contracts?
All the “if-then-this-that” conditions in a contract are self-executed in a smart contract coded into it. The new rage in the market for such an old term is that the new smart contracts are based upon the Ethereum technology.
The new smart contracts along with the Ethereum blockchain technology removes all the intermediaries which reduce the time and cost considerably.
The main advantage of executing the smart contracts on the Ethereum blockchain is to make them decentralized and incontrovertible.
How do smart contracts work?
The process starts with writing the code of the smart contract in Solidity, a language of Ethereum. This code can be used for the exchange of goods or for an exchange of money when certain terms and conditions are met.
The next step is to upload the code on ETHEREUM VIRTUAL MACHINE (EVM) where the smart contract will be executed. Once the code is uploaded in EMV, it becomes same across each and every Ethereum node.
An Ethereum contract will involve at least 2 parties, powered by Ether, a digital asset. Then the smart contract will be executed and distributed according to the logic in the code.
Ethereum smart contracts can be trusted completely because each and every executed code or contract is stored on the Ethereum blockchain so the user can verify everything they need.
Advantages of using Smart Contracts
The smart contracts have the following advantages:
- Self- verifying
- Self- Executing
- Reduces cost
- Removes intermediates
- Reduces the risk of fraud
So in short, a smart contract is a software which has pre-coded terms and conditions for negotiating a contract and it self-verifies the contract and executes the terms and conditions and its central code is decentralized for the Ethereum blockchain.