4 Things You Should Know About Smart Contracts

As the public starts to become more and more aware of concepts like Blockchain, cryptocurrency and smart (insert word here), you may have become increasingly aware of the term smart contract. Last Sunday I coded my first smart contract, and this was pushed to my company’s server and is now active. Sound impressive? Well, it’s not as advanced as you may think. Smart contracts were first introduced in 1996 [link]. They’re making a comeback in the publics’ awareness because of big data, and decentralized databases that give them a new lease of life. However, with little tech but smart implementation, a smart contract can be a simple, cheap solution saving time and money. Here are {} things you should know about smart contracts:

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What is a smart contract?

A smart contract is simply a piece of code that will check the parameters of an object. If they change, then the smart contract will initiate certain clauses firing other functions. For an example, let’s look at the smart contract that I coded. When a loan application is made, a set of transactions are made. If the loan is then opened on the admin side of the web platform, and certain parameters are changed, then the smart contract will check to see which ones were changed. It will then create transactions based on which parameters were changed. This reduces the risk of errors and the amount of manpower needed. The complexity of smart contracts is scalable. For instance, if the trust between two parties is strong, a smart contract could alter parameters in another company’s database if certain clauses are crossed or breached.

Why all the buzz?

I know what you’re thinking. This seems pretty basic, and any company that has in-house developers will have coded some form of smart contract, it’s not a new concept. What are people talking about it? It’s because the utility of smart contracts has increased. In 1996, how widespread was the internet? How good was standard computation? How clean and well-structured was the data flow? Not as good, or cheap as today. With high-level programming languages and the increasing ease of obtaining good quality hardware, smart contracts are moving into the realm of individuals and small businesses.

They’re not legally binding

Despite the name, they are not legally binding. Instead, smart contracts can be used to enforce clauses in legal contracts. This does make sense. There can be bugs in the code or certain parameters that were not considered resulting in strange results. You could potentially find yourself in some legal grey areas if these were legally binding. I am no lawyer, and I will not pretend to be. I’d be deceiving you if I gave any more detailed information on the legal aspects. The take-home message is that at the time of writing this, smart contracts need traditional legal proceedings before being created.

They get more powerful with trust

As mentioned in the second section, the complexity of a smart contract can increase if the trust is there. Trust is a big part of transactions and tech and has been throughout history. In the industrial revolution, British law was so well defined, England attracted a lot of foreign investors. If you’re skeptical, then test this. Pour some of your savings into a company in Nigeria. Your investment will theoretically go further as land a labor is cheaper. Many of you won’t because you know that corruption is rife, and the legal system has a lot to be desired. Although it makes financial sense your trust is lacking. Before tech, the best way to establish trust is through big institutions who have reputations. Individuals couldn’t compete because the average human has a finite memory and time to research. Before the internet, an individual could listen to a few friends if it’s local and read about a few big companies if he needed to trust someone with his banking transactions. The internet has completely changed this. Online rating systems and availability of data through online searches have empowered small businesses/individuals to establish a profile. Functions give customers a chance voice their concerns publically. Now with decentralized databases enabled by blockchain, trusting individuals has hit a whole new level. Trusted peer to peer transactions are now a reality as a decentralized database means that neither party has 100% control of the data.

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