What are Smart Contracts?

First described by Nick Szabo in 1994 (see here) and 1996 (see here) A smart contract is a computer program or a transaction protocol that is intended to automatically execute, control or document events and actions according to the terms of a contract or an agreement.

In general, a contract is basically an agreement that specifies certain legally enforceable rights and obligations pertaining to two or more parties. For contracts to be effective the contract parties must have at least some trust in each other. Contract parties must also be ready to fulfill their obligations. The parties in smart contracts don't have to trust each other as smart contracts are not only defined by the code, but also enforced by the code which cannot be interfered with.

Therefore, when series of commitments are digitally coded by a set of execution conditions and execution logic they become a smart contract. Smart contracts are programmed to automatically perform certain actions like transferring funds, granting access, or updating records, when specific conditions are met.

Smart contracts self-execute the relevant contractual clauses without any assistance of third parties. In addition, smart contracts also provide real-time auditing, since all actions are recorded and verified as transactions in a decentralized blockchain ledger.

Example cases of smart contract use include:

• Automated loan issuance and repayment.
• Escrow services for secure transactions.
• Automate payments upon delivery confirmation.
• Facilitate property sales by automating the transfer of ownership upon payment.
• Automate insurance payouts based on medical conditions or diagnoses.
• Store and share medical records securely.

Smart contracts have revolutionized the way agreements are made and executed by combining trust, transparency, and efficiency. While they have immense potential across industries, careful development, and security measures are essential to address their challenges. As blockchain technology evolves, the adoption of smart contracts is expected to grow, unlocking new possibilities for innovation.