Chapter 24: Everything You Should Know About Smart Contracts

It’s time to get more in-depth about the revolutionary technology behind Smart Contracts and what benefits they bring to the world.

If you’ve been involved in the crypto market for a while, you’ve heard at least once about Smart Contracts – contracts that can auto-execute themselves. Smart Contracts are automatically executed, and the terms that parties agreed on, whether they’re a buyer or a seller, are encrypted in code lines.

The code and agreements contained are kept in a decentralized blockchain network. As a result, the code controls the execution, and transactions are traceable and irreversible. Of course, this idea existed before Ethereum or similar protocols we know today, but Blockchain Technology has sped up the usage of those Smart Contracts. To be more precise, Smart Contracts were firstly proposed in ’90 by Nick Szabo, an American programmer who invented a virtual coin called Bit Gold în 1998, 10 years before Bitcoin. On the other hand, there are rumors on social media that Nick Szabo is the actual creator of Bitcoin – something that Szabo claims to be false.

How do Smart Contracts work?

Why would the market need Smart Contracts? First, the idea of encrypting a contract that auto-executes itself when specific conditions are satisfied is to simplify everything: more straightforward transactions that exist only between the two entities involved in the trade, removing the need for a third party, such as the bank, so each step is automatically executed on a trustworthy Blockchain Network, that’s entirely controlled by nodes/computers.

The contract depends on the given action it has to complete and on the transaction we want to make. So you may ask yourself: How can I trust these Smart Contracts? As an example, a Smart Contract can be programmed to release the payment once someone else confirms that the goods have been received. These contracts can also be used to ensure special rights to digital assets holders.

To simplify things even further, let’s suppose Mary wants to buy a house directly from Anne, and they make a Smart Contract that says: when Mary pays 50 Ethereum to Anne, then Mary receives the property right for the home. There are no other possibilities to pay without receiving the house, so it’s a sure deal. Furthermore, since there are only two counterparties, real estate agents, notaries, and banks are excluded, making everything faster, simpler and cheaper. Keeping in mind that in this example, there are only two parties – Mary and Anne – the Smart Contract will also include less information, just the essentials: subjects, contract terms, and digital signatures of each person.

Do Smart Contracts have more use cases?

Smart Contracts don’t have to limit themselves to financial transactions: they can be used in various cases and instances. For example, these contracts are already used for commerce and financial services, insurance, credit authorizations, or legal processes.

A more sensible domain is medicine, and through Blockchain Technology and Smart Contracts, patients will have more control over their medical information. Entire databases with medical records can be encrypted and safely stored. This technology also facilitates the usage of a private key, meaning that only specific individuals can access the files, so the patient’s right to privacy is fully respected.

Insurances represent another problematic area where a lot of time and money is lost each year: Smart Contracts allow automatic reviews of errors and determine the sums of money paid based on predetermined criteria. But, again, the reduced time, the reduced amount of mistakes and cheaper costs are among the main benefits of this technology.

The Pros and Cons of Smart Contracts?

In this article, we have mentioned some elements that bring considerable benefits when using Smart Contracts: simplicity, reduced time, saving a lot of money because there are no third parties, they’re trustworthy for each counterparty, they’re transparent and secure.

But what are the limitations that Smart Contracts could have? Well, it’s challenging to change them. Modifying Smart Contracts is almost impossible: any code error may consume a lot of time and could be expensive to change. Additionally, there could be gaps in the information provided – given the simplicity of a Smart Contract, if each implied party wants to make sure that there are terms guaranteeing something or punishment if not delivered, these would not be possible.

In conclusion, as you can see, Smart Contracts can make the world a better place, with faster transactions, without commissions. They can save us a lot of time and money. Even with all of this, as technology evolves, we eliminate the need for some jobs. But, of course, nobody knows what is reserved for the future. We can only guess and predict, but we must be prepared for any possible outcome.

If you’re ready for a decentralized future and want to be part of the change, join IXFI. Together with Your Friendly Crypto Exchange, trading is easier and safer than ever. For more Crypto Fundamentals chapters, this is the place to go.

Disclaimer: The content of this article is not investment advice and does not constitute an offer or solicitation to offer or recommendation of any investment product. It is for general purposes only and does not take into account your individual needs, investment objectives and specific financial and fiscal circumstances.

Although the material contained in this article was prepared based on information from public and private sources that IXFI believes to be reliable, no representation, warranty or undertaking, stated or implied, is given as to the accuracy of the information contained herein, and IXFI expressly disclaims any liability for the accuracy and completeness of the information contained in this article.

Investment involves risk; any ideas or strategies discussed herein should therefore not be undertaken by any individual without prior consultation with a financial professional for the purpose of assessing whether the ideas or strategies that are discussed are suitable to you based on your own personal financial and fiscal objectives, needs and risk tolerance. IXFI expressly disclaims any liability or loss incurred by any person who acts on the information, ideas or strategies discussed herein.


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