What Are Smart Contracts? - Mikinote - Tech & finance information

Computer protocols known as "smart contracts" are designed to digitally facilitate, verify, or enforce contract negotiation and performance. Without the use of intermediaries, smart contracts enable reliable transaction performance.

These transactions can be tracked and are final. The most accurate analogy for a smart contract is a vending machine. If you regularly visit a lawyer or notary, pay the fee and wait to receive the necessary documents.

As a result, with smart contracts, you can send your documents directly to your account by simply inserting bitcoins into a vending machine (in this case, a ledger).

What's more, smart contracts not only explain the rules and penalties as in traditional contracts but also automatically ensure that the things in the contract are enforced.

Smart Contract Inventor

Legal scholar and cryptographer Nick Szabo recognized in 1994 that smart contracts, also known as self-executing contracts, blockchain contracts, or digital contracts, could be used with decentralized ledgers.

This format allows for the conversion of contracts into computer code, storage, and subsequent replication in the system, as well as monitoring by the blockchain's computer network. Additionally, it will produce ledger feedback such as money transfers and product or service receipts.

How Smart Contracts Work 

A smart contract can also be called a kind of program that codes business logic and operates on a special virtual machine embedded in a blockchain or other distributed ledger. Simply quoted from Simplilearn, how smart contracts work is as follows.

Step 1: The business team collaborates with developers to define their criteria for desired smart contract behavior in response to specific events or circumstances.

Step 2: Simple occurrences include things like payment authorization, delivery receipts, and utility meter reading thresholds.

Step 3: More complex operations may be coded using more advanced logic, such as calculating the value of a derivative financial instrument or automatically disbursing insurance payments.

Step 4: The developer now builds and tests the logic using the smart contract writing platform. The application is sent to a different team for security testing after it has been written.

Step 5: You can use internal experts or businesses that specialize in smart contract security checks.

Step 6: After the contracts have been approved, they are then deployed on the current blockchain or other distributed ledger infrastructure.

Step 7: After being deployed, the "oracle" effectively becomes a streaming data source that is cryptographically secure, and the smart contract is set up to listen for event updates from it.

Step 8: The smart contract is executed after receiving the necessary concatenation of events from one or more oracles.

Smart Contract Type

There are currently two types of smart contracts, namely deterministic and non-deterministic. Both are determined by the availability of the conditions necessary to trigger the action in the smart contract. The explanation is as follows:

1. A deterministic smart contract gets all the information from the blockchain it operates on. This information can be a specific transaction, block-high, the execution of another contract, or as long as the information can be found on the blockchain. The most common examples of their use are crypto tokens, lotteries, and stock holdings.
2. Non-Deterministic smart contracts desperately need information that is external to the blockchain. This means that there is human intervention and luck factors that are impossible for computers to do. Information may come from the results of sports matches, weather reports, and election results. 

The Advantages of Smart Contracts

Autonomy

There is no need to rely on brokers, attorneys, or other intermediaries to confirm the agreement because you are the one making it. Additionally, because execution is automatically managed by the network rather than by one or more potentially biased, potentially mistaken individuals, the risk of manipulation by outside parties is also avoided.

Trust

Your documents are encrypted on the shared ledger. There was no way one could say they lost it.

Backup

Imagine if your bank lost your savings account. On the blockchain, each and every one of your friends can back you up because your documents are duplicated many times.

Security

Cryptography, or website encryption, keeps your documents safe.
No hacking. In fact, it takes a smart hacker to crack the code and infiltrate.

Speed

You usually have to spend time and paperwork processing documents manually. Smart contracts use software code to automate each process, thereby reducing the man-hours of various business processes.

Savings

Smart contracts save money because they reduce the presence of intermediaries. For example, if you have to pay a notary to witness your transaction.

Accuracy

Automated contracts are not only faster and cheaper but also avoid the mistakes that come from filling out forms manually.

Use of Smart Contracts

• Use cases for smart contracts range from simple to complex.
• Smart contracts can be used for simple economic transactions, such as moving money from point A to point B, as well as for intelligent access management in the sharing economy.
• Smart contracts can also be used for banking, insurance, energy, e-government, telecommunications, music, business, arts, mobility, education, and many other industries have use cases.

Conclusion

"Smart contracts" are designed to digitally facilitate, verify, or enforce contract negotiation and performance. Without the use of intermediaries, smart contracts enable reliable transaction performance. Smart contracts can also be called a kind of program that codes business logic and operates on a special machine embedded in a distributed ledger.

How Smart Contracts Work - Simplilearn explains how smart contracts work. There are two types of smart contracts, namely deterministic and non-deterministic. Both are determined by the availability of the conditions necessary to trigger the action in the smart contract.

They are deployed on the current blockchain or other distributed ledger infrastructure. A deterministic smart contract gets all the information from the blockchain it operates on.

The most common examples of their use are crypto tokens, lotteries, and stock holdings. Smart contracts can be used for banking, insurance, energy, telecommunications, music, business, the arts, mobility, education, and many other industries.