Smart Contract FAQ
1. What is a Smart Contract?
A smart contract is a computable contract that has been made tamper-proff by being run on a decentralized computing network.
The term “smart contract” was coined in the early 1990s by Nick Szabo, a computer scientist who is widely assumed to be the creator of bitcoin. Essentially, a smart contract is software that executes commercial transactions and/or enforces legal agreements in a manner that eliminates the need for intermediaries and their associated transaction costs.
Way back in 1994, Szabo analogized a smart contract to a vending machine that, subject to all stated conditions (e.g., U.S. currency only, no bills over $20, etc.), accepts payment from any money-bearing party and dispenses the selected product and appropriate change without a cashier or other human intervention. Fast forward to 2016, and smart contracts are in actual use today in the context of digital currency exchanges that enable payments that are confidential, do not involve financial institutions and are self-executing once all the payment conditions are triggered.
Smart contracts can be stored on a blockchain (i.e., a decentralized, replicated and shared public ledger used to record and verify transactions), interact with external data feeds, and then self-execute payments, shipment of products or other actions/processes (including remedies in the case of breach) based on conditional logic (programmed as traditional “if-then” statements) and agreed verifiable proof of performance or other trigger events. Two key features of blockchains are that they eliminate the need for trusted third party participation and provide increased security by making attempts at falsification, forgery or unauthorized alteration readily apparent.
2. How will blockchains and smart contracts interact with your existing systems and payments?
There is an ever increasing need to do more for less and do it more quickly within payment, leasing, banking and many other industries. M&A and Globalisation are driving the need for ever more efficient operating models. Smart contracts provide secure peer 2 peer consortiums with mutually beneficial trust buit in. This provides reduced intermediation between contract members and fosters direct collaboration.
The potential uses of smart contracts extend far beyond the movement of digital cash. Indeed, smart contracts can be used to effectuate business activities involving purchases and exchanges of virtually any tangible or intangible goods, services and rights (e.g., sales of securities, commodities, personal property, real estate, digital rights, etc.). So smart contracts could be used to create peer-to-peer versions of banks, securities exchanges, services such as eBay, Uber and Airbnb, and virtually every other business model involving intermediaries that handle processing and payments for a fee.