Businesses are made on contracts. Hundreds and hundreds of them. Traditional contracts are printed on huge amounts of paper and need many layers of human approval before they are legally binding. They’re time-consuming, expensive and often open to opposition.
Smart contracts do away with these problems. They are contracts written in computer code and published to a public blockchain network. The result is a contract capable of automated facilitating, executing, and enforcing of the legal agreements made.
What makes them smart is they can be made in seconds, don’t have any layers of costs and bureaucracy, and agreements cannot be tampered with, thanks to the blockchain.
As identities are not broadcasted to the network, two parties from anywhere in the world can instantly create a trusted contract for any commercial or other activity. Some examples of these activities can be found here.
What makes the blockchain so secure?
A blockchain stores data in a decentralized way, with all network participants having an identical copy of the data storage and the exact order in which it was stored.
This means a smart contract hosted on the blockchain cannot be changed by any party, including the two agreement holders, without alerting the entire network.
The blockchain therefore doesn’t behave like traditional data servers, which form a single point of failure. A blockchain cannot be easily attacked and manipulated as it requires a colossal amount of computing power to overcome the network.
What is Ethereum?
Ethereum is the blockchain of choice for smart contracts – due to its ability to let anyone build applications that can be instantly and safely run anywhere in the world. Users can create programs of any complexity they wish using the Ethereum Virtual Machine and its power to function like a “world computer”.
Smart Contracts are one of the more popular uses for the Ethereum blockchain, but it has its use in any situation where trust, security and permanence are crucial. For example, voting, healthcare records, the Internet of Things or even entire companies run on the network – known as Decentralized Autonomous Organizations.