It is a contract that executes by itself. The terms and conditions of this contract are written in the form of a code. The entire decentralized blockchain network shares these lines of code. The smart contracts are shared with the network. The execution is controlled by the lines of code. The transactions cannot be reversed but they can be tracked. They are an important part of blockchain technology.
Smart contracts allow the transactions between parties who do not know each other. These transactions are carried out without the central authority and a legal system. Blockchain technology and smart contracts are closely related to each other. They can be referred to the code that is used for transactions in a blockchain network.
Transactions are made transparent and efficient with smart contract development. It makes the transactions efficient and effective for both parties. Optimus Fox enables its customers to use smart contracts by providing low cost services in this domain. We help our customers to cope with the COVID-19 outbreak situation and provide more services at less price.
How Smart Contracts Operate?
Nick Szabo, an American computer scientist who invented a virtual currency namely Bit Gold gave the definition of smart contracts. According to him, they are the transaction protocols that are computerized and execute the terms of a contract. The functioning of electronic transactions came to a digital domain.
A network of computers executes the code when the defined conditions are verified. Afterwards the blockchain is updated after the completion of the transaction. There are many provisions that are required to satisfy the participants in order to ensure that the task was successfully completed. The participants of the network know how their data is represented. They must agree on the terms and conditions. They should propose a method of resolving their disputes. The process is repetitive in nature and it includes every type of stakeholder. The blockchain network should work according to this process.
Any smart contract works as an independent process. However, it can also be implemented with any other too. It is possible when the contracts are dependent on each other.
Pros of Smart Contracts
The advantages of the smart contracts are as follows:
Speed and Accuracy
Manual documentation takes a lot of time. It starts with the initial discussion and goes further till its completion. There are a series of steps involved in manual contracts. The smart contract services are digital, they are automated and take less time. There is no time spent on paperwork for generating the contractual documents. The code written by the computer is more accurate than the manually developed documents.
The transactions are automatically executed following the pre-defined rules and regulations. Therefore, there is no doubt about the changes in the information for personal gain. The transparency of the blockchain and smart contracts develops a natural trust within the parties. Neither party questions the authenticity of the digital contracts.
The smart contracts blockchain transactions are encrypted. They are very hard to hack. The complete chain needs to be changed if one single transaction is disturbed. The encryption makes the hacking nearly impossible. The data in the blockchain technology is in the form of distributed ledger. One single alteration disrupts the entire ledger. For changing a single record, the whole chain is required to be altered.
Smart contracts do not need intermediate parties because the participants have faith in the data and technology that is used to perform a successful transaction. Verification is not dependent on a person because the terms and conditions of the agreement are written in the code.
There is no need for an external person to write a contract. There is no reliance on a lawyer, broker or any intermediate person. The involvement of other parties is naturally excluded in smart contract development. It allows freedom from the expected involvement of other persons within the contract.
Cons of Smart Contracts
Besides all the advantages, there are some disadvantages too. The cons are not meant to make people go away from using this technology. But, they are mostly related to the newness of this technology. The smart contract services are relatively a new idea. There is no definition about how the governments are going to regulate these types of contracts. How they can streamline all these types of contracts. In most countries, the traditional ways of making contracts is prevailing. How can it take the place of other ways used in the world?
The other key issue is about the taxation mechanism. How the tax will be implemented on the digital contracts where there is no tangible form of any agreement between the parties. Moreover, the conventional contract, if breached, can be discussed in the court and certain laws are applicable to it. The smart contracts are based on the code only. The law is defined in the code. How the breaches of such contracts will be addressed?
All these problems can be solved with the passage of time. As the blockchain technology grow, these issues will automatically be taken care of. All the aspects of smart contracts – legal, economic and technical, show that these contracts will replace the traditional forms of contracts and agreements between parties.
These contracts being self-created and self-verified provide ease for making a contractual agreement between parties. These contracts will soon take the place of all types of legal agreements between parties due to their significant advantages. The cost effective ways are preferred by everyone. These digitally operated contracts are made at a lesser cost as compared to traditional contracts. There is an involvement of multiple people in forming a legal agreement and a lot of paperwork involved too. It makes the use of smart contracts an efficient way to prepare an agreement which is digitally secured and free from cyber-attack.
Some industries will face the impact of smart contracts. The law is an example in this scenario. When the legal documentation will be done digitally, the lawyers will have to use the digital contracts templates. Other industries based on commerce, auditing, accounts and risk assessments may also see the changes. To get a quote for smart contract services, click here.