What is a Smart Contract, What Does It Do?
After many words and terms introduced into our language with the digitization of life, we started to hear much more with the crypto world. The term “Smart Contract” also seems like an ordinary word for someone who speaks English, but has become a very valuable term when it comes to cryptocurrencies and blockchain technology.
In this content, we will try to give you all the details we can give about the term Smart Contract, together with the answers to questions such as what is a Smart Contract and what is it for.
What is a Smart Contract?
A Smart Contract is the name given to a computer program that is automatically created between two anonymous parties and cannot be exchanged.
Smart Contract, originally called Smart Contract, are programs that run on the blockchain and are created completely automatically. These contracts, which are formed in accordance with blockchain technology, offer 3 important advantages.
One of these advantages is that the parties signing the contract remain anonymous and therefore do not have to share both their identities and personal information.
Another advantage of smart contracts is that they cannot be interfered or changed in any way retrospectively. These programs, that is, smart contracts, recorded in accordance with blockchain technology, are processed in multiple databases and cannot be destroyed or changed.
Another advantage of Smart Contract, which is the purpose of its emergence, is that it excludes third parties in bilateral contracts. Because Smart Contracts, that is, Smart Contracts, are formed automatically between two parties, they do not need any third party such as intermediaries, brokers, witnesses, and what makes the smart contract perfect is that it can offer unseen reliability without any third party.
Smart Contract Invented By Who?
Smart Contract was introduced in 1994 by the famous cryptographer Nick Szabo.
Nick Szabo, the originator of Blockchain and Bitcoin, and even suspected of being the founder of Bitcoin, Satoshi Nakamoto; Believing that there should be a reliable, commission-free and data privacy-compliant contract technology by eliminating third parties, it came up with this idea.
Nick Szabo has a book on Smart Contract, the original name of which is Smart Contracts: Building Blocks for Digital Markets, and in Turkish, Smart Contracts: Building Blocks for Digital Markets.
What are the Advantages of Smart Contracts?
The Smart Contract actually provides many advantages and benefits that we can exemplify and diversify. We can itemize these advantages and benefits as follows:
- The smart contract is automatically activated when the conditions are met and the contract becomes valid,
- Since the smart contract, or Smart Contract, exists in the digital environment, there is no need to deal with paperwork,
- There is no need to include identity information or personal information in any way among the information and data that should be included in the smart contract,
- Since there is no third party in the smart contract, neither the sharing of the contract with a third party nor the payment of a fee such as commission or transaction fee to a third party is required,
- Since smart contract transactions are encrypted in accordance with blockchain technology and stored in multiple databases, they are impossible to lose,
- Again, it is almost impossible to hack the blockchain, and therefore contracts, since it is protected by blockchain technology and even quantum computers are insufficient to hack blockchains,
- Since it is provided in a distributed way thanks to blockchain technology, there is no possibility of changing, imitating or forging smart contracts.
What are the Disadvantages of Smart Contracts?
Although smart contracts have advantages, they also have disadvantages.
As we explained before, since smart contracts are immutable, if there is an error, missing or open smart contract, it is almost impossible to change or correct it.
Another disadvantage is that, as we mentioned, smart contracts work on the blockchain, and therefore, since it can be seen in more than one database and by anyone who wants, if an information that should not be included in the contract is forgotten, this information is visible to everyone and it is a problem to change or correct it in the same way.
The only way to be protected from these disadvantages is to have a good understanding of both the content and all the details of the smart contract that has been prepared or to be approved, and to take action by carefully examining it.
How to Make a Smart Contract?
Smart Contracts, that is, Smart Contracts, are formed when all the conditions in the contract are fully met.
In the basic smart contract working logic, the contract is created by one of the parties together with the clauses that should be included in it and shared with the other party. The other party reads the contract and activates the contract by providing the necessary conditions completely.
To explain in more detail and with an example, we can elaborate as follows; Let’s say a buyer wants to buy himself a house and has found the house he wants to buy. He read the smart contract created for the house, namely the Smart Contract, without having to meet, speak or share information about himself with the landlord, and learned that 1 Bitcoin (BTC) should be paid to an address determined as the condition of buying the house. In this case, as soon as the buyer pays 1 Bitcoin (BTC) to the address in the contract, Smart Contract is automatically activated and the house belongs to the person who made the payment.
As you can see in this example, neither buyer nor seller had to share their identities and personal information about them. In addition, both parties did not have to meet with a real estate agent and pay a commission to the real estate agent, nor did they have to go to the bank to deal with money transfer and pay money order/eft fees, nor did they have to go to the notary to formalize the sale and pay the notary fee.
In summary, thanks to Smart Contract, all transactions can be handled automatically and securely, without third parties, without sharing personal data with others, and without paying any commission to any intermediary institution.
Are Smart Contracts Safe?
To give a short and clear answer based on all the data, information and examples we share about smart contracts, smart contracts, also called Smart Contracts, are extremely secure.
In addition to its advantages such as automatic formation and activation when the contract conditions are met, ensuring the confidentiality of both parties, the fact that it is stored with blockchain technology makes Smart Contracts extremely secure. It is also advantageous because it has security and is decentralized. With this technology, our data is safe as we do not share our information with third parties.