Smart contracts mainly refer to the computer protocols that facilitate the control, verification, and execution of the agreement. The smart contracts mainly run on a blockchain platform that can process various transactions in the contract; thus, middle men aren’t needed to execute the transactions and deploy a smart contract.
How does Smart Contract Work?
The smart contracts mainly work on the input parameters as well as execution steps, which are objective and specific. Suppose “x” occurs, execute step “y.” So, one can execute different actions, which includes distributing funds to the parties, registering vehicle, and issuing the ticket.
But, before any contract is executed or added to the specific blockchains, transaction fee for a contract is needed. For instance, on an Ethereum blockchain, the smart contracts will be executed on Ethereum Virtual Machine, so payment for transaction is called “gas.” As a complexity of an agreement being executed increases, gas needed to execute any contract rises too.
When transaction fee is properly paid, transaction will be linked to a blockchain. It means transaction is completely finalized and can’t get changed, and just parties granted permission will see its results.
Advantages of the Smart Contracts
Speed, accuracy and efficiency
When the condition is perfectly met, contract will be executed immediately. As smart contracts are automated and digital, there is not any paperwork to process or time spent reconciling the errors that result from filling in the documents manually.
Autonomy & savings
The smart contracts don’t require brokers and other intermediaries for confirming its agreement; therefore, they will eliminate risk of any manipulation by the third parties. Furthermore, absence of the intermediary in the smart contracts will result in the cost savings.
Trust & transparency
As there is not any third party involved, because the encrypted records of their transactions are proper shared over the participants, there is not any need to question if information is altered for the personal gain.